Should you refinance your home to invest in your RRSP's?
The RRSP is one of the most useful and most complex savings vehicles available to Canadians. Not only is it a powerful tool for building your retirement nest egg, but you can also use it to go back to school, put a down payment on a home, and lower your income taxes this year!
This post is just relating to RRSP's. There are many financial vehicles to reduces your tax bill to CRA.
I am NOT a licensed financial planner, however 25 years of investing and mortgages has taught me that anything that REDUCES TAXES, INCREASES REFUNDS AND MAKES MONEY is what we all want to strive for!
MAKE 2021 YOUR YEAR TO START
RRSPs are generally a beneficial tool if you can contribute in a high-income year and withdraw in the future in a low-income year. This is because the tax refund upfront can more than compensate you for the tax payable later.
You can contribute 18% of your Gross income per year - ie: $65k gross = $11,700 per year into your RRSP
You can expect to get 20% to 50% of your RRSP contributions back as an income tax refund. So if you put $1,000 in an RRSP, you’ll get an income tax refund of $200 to $500 because of those contributions. It also depends on your income.
Parents! RRSP contributions increase the Canada Child Benefit (CCB) you qualify for.
RRSP DEADLINE IS MARCH 1, 2021
Ways to contribute to your RRSP or TFSA's
Refinance your home to take out funds.
If the bottom line numbers work, this is an option. Borrowing money at 1.89% (variable rate) for RRSP funds is CHEAP money! If you have mortgage renewal coming up December or January, then NOW is a good time to review that option as there is no penalty to take funds out of your mortgage.
Even if you refinance, sometimes the penalty and legal costs are still far lower than the value and benefit return you get on maxing out your RRSP. I do a calculation to ensure that.
NOTE REFINANCING MORTGAGES TAKES UP TO 30 DAYS! If you are going to meet March 1 RRSP deadline, then best to start your refinance before February 1, 2021!
Get an RRSP Loan
RRSP loans are higher rates than refinancing your mortgage, however might be a simpler option.
Note: RRSP loans can also be used for Down payments! Each Bank if different on how they are used. Some won't let you withdraw for down payment until paid off and some will allow after 90 days. Do your research first.
Check to see if your employer or union have a "MATCHING" Program.
This is almost FREE money - your employer will match up to a certain amount per year what you put in.
$50 a month = $100 a month is RRSP = $1200 year = $300-600 tax refund!