With the new year slightly behind us, I consider January a planning month for RRSP and Tax Planning. To optimize your RRSP, you will need to have an idea of your taxes. Last month I discussed how you can offset capital gains with capital loss and now it’s time to make sure you make use of your RRSP account effectively if you do make use of it.
Personally, I do all three accounts in the following order:
To optimize your RRSP, you want to understand how big your tax refund is and then you calculate how much more RRSP contribution you could add in the short term by borrowing and then you use the tax refund to pay back the loan.
For example, if you are getting $1,000 in a tax refund and decide to borrow another $1,500 to contribute, you would get another $500 on top of the original $1,000 in tax refund. The total tax refund would be $1,500 which covers the loan of $1,500. All you need to pay is the interest for a couple of months.
- 2012 Tax Refund $1,000 – before RRSP optimization
- Borrow $1,500 (for a couple of months)
- Extra RRSP Contribution $1,500
- Extra RRSP Tax Refund $500
- Total 2012 Tax Refund $1,500
This technique really allow you to maximize your RRSP for maximum growth.
When it comes to RRSP loans, simply use your line of credit if you have one. Don’t bother with the RRSP loans the banks try to offer you. If you have a home equity LOC, chances are you have a better rate – if you don’t start negotiating for a better rate
Make sure you check out my RRSP section for many posts on the topic.
Some weekend reading to share …
Dividend Guy has a new eBook reviewing 30 US and Canadian companies, check it out – many companies you would be interested in buying are reviewing and he likes to compare his picks against the index at the end of the year.
- Boomer & Echo with ‘Net Worth Update And Year-End Review‘
- Dividend Growth Investor with ‘Best Dividend Stocks for 2013, and beyond‘
- Dividend Ninja with ‘Do You Have a Plan?‘
- Dividend Monk with ‘Kinder Morgan Energy Partners: Still Poised for Good Returns‘
- Freedome 35 with ‘How the National Debt Works‘
- Canadian Couch Potato with ‘Ask the Spud: Do I Have Enough for a DRIP?‘
- My Own Advisor with ‘2012 Blog Year In Review‘
- Retire Happy Blog with ’Ways to Simplify your personal finances‘
- Retire by 40 with ‘Review your finances for a new beginning‘
Here are the carnivals I was present in the last two weeks.
- Yakezie Carnival at Your Personal Finance Pro
- Carnival of Financial Planning at CultOfMoney
- Carnival of MoneyPros at Good Financial Cents
- Yakezie Carnival at Making Sense Of Cents
- Carn. of Financial Camaraderie at The Savvy Scot
- Carnival of MoneyPros at Debt Black Hole
- Carnival of Financial Planning at Thriftability