loan for RRSP

[heyjude]

Do you think it is worth it to get a loan to put money into your RRSP?

[Canadian]

Do you think it is worth it to get a loan to put money into your RRSP?

It will be worth to get an RRSP loan if you can earn more by investing the loan proceeds and through tax savings, compared to the cost of borrowing. Here is an example. Let's assume that you have a $15,000 RRSP contribution room for 2008, but you don't have the $15K. You borrow $15K from RBC or any other Canadian bank for the purpose of contributing to your RRSP account. The bank gives you the loan for 1 year and charges you 8.5% interest per year. At the end of the year you'll have to repay $15K plus $1,275 in interest charges, for a total of $16,275.

Now the question is can your combined personal tax savings and investment return offset the $1,275? It's not that simple actually, because even though now you'll get a tax benefit of lowering your taxable income (RRSP contributions are deducted from your taxable income) you will still have to pay tax on these money at some point when you retire and start drawing funds from your RRSP.

I hope all this makes sense :).

[lanaa]

At the moment I would take a loan. The economy is very unstable and if you get laid off for some reason you will be stuck with this loan on top of all your other bills...

[Canadian]

At the moment I would take a loan. The economy is very unstable and if you get laid off for some reason you will be stuck with this loan on top of all your other bills...

The question is if there is a bank willing to give you a loan, not if you would take it.