Area of Law: Investments and Securities
Answer # 268
Borrowing to make an RRSP contributionRegion: Ontario Answer # 268
You can usually borrow money from a bank or a lending institution to contribute to your RRSP. If you do not have enough money available to make an RRSP contribution, it is probably worthwhile to borrow the money. If you use your tax refund to pay off some of the loan, you can reduce the amount of interest you will have to pay. The money you will save in income tax and the return on your RRSP investment will probably be more than the amount of interest you will have to pay for the loan. Although it will cost money to take out a loan, over the long-term you will earn income and build up retirement savings and this will outweigh the immediate expense of the loan.
How to decide whether to borrow
The decision about whether to borrow should be based on a calculation of several factors related to your particular situation. These factors will include how much income you earn each year, the amount of tax you pay each year, and the amount of interest you will have to pay on the loan.
A financial advisor, an accountant, or a tax lawyer can help you determine whether borrowing money to contribute to your RRSP will be worthwhile.
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