So what is it - RRSP Loan? If somebody wants to invest into an RRSP but does not have money, it is
possible to get a loan to invest into a pension plan. This loan would be an RRSP Loan. Interest on
this kind of loan is usually lower than on usual one and ordinary depends on Prime Rate. The
formula for calculating interest for a RRSP Loan is Prime Rate plus 0.5%. The value of the Prime
Rate you can always find in the main page on our website.
But before getting this loan and investing it into an RRSP there is a commonly asked question:
Whatís good about this loan in this particular situation, it is just a new debt?
The answer to this question is: if a person wants to lower his or her taxes but for whatever reason has no
funds to invest into an RRSP, it is better to take the loan and invest it into the pension plan. This way
your taxes become lower. Take your returns, use that to cover part of your loan and pay out the rest
through the year. There is an option to forward your first payment for 90, 120 or 180 days, which allows
you to get your return, cover part of your loan and then make monthly payments towards that loan.
Mister Smith has a job and makes between 40 and 80 thousands per year. It happened that there was no chance
to put money away throughout the year to contribute to an RRSP. New year came and together with it came the
desire to invest $10,000 into an RRSP and lower taxes but... there was no money. He can loan $10,000 and
pay it off through the next year. On interest (letís consider that the rate is 6%) Mr. Smith loses $327 in
a whole year, but right away he gets tax return of $3,100 (31% of invested $10,000 - this is the regulation
on income between 40 and 80 thousands). If those $3,100 is put towards covering the loan, annual interest
(cost of the loan) will become lower than $327. Also donít forget that the $10,000 you invest into an RRSP
also brings the additional income. Even if the investment rate is 3.75% it works out to $375, which is more
than $327 interest from your loan for the using it the entire year - win-win situation (assume that he
doesnít withdraw his money from RRSP and doesnít pay withholding taxes). The information above is based on
a typical scenario on an individual contribution to a RRSP plan.
The RRSP loan itís an open loan and you are allowed to repay it at any time. Taking loan on larger amounts is
possible, as well as for longer periods of time (2, 3 or even 5 years). There is one thing to keep in mind
though - be realistic about your capabilities. One-year loan (or a longer period, if you choose) has to be
RRSP can also be used as a saving tool for the purchase of real estate. This program is called HBP (Home Buyers
Plan). In the program you have an opportunity to save one third more than you expected. But it is always
necessary to analyze current financial state of the family. I, as financial consultant, is ready for you to
grant this kind of service. Most frequently, in the bank nobody gives this financial analysis to you since
any bank service is impersonal to a certain degree, i.e., tomorrow you will arrive and you will possibly talk
with another person.
My goal is to work with everybody for a long period of time (20-30 years). For this, having all the necessary
licenses, I always analyze the financial situation of every particular family.
I Canada's Retirement Income System
I Employer Pension Plans
I RRSP Loan