As 2018 becomes a shadow of the past and 2019 shines its opportunity upon us, it brings us closer to “that time of year”. Tax time. If you’ve ever seen The Lion King, saying tax time is like whispering Mufasa and watching the Hyena’s shiver. Now is the time where talk turns to deductions and retirement investments before the February cut-off for contributions.
Now the shadow of 2018 is rearing its ugly head as it’s there to remind you that you had all year. You’re not alone. Millions of Canadians wait until Spring to start thinking about their RRSPs, and with a heavy heart they sigh and think “I’ll do better next year”. However, next year is already this year and it’s unlikely any signification changes have been made. Life has gotten back to normal after the holidays and lives have become a whirlwind of school, work, sports, family and just trying to manage life. Soon it will be summer and Manitoba will do it’s typical slow down where cottages become priority. Then school starts again and before you know it, it’s already the holiday season again. After which, you’ll sigh and say “I’ll do better next year”.
The good news is, you can do something about it now. Instead of scrambling to put together a good contribution, perhaps this year (yes, this year) is the year to take an easier approach. RRSP loans strategies such as gross up, are a great way to boost your RRSP savings while minimizing interest rates
Interest rates are quite low right now, and the gross up strategy is a great way to take advantage of that. Consider this scenario. You have $5000 to contribute to an RRSP, you’re sitting in the 40$ marginal tax rate and your RRSP limit allows for more than $5000. If you borrowed $4000, that would give you $9000 to invest in your RRSP. Based on the aforementioned scenario, you can anticipate receiving approximately $3600 in a tax refund which you can use to pay down the loan. This part takes self-control to apply those funds to the loan instead of self-indulgence. Remember, you’re indulging in the long-term plan using this approach.
Depending on your stage of life, current income and debt ratio, there are numerous ways to invest in your future goals. Between RRSPs, high-interest saving accounts, TFSAs and GICs, it can be overwhelming to determine which route to take. A Financial Planner can help guide you on these options and what fits best for you.