Should you borrow for RRSP contribution?
What do you do when the deadline for contributing is near
and you don’t have the money? Usually it does make sense
to borrow.
As a rule, if you can repay your RRSP loan within one year,
borrowing is a wise strategy. Your cost will be the interest
you paid for one year. Your gain will be one year of tax-deferred
growth, which should far outweigh the cost of borrowing.
And if you know you’re getting a tax refund, you can
fully leverage the benefit of this strategy and reduce the
cost of borrowing by applying your tax refund directly to
your outstanding loan principal.
If you’d like to find out how you can make or maximize
your RRSP contribution by using an RBC Loan or a Royal Line-of-Credit,
click
here to to find the RBC financial planning professional
closest to you.
Or if you’d like to read more on borrowing to invest
in general, click here to go to How
to leverage your money to invest more profitably.
Keep in mind that if you don’t contribute in one year,
you can carry forward your unused contribution to a future
year when cash may be more easily available.
Also, an alternative to borrowing is making a contribution
"in kind" to your RRSP using GICs, mutual funds,
bonds or equities, mortgages or other eligible assets.
You should also know that when you borrow to invest in a
non-registered investment, the interest costs are potentially
a tax-deductible expense. However, borrowing to make an RRSP
contribution is not.
Important information about our financial planning services can be found at the bottom of our
homepage.
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