• Last Updated:
  • Jan 21st, 2014 8:49 am
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[OP]
Member
Aug 3, 2011
490 posts
40 upvotes
Edmonton

RRSP Question.

Hi.

I am not sure if I understand RRSP correctly.

For example,

Let's say I made $50,000 last year so my tax bracket will be 32%($16000, in Alberta). And I decide to put $8000 to RRSP to lower my tax bracket to the lowest. Then my income will be $42000 and I am supposed to pay 25%($10500). So that means I am getting $5500 tax return by putting $8000 RRSP?

Please let me know if I misunderstand something.

Thank you.
12 replies
Deal Expert
Mar 25, 2005
21262 posts
2086 upvotes
hogujak wrote:
Jan 20th, 2014 11:18 pm
Hi.

I am not sure if I understand RRSP correctly.

For example,

Let's say I made $50,000 last year so my tax bracket will be 32%($16000, in Alberta). And I decide to put $8000 to RRSP to lower my tax bracket to the lowest. Then my income will be $42000 and I am supposed to pay 25%($10500). So that means I am getting $5500 tax return by putting $8000 RRSP?

Please let me know if I misunderstand something.

Thank you.
Taxes are tiered. 32% is the marginal rate only.
Sr. Member
Sep 25, 2006
598 posts
58 upvotes
Ottawa
If you're in the 32% bracket and you put $8000 in rrsp, you get 32% back from your refund which is 2560.
[OP]
Member
Aug 3, 2011
490 posts
40 upvotes
Edmonton
Kasakato wrote:
Jan 20th, 2014 11:19 pm
Taxes are tiered. 32% is the marginal rate only.
So that means.. I pay 25% tax up to $43953 and pay 32% for $6547($50000-$43953)?
[OP]
Member
Aug 3, 2011
490 posts
40 upvotes
Edmonton
Quanger wrote:
Jan 20th, 2014 11:24 pm
If you're in the 32% bracket and you put $8000 in rrsp, you get 32% back from your refund which is 2560.

Oh Ok that make sense. Thank you !!
Deal Expert
Mar 25, 2005
21262 posts
2086 upvotes
hogujak wrote:
Jan 20th, 2014 11:25 pm
So that means.. I pay 25% tax up to $43953 and pay 32% for $6547($50000-$43953)?
Assuming 25 and 32% are correct, yup thats right. As mentioned above your refund works the same way.
[OP]
Member
Aug 3, 2011
490 posts
40 upvotes
Edmonton
Kasakato wrote:
Jan 20th, 2014 11:28 pm
Assuming 25 and 32% are correct, yup thats right. As mentioned above your refund works the same way.
For my case, is it better to invest money on TFSA because my tax rate is relatively low(32%)?
Member
Jun 22, 2006
270 posts
20 upvotes
Vancouver
Low or high is compared to your tax rate when retiring. If you are expecting you will have higher income when you retire, then it probably better to contribute to TFSA.
Sr. Member
Sep 25, 2006
598 posts
58 upvotes
Ottawa
What are your goals? Looking to buy first home? Looking to avoid laying tax during tax season?
[OP]
Member
Aug 3, 2011
490 posts
40 upvotes
Edmonton
Quanger wrote:
Jan 21st, 2014 1:05 am
What are your goals? Looking to buy first home? Looking to avoid laying tax during tax season?
I already have a home. Just looking for the best way to save some money for retirement :)
Sr. Member
Sep 25, 2006
598 posts
58 upvotes
Ottawa
I would make 300$ monthly contributions to rrsp and another 200/month to the tfsa. I would go moderate aggressive for my rrsp since I won't be retiring for another 25yrs. I would take the tax refunds and put it in tfsa to maximize it. Current limit is 31k, so if you havnt already, fill er up.
Deal Fanatic
Jul 1, 2007
8068 posts
903 upvotes
hogujak wrote:
Jan 20th, 2014 11:38 pm
For my case, is it better to invest money on TFSA because my tax rate is relatively low(32%)?
For us Albertans that 32% is relatively high, when you consider the highest MTR is 39%. The rate of tax on income over $44K is a 7% jump higher than the income below, so an RRSP is worthwhile if you can wipe out any taxable income in the 2nd bracket or higher. TFSA is nice too though. Try to do both.
Money Smarts Blog wrote:
Nov 29th, 2010 11:18 am
I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Deal Expert
Mar 25, 2005
21262 posts
2086 upvotes
hogujak wrote:
Jan 20th, 2014 11:38 pm
For my case, is it better to invest money on TFSA because my tax rate is relatively low(32%)?
Its all relative to when you're in retirement and on fixed income. Estimate your income now till retirement and see how the tax credits are best used.

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