📢 RRSP Contributions: Should You Add More Before Feb 28?

RRSP Contributions: Should You Add More Before Feb 28?

Welcome back! RRSP season is here, and if you’re still debating whether to contribute, let’s break it down. RRSP contributions lower your taxable income, meaning less tax today and more savings for retirement. You can contribute up to 18% of last your year’s income, or a maximum of $31,560 for 2024.

The RRSP deadline for each tax year is always on Feb 28th of the year after, which is very strange, I know. So, what should you do?

The answer? It depends on your income. Some people should skip it entirely, some should contribute a little, and others should go all-in and max out.

Let’s break it down a little bit.

1. Who Should NOT Contribute to an RRSP?

If you’re earning under $50,000, an RRSP likely won’t save you much in taxes today but it will still be taxed when you withdraw it later. Here are a few scenarios in which you should skip RRSPs:

• Income under $50K - you’re in a lower tax bracket, and so contributing won’t save you much

• You expect to earn much more later - you’ll be in a higher tax bracket later, and so RRSP contributions will save you far more in taxes then vs. now

• You have high-interest debt - if you have debt, especially if its of the high-interest variety, you should probably focus on paying this off first!

Example: Why It’s Not Worth It

• You earn $45,000. If you contribute $5,000 to an RRSP, you’ll get ~$1,250 in tax savings (assuming a 25% tax rate).

• But when you retire and withdraw that $5,000, you’ll still be taxed at around 20-25%.

• Net savings? Basically nothing. You saved $1,250 when contributing, but you’ll give it right back when withdrawing. You’re better off putting that money in a TFSA, where it can grow tax-free forever.

💡 Rule of Thumb: If you’re under $50K per year, a TFSA is likely the better choice.

2. Who Should Contribute Moderately?

If you’re earning between $50,000 and $100,000, RRSP contributions can save you some real money. You don’t need to go overboard though, let’s have a look at some reasons why you should add a little bit to the RRSP:

• Income between $50K-$100K - pretty much the sweet spot range for RRSP tax savings

• You expect to be in a lower tax bracket later - your contributions will go a long way now, and they won’t be taxed that highly later

• You still want some flexibility - you got big plans? Maybe worried about a bit of uncertainty? Then don’t lock up all your savings in an RRSP. Keep some cash on hand

Example: How Much You’ll Save

• You earn $85,000 and you contribute $10,000 to your RRSP.

• Your marginal tax rate is ~31%, so you get back $3,100 in tax savings.

• When you retire and withdraw this, you’ll probably expect to be in the 20-25% tax bracket, so you’ll pay only ~$2,000 in tax.

• Net tax savings? ~$1,100. Ahhh, now we’re getting somewhere!

💡 The best move? If you’re finding you have some cash left over at the end of the month, that likely means you’re in a good position to take advantage of some RRSP tax savings.

3. Who Should MAX OUT Their RRSP?

If you’re earning over $100,000, maxing out your RRSP is one of the best tax moves you can make. You should heavily consider an RRSP if the following apply to you:

• Income over $100K - higher tax bracket = bigger tax savings

• You expect to be in a lower bracket in retirement 

• You don’t need the cash before retirement

Example: Maxing Out Pays Off Big Time

• You earn $150,000 and you contribute $25,000 to your RRSP.

• Your marginal tax rate is ~43%, so you get back $10,750 in tax savings.

• If you withdraw this later at a 25% tax rate, you’ll pay only $6,250 in tax.

• Net tax savings? A pretty huge $4,500 on the same $25,000.

💡 If you’re well over $100K, contributing aggressively to an RRSP is generally a no-brainer when it comes to tax savings.

The Overall Savings Picture:

Final Verdict

✅ Under $50K? Probably skip RRSPs (use a TFSA instead).
✅ $50K-$100K? Contribute moderately (aim for 10-15% of income).
✅ Over $100K? Max it out if you can, the tax savings are massive.

What’s Next?

With the Feb 28 deadline approaching, now’s the time to decide. Want to know the exact tax savings from your RRSP contributions?

➡️ Fill out this form and we’ll let you know what to expect come April:

Or just reply to this email and I’ll help you figure out your best move.