RRSP – Loan to invest option

Saving for the future is important and RRSP is a great way do so. One of the benefits investing in RRSP is that the calculated earned income is reduced by the amount of contribution and the current year tax liability is reduced.

To contribute to your RRSP you can take any of the following options:

1. Contribute on a regular basis during the year
2. Invest one or more lamp sum during the year
3. Take a loan to invest

But what happen if you didn’t?
Sometimes people do not contribute to RRSP during the year and wait for the tax season..

In such case the loan to invest in RRSP is a great solution. Rather than do nothing, you can increase your savings and reduce your tax liability.

Reduce your tax liability and increase your savings)
Loan to invest is a great way to reduce tax liability and increase savings!
For example*, with an annual earned income of $80,000 and $5,000 loan, invested in RRSP, the tax liability will be reduced by approximately $3,200. The total cost of the loan is $126. The $5,000 investment in can yield $250 in the first year (assuming 5% annual return).

Bottom Line
With so many different options available to us, choosing where to invest your hard earned money can be troublesome. We all know diversity is key for a successful investment portfolio and strategy, and the same holds true for RRSP versus a TFSA; both have important functions within different investment strategies. In an ideal situation, you’ll want to utilize both within your portfolio.