# How much RRSP should I contribute?



## techcrium (Mar 8, 2013)

TFSA is maxed out already.

1. Let's assume 46K income (31.2% marginal tax rate) and unlikely to jump to next marginal tax bracket next year (70K)

http://en.planiguide.ca/tables/ontario/tax-table/

2. Have more than enough to max out RRSP. Let's just say over $20,000 in non registered account.



1. How much should I contribute to RRSP

2. How much RRSP should I claim



Marginal tax rate is 31.2% I am thinking to only contribute enough to bring it down to 27.3% or should I just max out the contribution and claim the full amount?

Bringing the tax rate down to 27.3% would mean a mere $2,000 contribution but I believe my total contribution room is like $8,200


It is unlikely my income will grow to 70K for many years. But then again...anything can happen.


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## peterk (May 16, 2010)

Jumping from 31.2% down to 27.3% is a 14% "guaranteed" rate of return you are throwing away. I'd just use the 2k to take it down to 27.3%.


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## techcrium (Mar 8, 2013)

peterk said:


> Jumping from 31.2% down to 27.3% is a 14% "guaranteed" rate of return you are throwing away. I'd just use the 2k to take it down to 27.3%.


Yes I plan on contributing the very least $2K...I am wondering if I should contribute the other $6K that I am entitled to


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## bds (Aug 13, 2013)

I'm in almost _exactly _the same situation, I'm interested in hearing responses.

$45.5k salary, about 20k I could put into RRSP. Except I have already contributed ~2k in 2013.


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## rikk (May 28, 2012)

techcrium said:


> Yes I plan on contributing the very least $2K...I am wondering if I should contribute the other $6K that I am entitled to


Fwiw ... you can contribute up to the amount you are entitled to, and claim whatever amount, e.g. $2K, for 2013 that suits your purposes. For example, I am carrying a $10.5K unclaimed contribution, and come tax calculation time, I'll calculate what's best to claim for 2013, which in my case will be the amount to optimize next years OAS (being retired it's bizarre to get the ~_45%_ marginal back, and then pay it again if I withdraw in the near future ... just waiting for my wife to retire to make use of pension splitting).

Update: just rec'd T4As, calculation says the $10.5K doesn't quite do it for no claw back, close enough though ... and the marginal on the $10.5K is 45% ... that's $4745 back ... nice :encouragement: Next year though ... :hopelessness:


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## Andy Hammond (Feb 20, 2014)

*My thoughts*



techcrium said:


> Yes I plan on contributing the very least $2K...I am wondering if I should contribute the other $6K that I am entitled to


techrium Good comments from others. I suggest placing as much as possible (determined by your RRSP contribution room) into the RRSP to take advantage of tax sheltered compounding. You can claim in any year the amount you consider appropriate bearing in mind the marginal tax rate implications


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## the-royal-mail (Dec 11, 2009)

I am disappointed that of all the responses, not one person has asked more general questions of the OP, such as whether the RRSP is even right for him. Does the OP have a cash emergency fund over and above the amounts being discussed here? Does he need the money in short term? Will his own personal emergencies allow him to keep the money locked away in an RRSP without causing hardships when times are already bad enough?

I would like satisfactory answers to those types of questions before even beginning a discussion on the mechanics of the product.


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## Synergy (Mar 18, 2013)

I would deduct just enough so you don't fall into a lower tax bracket. From your chart it looks like you'd want to keep your income at or above $44,000 so you remain at the 31.2% marginal tax rate. This would equate to a 2K contribution for 2013. Doing it this way you'll get a better tax refund and you'll be less likely be pay more tax once you start withdrawing in retirement. As others have mentioned, feel free to invest the balance of your contribution room within your RRSP (tax deferred growth), just don't claim the deduction until future years.


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## techcrium (Mar 8, 2013)

the-royal-mail said:


> I am disappointed that of all the responses, not one person has asked more general questions of the OP, such as whether the RRSP is even right for him. Does the OP have a cash emergency fund over and above the amounts being discussed here? Does he need the money in short term? Will his own personal emergencies allow him to keep the money locked away in an RRSP without causing hardships when times are already bad enough?
> 
> I would like satisfactory answers to those types of questions before even beginning a discussion on the mechanics of the product.


Good questions.

Let's just assume I have over $10K emergency fund plus high credit card limit in case I need cash immediately. I don't want to give out my exact networth but I definitely have more than enough for emergencies.

I don't need the money short term. 

I don't have a pension plan with the employer (currently). Maybe that might switch but I cannot predict the future.


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## balexis (Apr 4, 2009)

Good advice to contribute now but claim the deduction in the next few years, especially if your income is going to jump as soon as next year. As others said, I'd claim just enough to bring your taxable income down to the federal bracket of 43 953$ and carry forward the balance as unclaimed contributions for 2014 to lower your 70k taxable income.


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## My Own Advisor (Sep 24, 2012)

Agreed with the contribute now and claim deduction in future years, if/when income in higher. 

If you have emerg. fund, and no debt, I would say contribute more to your RRSP. 

If you have a large mortgage, pay it down and don't worry so much about the RRSP. If you happened to be in a high income bracket, and will be in your future, then different answer.

Really no right or wrong here, contributing to RRSP is always a good thing, it's whether you need the tax break now and what you'll do with the RRSP-generated refund that's important.


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## eulogy (Oct 29, 2011)

Well here's a question related to using your tax break now or later. At what point is deferring it to a more lucrative return (higher tax bracket) lost by just time?

Money today is better than money tomorrow because you can invest it today rather than in a few years time and you gain those returns during that time. What's people's thoughts on this? How much more do you have to wait to really reap worth wild rewards? If you're going to be stuck in the same tax bracket for 5 years or longer? In Alberta at least I'd say a lot of people are stuck in the same tax bracket for a long old time depending on their income.


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## MoreMiles (Apr 20, 2011)

Getting stuck in a high tax bracket is a good problem to have.


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## Canadian (Sep 19, 2013)

MoreMiles said:


> Getting stuck in a high tax bracket is a good problem to have.


+1

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In forming the argument to defer RRSP contributions/deductions it's important to consider the time value of money and compounding growth. It makes sense to defer the RRSP if one reasonably expects to be taxed at a significantly higher marginal rate within the next year or two. If one won't reach that higher rate for another 5-10+ years then I'd argue it's better to contribute to the RRSP now to maximize present tax refunds (assuming one will reinvest the refund). The tax-free compound growth over this time will likely exceed the financial benefits of deferring RRSP contributions.


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## canucked_up (Feb 23, 2014)

Depending on one's circumstances, there are benefits to having investments held outside of tax deferred plans. Dividend paying investments for instance. Tax deferral = "Pay me now or pay me later", we just need to balance that to our advantage.


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