# Deducting RRSP Contributions



## doc (Jan 15, 2010)

I'm looking for a simple comparison/analysis tool (if it exists) that would allow me to tax optimize RRSP deductions over this year and subsequent.

Background: 
My wife and I have never contributed to RRSP's, but have 36,000 and 19,000 room respectively. 

This year, we're contributing in full (i.e 55,000).

I need to determine what the deferred deduction benefit would be to see if it outweighs the gains that could potentially made by deducting all this year and simply investing. Obviously there are a number of assumptions here regarding taxable income this year vs. next year. 

Any thoughts? Thanks!


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## Berubeland (Sep 6, 2009)

You can contribute entirely this year.... but you can claim the deductions any year you like. 

I have low income but I have contributed to my RRSP but I will use the tax advantages later when I make more money and have more marginal tax to pay.


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## Sampson (Apr 3, 2009)

doc said:


> I'm looking for a simple comparison/analysis tool (if it exists) that would allow me to tax optimize RRSP deductions over this year and subsequent.
> 
> Obviously there are a number of assumptions here regarding taxable income this year vs. next year.


I'm not aware of such a tool, but more importantly if such a tool exists you've already identified the major limitation you would encountered, future income prediction.

You can certainly create a model portfolio for the monies invested and a time horizon, then apply different rates of return to that portfolio to give you a range of possible outcomes.

The salary would probably be the most variable factor - or more importantly, your marginal tax rate. If you can accurate predict this, s=you should be able to incorporate it into your model easily.


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## steve41 (Apr 18, 2009)

RRIFmetic has the ability to vary both salary and deductions over time and maintains full tax accuracy. Rather than assuming a simplistic marginal tax rate, it embeds the actual T1 math as well as indexing the brackets.

Remember, while the decisions you make _now_ WRT investing (rsp/tfsa/nonreg...) may have implications in the near term, it is not until you follow the after tax behaviour of these investments over the full pre and post retirement time span, will you be able to optimize your plan. (retirement-wise and estate-wise)

The program will allow you to vary both salary and rates out in time as well as (for the truly anal).... monte-carlo the rates.

The demo is free with a time limit. www.fimetrics.com


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## OhGreatGuru (May 24, 2009)

If I understand correctly, you have contributed all the $55K, and want to figure out how much to deduct each year in order to optimize your tax savings. Unless someone has an analysis tool available, you will either have to make up your own spreadsheet to calculate your taxes, or run multiple scenarios thru a tax software to compare.

There is no point in deducting more than necessary to reduce your taxes to zero in a given year;
Assuming you are not in the lowest tax bracket, I would guess that the possible solutions will be step functions occurring each time you deduct enough to change your tax bracket.


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## OptsyEagle (Nov 29, 2009)

If you know what your income will be (approx.) and what your marginal tax rates are, it shouldn't take any tool or comparison. A simple dollar store calculator will do.

In Ontario your marginal rates are approx. 21%, 31%, 43% and 46% at incomes above approx. $10,000, $40,000, $80,000 and $125,000. You can look up your exact numbers by googling it and identifying your province.

Anyway, if I earned $60,000 per year and just put in $36,000 into my RRSP, I would know that my highest tax savings will be 31%, since that is my marginal tax rate (income between $40K and $80K). This means that if I deduct $20,000 of RRSPs, I will save 31% of it in tax. Anymore deductions will only save me 21%. I would obviously save the other $16,000 deduction for next year since I will recieve (31/21= 48%) 48% more tax relief by leaving the money with the government for one more year. If I had to wait two years to get the savings, this benefit would reduce to 24%. 3 years = 16%. At some point in time you are going to divide 48 by a number of years and the number will be so small that the 22% savings at the next lower marginal tax rate, will start to look very good.

I hope that helps.


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## Maltese (Apr 22, 2009)

steve41 said:


> RRIFmetic has the ability to vary both salary and deductions over time and maintains full tax accuracy. Rather than assuming a simplistic marginal tax rate, it embeds the actual T1 math as well as indexing the brackets.
> 
> Remember, while the decisions you make _now_ WRT investing (rsp/tfsa/nonreg...) may have implications in the near term, it is not until you follow the after tax behaviour of these investments over the full pre and post retirement time span, will you be able to optimize your plan. (retirement-wise and estate-wise)
> 
> ...


Steve, I downloaded the demo but it won't run on my computer. I have 64 bit Windows Vista. Is your program compatible with this version of Windows?


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## steve41 (Apr 18, 2009)

It runs on Vista32 (I use it), however for 64 you need to get the Virtual XP from Microsoft. In Windows System 7, MS has made this option available by default, however Vista64 needs to have the Virtual engine installed (I believe it is free).

I believe that Microsoft was obliged to add the XP functionality to their new Windows releases because there are a lot of small S/W vendors out there who simply don't have the resources to migrate their older (legacy) applications to these newer platforms. Many of these applications are specialized, to the extent that users simply have no other option but stick with their old XP, so MS made this new Virtual mode available.

RRIFmetic is one of those legacy apps.


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## Maltese (Apr 22, 2009)

Thanks Steve! I'll download the virtual program and then try your program again.


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## cannon_fodder (Apr 3, 2009)

OptsyEagle said:


> If you know what your income will be (approx.) and what your marginal tax rates are, it shouldn't take any tool or comparison. A simple dollar store calculator will do.
> 
> In Ontario your marginal rates are approx. 21%, 31%, 43% and 46% at incomes above approx. $10,000, $40,000, $80,000 and $125,000. You can look up your exact numbers by googling it and identifying your province.
> 
> ...


To make it even more accurate you would have to look at what you would do with RRSP refunds received sooner rather than later. I.E putting enough to reduce your MTR from 46% to 43% might make a lot of sense since you also get the money to invest a year earlier. Going further to the point where you only get 31% refund on every extra dollar contributed to an RRSP might be harder to justify.


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