RRSP Loans 

For many, asking the question of whether or not to consider an RRSP loan can result in a number of conflicting responses. To determine whether or not an RRSP loan is an appropriate solution for you, you need to consider the larger picture of your financial scenario. Being able to offset your taxable income while saving for your retirement at the same time seems like a sound strategy, but not all strategies fit all situations.

Should I take out an RRSP loan? 

You will need to consider whether the return on your RRSP investment will be considerable enough to offset the cost of borrowing. If it isn’t, how that will impact your financial picture in the coming year? In some situations, an RRSP loan is a suitable short term solution to “catch up” on contributions, particularly if the borrower is disciplined in using their return to repay the loan. For others,  the loan will only add to their debt load and they are better off to work on paying down the existing debt.

Consider the following questions: 

  • What is your current debt load? 
  • Are you in a position to handle adding to it? 
  • How far are you from retirement? 

Your Collingwood financial advisors can help you answer these questions, and any others you may have about your RRSPs. By seeking the advice of a professional who is able to specifically consider how a loan would affect the rest of your finances and how it fits into your over arching financial plans, you will be able to confidently make decisions to work towards a financially healthy New Year.

Some helpful facts from the Canada Revenue Agency: 

Maximum RRSP contribution for 2013 is $23,820

-February 29, 2012, is the last day you can contribute to an RRSP for the 2011 tax year.

-The amount you can contribute to your RRSPs each year without tax implications is determined by your RRSP deduction limit, or “contribution room,” which can be found on your 2010 Notice of Assessment.

-If you turned 71 this year,  December 31 of the year you turn 71 is the last day that you can contribute to your RRSPs.

(Source: www.cra.gc.ca)

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