How do RRSP Tax Deductions Work?



Whenever you contribute (put money into) a RRSP, the contributions are tax deductible. Up to certain limits.


But how does that work?


Here’s a simplified example:


Let’s say you’re an employee and you make $150,000 a year. And all year long tax is being taken off your cheques whenever you get paid.


Now let’s say your tax rate is 40%. And you decide that you want to put $10,000 into your RRSP to save for retirement.


So far, you’ve been taxed based on making $150,000. But when you put $10,000 into your RRSP, the government sees that $10,000 as income for later, when you retire. So really, you only made $140,000 this year. So they have to give you the tax back on that extra $10,000.


And at a 40% tax rate, that’s $4,000 back. In your pocket. Not the government’s. And that is lovely.



Disclaimer:

This article is for educational purposes only and is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Opinions expressed are those of the owners and writers only. Every effort has been made to compile this material from reliable sources, however, no warranty can be made as to its accuracy or completeness. It may also include forward looking statements concerning anticipated results, circumstances, and expectations regarding future events. Forward-looking statements require assumptions to be made and are, therefore, subject to inherent risks and uncertainties. There is significant risk that predictions and other forward looking statements will not prove to be accurate. Please consult an appropriate professional regarding your particular circumstances. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus or the fund facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual Funds and Segregated Funds provided by the Fund Companies are offered through Worldsource Financial Management Inc., sponsoring mutual fund dealer. Other Products and Services are offered through Rhys Martell/Well-Built Plans Financial.


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RHYS MARTELL  |  financial advisor

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Mutual Funds and some Segregated Funds provided by the Fund Companies are offered through Worldsource Financial Management Inc. Other Products and Services are offered through Rhys Martell/Well-Built Plans Financial. 

 

Rhys Martell is an independent Financial Advisor in Abbotsford, BC. He is a member of the Estate Planning Council of Abbotsford, a Chartered Investment Manager, a Qualified Associate Financial Planner, holds an Elder Planning Counselor designation, and a Bachelor of Arts in Applied Communications from Royal Roads University. Servicing clients from Abbotsford, Mission, Chilliwack, Langley, Surrey, Vancouver, the Fraser Valley and beyond.

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