Using an RRSP to help manage your debt
Posted January 11, 2012 5:54 am.
This article is more than 5 years old.
VANCOUVER (NEWS1130) – Household debt is still at crushing levels for the average Canadian. With the the RRSP deadline approaching, should they focus on reducing that debt or on their retirement income?
“If you have debt, especially debt that is not deductible, there are a couple things you can do,” says Adrian Mastracci, a portfolio manager with KCM Wealth Management. “You can put money into an RRSP and use your tax refund to pay down the debt. Or you can skip the RRSP this year, push it off to next year or the year after that, and put all your money towards the debt.”
“You just have to do the math and figure out which is the better benefit,” he explains, noting either way, you are paying yourself first.
Debt isn’t the only consideration when deciding to delay or skip an RRSP contribution.
“If your tax bracket is low this year, you may want to push that off into another year,” says Mastracci. “You try to contribute during a year when you’re in a higher tax bracket because, hopefully, when you take it out you’ll be in a lower tax bracket.”
There are many shades of grey when making RRSP decisions and Mastracci tells us your choices can change every year. As always, you have to look at your long term needs and goals.
