Personal Finance

Worth contributing to RRSP?

  • Last Updated:
  • Feb 6th, 2015 5:41 pm
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[OP]
Sr. Member
Feb 7, 2004
585 posts
405 upvotes
St Thomas

Worth contributing to RRSP?

I have never made an RRSP contribution as a lot of my extra cash goes right to paying off debt. My 2014 deduction limit is a little over $30k and my income doubled from 2013 to 2014. I was considering putting a small amount (probably $1000) into an RRSP simply because my tax software shows that I will get an extra $434 back for contributing that $1000. Seemed pretty decent to me but is there something I'm not factoring here? Would it be better to contribute a larger amount next year? Can I carry forward indefinitely?
7 replies
Deal Addict
Mar 3, 2009
1272 posts
681 upvotes
Ottawa, ON
Labrie wrote: my tax software shows that I will get an extra $434 back for contributing that $1000.
What is your income? If the software is correct, that is showing your maginal tax rate is 43%, which is pretty high. You will defer the tax on that $1000 until your withdraw it.

Rule of thumb normally is, if you expect to make less when you retire, RRSP is a good idea.
[OP]
Sr. Member
Feb 7, 2004
585 posts
405 upvotes
St Thomas
My income for 2014 was $110k and change. I expect my income to remain roughly the same until next year when I start paying into my Omers pension. I'm assuming the tax rate is based off gross income, before any deductions?
Deal Addict
Mar 3, 2009
1272 posts
681 upvotes
Ottawa, ON
Labrie wrote: I'm assuming the tax rate is based off gross income, before any deductions?
Correct, the marginal tax rate is the top tax rate that your pay, before any deductions.
Deal Addict
Mar 8, 2013
2792 posts
1462 upvotes
Your software is telling you that your marginal rate is 43.4%, which in Ontario is for taxable income over $87907, I think. You will keep reducing your taxes by 43.4% with a higher RSP contributions until your taxable income is down to that amount ($87907 this year). You can test that with your software. What I'm saying is, if it is worth it to contribute $1000 and if you can afford more than $1000, you should consider contributing more so that there is more to grow tax free until withdrawal time in addition to the 43.4% tax savings. But you also need to decide on what to invest in - don't just leave it in savings in the first financial institution you think of.
Member
User avatar
Nov 26, 2014
359 posts
153 upvotes
Quebec
I suggest you take a look at this website:

http://canadiancouchpotato.com/

I'm 29 years old and I started to invest using one of the model portfolios described there 2 years ago in my RRSP and my child's RESP..
Best move I made concerning my money. You can read a lot of articles on that website it's very instructing and interesting.

Good luck
Deal Addict
Mar 8, 2013
2792 posts
1462 upvotes
dr_torch wrote: Correct, the marginal tax rate is the top tax rate that your pay, before any deductions.
I would argue that the marginal tax rate is after mandatory deductions (Pension plan, union dues) and a few others (child care, interest expenses, etc. that are to your benefit to deduct). Then you can determine what RRSP deductions are really worth.

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