Personal Finance

What to do with tax refund from RRSP contributions?

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  • Feb 11th, 2014 10:53 pm
Deal Addict
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Sep 10, 2004
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Ontario

What to do with tax refund from RRSP contributions?

What do you folks do with the refund you get from your RRSP contributions?

Let's say you deposit $10K into your RRSP and assume a 30% Marginal tax rate, giving you back $3000. These are just the deferred taxes, obviously - you will have to pay them back to the government when you retire. What would you do with the $3k? Just trying to figure out how I should be handling this. Options I've thought about:

- put it in a TFSA GIC or other guaranteed return vehicle (or could take a riskier approach with the money I will eventually have to pay the govt with a stock)
- redeposit it into my RRSP, triggering another refund of ~$1K (then what to do with that? re-re-deposit? when does this cycle end?!?!?!)
- stick it in a taxable savings account until I retire

I'd love to hear your thoughts on my options, and if you have something that I haven't considered, please throw it out there! What do you do with your refunds?
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Deal Expert
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Jul 30, 2007
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I say put it into rrsp again. You will have a head start for next tax year.

You can look at it this way, the $3K, you can buy some bank stock which also pays dividend, thereby, you will benefit from income stream & capital growth (sheltered from taxation for now).
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Feb 19, 2010
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Jabb wrote: What do you folks do with the refund you get from your RRSP contributions?

Let's say you deposit $10K into your RRSP and assume a 30% Marginal tax rate, giving you back $3000. These are just the deferred taxes, obviously - you will have to pay them back to the government when you retire. What would you do with the $3k? Just trying to figure out how I should be handling this. Options I've thought about:

- put it in a TFSA GIC or other guaranteed return vehicle
- redeposit it into my RRSP, triggering another refund of ~$1K (then what to do with that? re-re-deposit? when does this cycle end?!?!?!)
- stick it in a taxable savings account until I retire

I'd love to hear your thoughts on my options, and if you have something that I haven't considered, please throw it out there! What do you do with your refunds?
I don't get refunds. I apply for a reduction in tax at source by filing form T1213 and take home more on every pay cheque throughout the year. As a taxpayer, though, thank you for providing the government with an interest-free loan.
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Feb 15, 2008
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Just as a note to the OP, TFSA's and RRSPs are great for assets that grow faster than just GICs and cash savings accounts. You obviously haven't said what you put in your existing RRSP/TFSA's, but don't feel that you must absolutely stick to 'guaranteed' stuff. Of course, an older person probably wants more 'guaranteed' stuff than a younger person, but even people in pre-retirement or even in retirement, still should have a healthy dose of business ownership.
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Sr. Member
Oct 14, 2012
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Woodstock
We generally used to put it back into the RRSP for the next year, or into the mortgage. There were no TFSAs then. Now I"d max a TFSA before I started a RRSP, so I guess I'd still be putting it back into the RRSP or into the mortgage.
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Sep 10, 2004
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Conquistador wrote: I don't get refunds. I apply for a reduction in tax at source by filing form T1213 and take home more on every pay cheque throughout the year. As a taxpayer, though, thank you for providing the government with an interest-free loan.
True, but you still are deferring $x by contributing to your RRSP. You will still owe $x to the govt when you retire on that money. What do you do with $x?
Mark77 wrote: Just as a note to the OP, TFSA's and RRSPs are great for assets that grow faster than just GICs and cash savings accounts. You obviously haven't said what you put in your existing RRSP/TFSA's, but don't feel that you must absolutely stick to 'guaranteed' stuff. Of course, an older person probably wants more 'guaranteed' stuff than a younger person, but even people in pre-retirement or even in retirement, still should have a healthy dose of business ownership.
I left stocks as n option out as I figure you would want to take a more conservative approach with money you will have to eventually pay to the govt. I would rather not risk losing money that I'll have to pay back. But I've edited to add stock as an option.
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Feb 19, 2010
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Jabb wrote: True, but you still are deferring $x by contributing to your RRSP. You will still owe $x to the govt when you retire on that money. What do you do with $x?
Maxed out RRSPs and TFSAs for both myself and my wife, invest in non-registered accounts (mostly in equities), and extensive international travel.
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Feb 15, 2008
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Jabb wrote: I left stocks as n option out as I figure you would want to take a more conservative approach with money you will have to eventually pay to the govt. I would rather not risk losing money that I'll have to pay back. But I've edited to add stock as an option.
Its a variable liability. Basically, if the performance of your investments suck, then you don't have to pay much, if anything to the government. If you hit a home run on your RRSP investments, obviously you pay a lot. Of course, the decision to invest in anything should be done in accordance with an individual's risk tolerance, but as your future tax liability scales with the future value of the investment, you certainly have incentive to maximize the return.
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Mar 13, 2012
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Planet Earth
Re-invest in non-registered account and then contribute to TFSA & RRSP when feasible.
If at first you don't succeed, destroy all evidence that you even tried.
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Nov 28, 2010
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Toronto
Conquistador wrote: I don't get refunds. I apply for a reduction in tax at source by filing form T1213 and take home more on every pay cheque throughout the year. As a taxpayer, though, thank you for providing the government with an interest-free loan.
What's your problem, man?
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Feb 19, 2010
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yp_1 wrote: What's your problem, man?
The Canadian government has a lot of debt and costs a lot of money to operate. Being able to hold and use Canadians' money on an interest-free basis helps fund government operations and precludes taking on a little more debt. While I don't finance the government any more or any sooner than I have to, I appreciate when other Canadians do.

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