Should I borrow funds to invest in my RRSP?

What happens if you do not have the funds to make your contribution? What about taking out a loan to take advantage of your RRSP room and increase your refund?

There are 4 main items to consider:

1. What are the Interest rates?

Borrowing money with high interest rates can be costly and may offset the initial benefit of making the RRSP contribution. This interest is also not tax-deductable.

2. How long to pay back this loan?

Only if you can put your refund towards the debt and pay off the balance within the calendar year does this strategy make sense.

3. Do you already have debt?

If you have other high-interest debt such as credit cards, your priority should be paying down this debt as quickly as possible and not take on more debt.

4. What is your tax bracket?

If you have taxable income, what tax bracket are you in? If you are in a lower tax bracket, there may be no advantage to making an RRSP contribution even if you have room

2 Alternate strategies

Instead of borrowing to make your RRSP contribution here are two alternate strategies to consider:

1. Contribute the same amount you would have paid to the loan

For example, if you were thinking of borrowing $10,000, and paying $865 per month to pay it down, how about making the $865 payment each month to your RRSP moving forward.

2. Take out smaller loans

Instead of borrowing $10,000 this year, how about taking out a $2,500 loan each year for the next 4 years?

Ask your tax professional where you tax bracket is and what number makes sense to add to your RRSP.

You can also see the formulas for your tax calculation at the following link: https://www.canada.ca/en/revenue…years.html