Is an RRSP loan right for me?
The deadline for 2013 RRSP contributions is March 1st. It's not uncommon for you to consider an RRSP loan to reduce your taxes and get a jump start on meeting your retirement savings goals. You will see heavy marketing from banks and other financial companies up until the March deadline promoting RRSP and "Catch up" loans.
A loan for an RRSP may appear like a sound idea. But you need to ask yourself, can you handle the risks and additional debt?
You might consider:
- The interest on the RRSP loan isn't tax-deductible.
- Your investment return you put your RRSP money must be higher than the interest on the money you borrowed for it to make sense.
- If you were to invest, let's say 40,000 dollars into your RRSP, and the investment lost around $5,000 - you still have to pay back the loan you took out plus the interest.
- Your debt load. You may already have a mortgage or certainly rent. On top of that you likely have other debt considerations. If you are putting disposable income towards paying down a lower interest RRSP loan, instead of higher interest lines of credit, or even credit card debt, you'll find the interest charges will negate the benefits.
- Are you paying income taxes? If your financial position in 2013 was such that you won't actually be paying income tax this year, it makes more sense to carry your contribution allowance through to another year and pay down your current debts.
In some cases an RRSP loan does make sense however it's best to sit down with an independent advisor that can evaluate your entire financial situation to see if an RRSP loan fits into your financial puzzle.
By Andrew W Bradley - a licensed Insurance Broker and Financial Services Advisor helping Ottawa families since 2011. Combining this with his previous working experience with the Canada Revenue Agency enables him to help a wide range of individuals, families and businesses. As an Independent Broker he devotes time to educating the consumer and implementing comprehensive financial plans for both individuals and businesses in areas including insurance and investments.
The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. I recommend that you obtain your own independent professional advice (preferably me) before making any decision in relation to your particular requirements or circumstances.