Investing

Contribute to RRSP given that my company doesn't contribute it for me

  • Last Updated:
  • Sep 5th, 2020 6:49 am
Tags:
[OP]
Newbie
Sep 11, 2019
5 posts

Contribute to RRSP given that my company doesn't contribute it for me

I am currently working full-time as permanent employee in a company. But my company does not contribute RRSP for its employees. In other words, in the payroll, only CPP, EI and federal+provincial tax are deducted.
If I contribute to RRSP using my after-tax income, will I get the tax, which has been already paid in the before-tax income, back in the tax return the next year?
Is it worth to contribute RRSP using after-tax income if I have a plan buying a house in the upcoming 1-2 years?
2 replies
Deal Addict
User avatar
May 11, 2014
4098 posts
4431 upvotes
Iqaluit, NU
MaggieM41661 wrote: I am currently working full-time as permanent employee in a company. But my company does not contribute RRSP for its employees. In other words, in the payroll, only CPP, EI and federal+provincial tax are deducted.
If I contribute to RRSP using my after-tax income, will I get the tax, which has been already paid in the before-tax income, back in the tax return the next year?
Is it worth to contribute RRSP using after-tax income if I have a plan buying a house in the upcoming 1-2 years?
Hi OP. You are conflating the issues and focusing on the wrong thing.

Many companies don't have benefits. Whether they do or not shouldn't change what you do unless you run out of room or lack income. Before you proceed, is it that your company has a plan that you just haven't signed up for, or is it in fact the company doesn't have any retirement benefits. If you are basing it on whether they deduct money on your paystub, I would check with HR first. May be you haven't qualified for the plan because you have to work a certain number of months or years. The problem here being you haven't disclosed any information for us to make any assumptions.

For your second question, yes. When you contribute to an RRSP, it reduces your taxable income by that much, so any overage is what you should be getting. So best way to see how this works is to look at an example....

First, let's look at Ontario's Tax Brackets
https://www.taxtips.ca/taxrates/on.htm
Ontario Tax Bracet.JPG
Say you made $60000 in income. When you make a $10000 RRSP contribution, you could theoretically see an increase of $2965 extra on your income tax return the following year. Then when you use Homebuyer's plan, with the tax savings and the money, you have $12965 to use toward your down payment.

The thing you have to keep in mind. That is helpful, except depending on your income level, you might not benefit that much from using this program. If you are low income, the return you get it much smaller. Additionally, if you are raiding your retirement savings toward a home purchase, you lose the potential gains that could have been realized in your retirement account. Later on, the money is returned by you back into your RRSP account. And you have to remember, later on, when you retire and withdraw from your RRSP, but now RRIF, you are taxed the withdraw as income. If you have a high balance, or withdraw too much at once, you pay income taxes, so do not think of this extra money to use from income tax return as extra free money. You are merely deferring the income taxes to the future.

Whether you should open the RRSP account for a home purchase will depend on your current annual income, your current downpayment you have saved up and your budget. It can help your cash flow and increase your effective down payment. That being said, it may complicate your future savings if you don't benefit with RRSPs with your income level, and you may cause yourself a high income tax bill in the future if contributing to your RRSP is not ideal.

If you could state your estimated current income, future income potential, age and current savings, we could look further for you.

If you decide to go with this, I would recommend you use a HISA RRSP with no transfer out fees. Oaken and Achieva Savings are good options for these as they have zero fees to transfer out, and the highest interest. For downpayments 1-2 years from now, you need to guarantee the cash and investments in equity is not advised. When you pay back the home buyer's plan, redeposit the funds in a equity RRSP (not Oaken and Achieva).
Support your local Credit Union!

Sask Pension Plan Upto $6300/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222
Deal Addict
Mar 8, 2013
2636 posts
1347 upvotes
The previous post has listed many of the issues, but I would add the following.

There are limits on how much you can contribute and the limits are basedd on your previous years' income. Ie your earned income in 2020 will increase your RSP limit, but not until 2021.

Finally, I would respectfully correct the use of the word 'return' by replacing it with 'refund'. 'return' is the official submission of income tax data, paper or electronic. Therefore, 'increase of $2936 in your refund' and 'the refund you get ... much smaller'

Top