With the RRSP deadline quickly approaching, did you know that you could potentially increase your RRSP contribution without having to dig deeper into your pockets?

By combining your existing RRSP contribution with an RRSP loan, you can increase the total RRSP deposit and use your refund to pay off the loan.

 

Optimization Calculation:

You can determine the optimal amount to borrow so that your tax refund is approximately the same as your loan amount by using the following formula:

RRSP image 2

*Original RRSP Deposit: Refers to the total amount that you plan on contributing to your RRSP for a specific tax year, not including an RRSP loan.

Case study:

Assume you have been contributing $500 every month to your RRSP, for a total of $6,000 over a 12 month period. If your marginal tax rate is 35%, the optimization calculation would be:

RRSP Image 3

 

Optimized RRSP contribution:

RRSP Deposit: $6,000

RRSP Loan: $3,230

RRSP Refund: $3,230 (pays off loan)

Approximate loan interest payable (based on one month of interest at 3.5%): $9.42

Total RRSP contribution: $9,230

 

Equitable Life has made arrangements with BMO and B2B Bank to provide you with RRSP loans at competitive rates. Speak to your financial advisor today and learn if an RRSP loan is right for you, and how an Equitable Life RRSP can be incorporated into your personalized financial plan.

 

Borrowing to invest is generally suitable only for investors with a higher risk tolerance as the value of your investments can decline over time.  Borrowing money magnifies both gains and losses and you will need to repay the loan and any accumulated interest in full.  The case study above is an illustration only. The refund will depend on your tax rate, income and personal tax situation.