You only have until tomorrow to make your RRSP contribution for the 2011 tax year; Feb. 29, 2012 is the official deadline.
Short on contribution cash? Consider an RRSP loan.
Currently, RRSP loans have attractive interest rates, hovering near prime and have flexible repayment plans. But, it only makes sense to take out an RRSP loan when the taxable benefit you receive from your RRSP contribution is greater than the amount of interest you’ll pay on the loan.
To help figure out if it’s worth it, see an adviser or ask an accountant.
The largest benefit of an RRSP loan is that the more you contribute, the more you’ll earn through compounded returns.
Let’s say you decide not to borrow $10,000 to maximize your RRSP at age 30. That $10,000 compounded at nine per cent for 25 years adds up to $86,000 before tax when you’re 55. Thus, you would miss out on $76,000 of compounded returns.
Meanwhile, your $10,000 RRSP loan at six per cent interest, paid off over 12 months, would cost you less than $350 in interest.
Calculate your own borrowing scenario on bankrate.com.
You’re a good candidate for an RRSP loan if:
• You don’t have enough cash to make an RRSP contribution by Feb. 29, 2012
• You have a job and can afford to pay the loan off within 12 months
• You have left over contribution room within your RRSP
• You don’t have significant consumer debt; in excess of $5,000.
Keep in mind that the credit applications for an RRSP loan are subject to meeting the financial institution’s lending criteria.
Using borrowed money to finance the purchase of investments within your RRSP is riskier than using cash. So make sure you’re comfortable with this risk.
If you borrow to invest in your RRSP, negotiate for the best interest rate, read the fine print on the contract, and ensure you can afford the monthly payments.