The RRSP is pretty much the only tax shelter for salaried employees.
You can’t write off your gas or your office in the house, but you can ‘write off’ contributions to your RRSP or spousal RRSP to reduce your taxable income.
Ideally, you contribute to the RRSP when your income is high. You withdraw when your income is low such as years between jobs or in retirement.
Here’s an ideal situation.
I have a client who works in an auto plant. Last year, due to big demand for their vehicles, he worked lots of overtime and his income jumped to $145,000.
The tax rate is 43.41% on that income. Technical note: that’s the marginal tax rate.
So he pays $43,242 of income tax.
When he retires, his plan is to live on $30,000 per year per tax. That is at a tax rate of 20.05%
He will save the difference in tax rates: 43.41% – 20.05% = > 20%
That how the RRSP works best: deposit at a high rate and withdraw at a low rate.
Plus, you get growth of your investments tax sheltered.
Stash that money away. Save on tax.
– BRUCE YOUNGBLUD, CFP, CIM
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