# opinion on if I should borrow for RRSP



## clovis8 (Dec 7, 2010)

I am single and make 90k/year. Last year I did not put anything in my RRSP because I saved for a new house which I now live in. 

I have 37k contribution room.

Without investing in my RRSP I am getting a $1100 refund. I am thinking of borrowing 5K or so to put in my RRSP. This would increase my refund to $2800. I would use the whole refund to pay off the debt leaving about $2200. This would take me 2 months tops to pay off. 

I would be putting it all in ETFs. 

Questions;

1) Does this sound like a good plan?

2) Would you skip the tax refund part and just put the money in an RRSP this year thereby using the refund next year?

3) Should I borrow more than 5K to catchup since I have so much contribution room?


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## slacker (Mar 8, 2010)

The benefit of a loan to "catchup" on RRSP seem marginal at best.

I sound like a broken record, but a RRSP refund isn't free money that the government is magically giving away. It's tax deferral, nothing more than that.

EDIT: I can see that the bank industry is rapidly revving up the usual RRSP frenzy around this time of year. Whenever I see an ad that the banks have spent money and effort on producing, chances it's profitable to them, and may only incidentally be beneficial to me.


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## clovis8 (Dec 7, 2010)

slacker said:


> The benefit of a loan to "catchup" on RRSP seem marginal at best.
> 
> I sound like a broken record, but a RRSP refund isn't free money that the government is magically giving away. It's tax deferral, nothing more than that.
> 
> EDIT: I can see that the bank industry is rapidly revving up the usual RRSP frenzy around this time of year. Whenever I see an ad that the banks have spent money and effort on producing, chances it's profitable to them, and may only incidentally be beneficial to me.


I agree and certainly do not see it as free money. Obviously it's simply deferral. 

My thinking is that the market appears poised for a run (as much as this can ever be predicted) so the benefits of having the 5k in the market should outweigh the small amount of interest I would pay on the loan (less than $50).


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## stardancer (Apr 26, 2009)

I am a fan of RSPs; they are playing a big part of my retirement.

If you don't have the cash, and you actually follow through with paying off the loan using the refund and within a couple of months, then it's a good idea.

Don't borrow more than you can repay according to your plan.

People run into problems when other things interfere with their good intentions.


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## Eclectic12 (Oct 20, 2010)

slacker said:


> The benefit of a loan to "catchup" on RRSP seem marginal at best.
> 
> I sound like a broken record, but a RRSP refund isn't free money that the government is magically giving away. It's tax deferral, nothing more than that.
> 
> [ ... ]


Why do you not see a benefit?

Say the loan is at 3%, for two months that's $14 cost.

If the investment in the RRSP that the borrowed $2800 pays a dividend of 4%, that's something like $75 or better in income alone that is tax sheltered.


The main reason I can think of that would make me pause is if one was already in a low tax rate situation and knew that next year would have a much higher tax rate.


Cheers


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## Eclectic12 (Oct 20, 2010)

clovis8 said:


> I agree and certainly do not see it as free money. Obviously it's simply deferral.
> 
> My thinking is that the market appears poised for a run (as much as this can ever be predicted) so the benefits of having the 5k in the market should outweigh the small amount of interest I would pay on the loan (less than $50).


Then too, if there's dividends etc., that's extra time the income is sheltered.


Cheers


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## Fain (Oct 11, 2009)

I believe you should borrow the money. Time Value is being wasted.


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

If you want to put some money into an RRSP, then you should (IMO) save the money first. Once you have the money saved then purchase the RRSP. Save the refund and continue to save new money for next year's contribution.

So no, you should not incur debt for this purpose.


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## stephenheath (Apr 3, 2009)

Normally my hesitation on the loan route would be you're tying up even more of your monthly payments to required repayments, but since you're only talking two months, I'd say sure, you'll never have another chance to defer taxes on your 2011 income.

However, as to whether or not to do more than 5k... with the proviso that trumping any answer is "can you repay it with ease", you'd have to look at what level of taxes you're deferring... you're saving 1700 on the first 5000, so about 34%, but if the next 5000 only saves you say 29% or 25%, you have to decide for yourself if it's still worth it at that level.


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