RRSP Loans

What do you do if the RRSP deadline is fast approaching and you don’t have the money to make a contribution? Simple. BORROW IT

Your RRSP contribution is an important part of ensuring a secure financial future. While it’s preferable to use existing savings to contribute to an RRSP, if you’re strapped for cash it’s better to borrow than not to make a contribution at all.

Putting off your RRSP contribution can impact your future cash flow and your retirement lifestyle. For starters, forgoing your RRSP contribution could reduce the tax refund you receive. It could also impede your ability to build a comfortable tax-sheltered retirement portfolio. Finally, it’s more difficult to save thousands of extra dollars to top up your RRSP years down the road – using the carry forward provision – than it is to make regular RRSP contributions now.

Even if money is tight, borrowing to make an RRSP contribution makes good financial sense – provided you pay down the loan quickly.

Keep in mind that interest on RRSP loans is not tax deductible. However, RRSPs have enough tax advantages to make carrying short-term debt worthwhile. Not only will you receive an immediate tax deduction for your contribution, but your RRSP investment compounds on a tax-deferred basis for as long as it remains in the plan. In most cases the immediate tax saving, plus the tax-deferred growth inside an RRSP will far outweigh the short-term interest costs of the loan.

In addition, you can use any tax refund you get on your 2007 taxes to help pay off your RRSP loan or to make an early RRSP contribution for the 2008 tax year.

However, it may be prudent to pay off higher interest-bearing debts, such as an outstanding credit card balance, before you pay down your loan.

Call Grandview Credit Union today and make an appointment to discuss your options. We offer RRSP loans as low as Prime (OAC).