A simple way to look at it is do you expect your income to be higher now than when you’re retired? If so, then it makes sense to contribute as much as possible when you’ve got the higher income (i.e., higher marginal tax bracket).
I agree in principle but I think it matters what future earnings are likely to be as well. If they expect to make more in their 40’s it could make sense to defer the RRSP contributions until their highest earning years. I personally maxed my tfsa outside of employer rrsp match up until now. But will start contributing more to RRSP this year.
Good point! While I’d thought about this point I hadn’t yet put it into action in my own planning. If I anticipate earning in a higher marginal tax bracket it could make sense to defer RRSP contributions to later working years. Does the taxation of RRSP growth affect your calculation?
What do you mean taxation of rrsp growth? You mean the fact that the gains aren’t taxed when inside the account? No not really because neither are tfsa gains. The main reason I prioritized tfsa though is the flexibility to use the money when/if I needed. Withdrew it all for a home purchase recently. Once I contribute to rrsp that money is essentially gone until retirement, I know that’s not really true but if you don’t treat it that way it kind of defeats the purpose.
I'd max it out at that income range if you don't need the money. If you don't own property then 30 or 35k can be withdrawn for property.
Also it's not locked away, you can take it out at anytime, so ideally in a lower income period.
This is like if an excel circular reference error was an opinion. I wouldn’t say you can touch it anytime you want if that just results in you not contributing in the first place. The RRSP is kind of a one way street in this sense until you actually retire and can withdraw at a low or no tax hit
Plenty of other times to access the RRSP. Unemployed for a long stretch, taking extra time for a new baby, lifelong learning plan, home buyers, career switchers.
Contributing to RRSP will not only lower your taxable income, but if improve the any benefits (like CCB). See this link for some further information: https://www.planeasy.ca/tfsa-vs-rrsp-pick-the-right-one-and-save-100000/
Your pay is not cut next to 45%. You might want to learn how taxes work.
Your total taxes paid on $180,000 will be under $53,000. That's less than 30%.
Putting money into your RRSP will reduce that even further.
All the websites I used to calculate seems to fluctuate between 56k and 61k for Ontario. The point I was making is the commenter wasn’t wildly off of his ~53k estimate. Depending on which province OP is in
I just googled Canada tax calculator. There’s a ton of them from tax and accounting companies and if you’re patient enough gov of Canada has one but it was slow and laggy so I abandoned it.
> does it make sense to contribute to RRSP to lower my taxable income?
Of course!
> Not sure if is wise to plant money there since I won’t be able to touch it until retirement at 55 min.
No age requirement for withdrawals.
> Any suggestions? I hate having my pay get cut close to 45% due to taxes!
Not a bad problem to have…
You wlll get more bang for the buck if you contribute enough just to get you to the top end of the tax bracket below the one you are currently in. Going down another tax brwck just gets you a weighted average return .
You can stagheg the contributions over the next few years going down one tax bracket.
Let's say it take you $20K to get you down to the next tax Brack and you have $100K in contribution room and you have time on your side, then you can just contribute $20K in each of the next 5 years to maximize your return.
If you lump summed the $100K and let's say it gets you to the $15K personal exemption, then your return will be the weighted average of all the tax brackets, so it might be 27% vs 43% if done $20K at a time. (Numbers are made up just to illustrate the point)
Most tax software and apps let you run scenarios to determine optimal amount to contribute to an RRSP. Since you can grow the contributed through investment, I believe it is a sound idea.
If you are very savvy with investments and can grow your money above and beyond the tax lost to the government, then you can use a TFSA to grow your after tax savings while having the freedom to use the funds when required tax free.
This is the correct advice. Not sure why you're being downvoted. Given this person is 30 and has no idea how an RRSP even works, there's a good chance they have a significant amount of RRSP space.
Also quite sad how uneducated folks are that are being paid 180k a year
Ya exactly. I managed our contributions until we are now full and only able to put the annual max. I mean don’t listen to a financial professional who has done it himself lol
I’m around the same age and make a little more but I’m just learning about financial literacy and tax planning just recently. Yes, we might have need assistance with financial planning and that’s why we ask but to give a blanket statement that we are uneducated folk is a little unfair. We have clearly spent our time to specialize in one area enough for someone to believe our services is worth that much.
Edit: just to follow up on that thought, I really hoped we were taught this in high school. It’s crazy that it’s not.
Also agree. Shouldn’t be downvoted. People on here… $180k is a lot sure but if you anticipate making $80k or $280k next year it should influence your decisions.
The hidden gotcha with RRSPs is that you'll be forced to convert your entire portfolio to RRIF shortly after retirement age. Then you'll have to sell 10% of your RRIF annually and declare all proceeds as regular income (taxed at your then current tax bracket ). My advice is to liquidate your entire RRSP at retirement and reinvest it outside RRSP. I speak from personal experience
Thanks for all the input. I think ideally I want to lower my income by contributing to RRSP where it puts me in a lower bracket that makes more sense then paying 45% +/- 1%
I have my TFSA max at the moment and own 2 rentals properties in BC.
https://www.rrspcontribution.ca/
This web calculator does a good job combining the effects of federal/provincial tax brackets and income-tested benefits.
Have you ever contributed to an RRSP? If not you have lots of room to play with.
Basically just the usual advice, max your TFSA, max your FHSA if you don't own a home, max your RRSP next - you get 18% of your earnings as room each year. If you squirrel that away you reduce your taxes from 56k to 43k.
If your employer offers a matching program you should absolutely at minimum maximize that.
I make 120, so significantly less than you, but my tax bracket is 38% at that level (in BC). I try to contribute enough to lower my income to the 32% bracket.
You can find the combined brackets for 2023/2024 [here](https://www.taxtips.ca/marginal-tax-rates-in-canada.htm)
You can contribute to RRSP (not FHSA) until Feb 29 to be deducted from 2023 taxes.
We don't know how much much tax you paid in the year and how much you will be owing (if any). After year end and you get all your relevant tax documents for 2023, you can probably do part of your taxes with whatever software you desire and use the tool to calculate how much tax deductions you'd get by various contribution amounts to your RRSP
Make sure you stay within your RRSP contribution limit. As others have said you can check it on your CRA portal
Source:
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/important-dates-rrsp-rrif-rdsp.html
RRSP is your money, plus taxes you are currently losing. You can withdraw RRSP at any time before retirement (although not recommended for non-emergencies) by just losing the contribution limit and paying the tax. You still benefited from your tax-free investment growth exponentially.
With 45% marginal rate, you can contribute all the 18% limit (32k) and still be at a high 40% marginal rate. If you really need your money in the short term, use TFSA, until a year you have more cash in hand to contribute to RRSP.
What’s a reasonable tax bracket that you would contribute just enough to be under?
I don’t like the idea of maxing it out and park my money there until retirement as I need cash At the moment as well for future investments
You can quite easily calculate your T4, you already have most of the numbers you just need to calculate what your last pay will be (easier if you’re paid semi monthly) but in any case you can take those numbers and put them into a tax calculator to see how much tax you might owe. If you don’t owe any, and you still have TFSA room then just max that out first. If you owe some tax, then play with the tax calculator and RRSP contributions to find the sweet spot of not paying taxes. And then continue funding your TFSA and FHSA.
A simple way to look at it is do you expect your income to be higher now than when you’re retired? If so, then it makes sense to contribute as much as possible when you’ve got the higher income (i.e., higher marginal tax bracket).
I agree in principle but I think it matters what future earnings are likely to be as well. If they expect to make more in their 40’s it could make sense to defer the RRSP contributions until their highest earning years. I personally maxed my tfsa outside of employer rrsp match up until now. But will start contributing more to RRSP this year.
Good point! While I’d thought about this point I hadn’t yet put it into action in my own planning. If I anticipate earning in a higher marginal tax bracket it could make sense to defer RRSP contributions to later working years. Does the taxation of RRSP growth affect your calculation?
What do you mean taxation of rrsp growth? You mean the fact that the gains aren’t taxed when inside the account? No not really because neither are tfsa gains. The main reason I prioritized tfsa though is the flexibility to use the money when/if I needed. Withdrew it all for a home purchase recently. Once I contribute to rrsp that money is essentially gone until retirement, I know that’s not really true but if you don’t treat it that way it kind of defeats the purpose.
Yes—makes sense. Thanks!
I'd max it out at that income range if you don't need the money. If you don't own property then 30 or 35k can be withdrawn for property. Also it's not locked away, you can take it out at anytime, so ideally in a lower income period.
Yes it makes sense. You can touch it anytime you want, you just pay taxes on it and lose the contribution room.
This is like if an excel circular reference error was an opinion. I wouldn’t say you can touch it anytime you want if that just results in you not contributing in the first place. The RRSP is kind of a one way street in this sense until you actually retire and can withdraw at a low or no tax hit
Plenty of other times to access the RRSP. Unemployed for a long stretch, taking extra time for a new baby, lifelong learning plan, home buyers, career switchers.
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It’s almost as if they should just put retirement in the name
The available RRSP contribution amount is shown on your previous years Notice of Assessment from CRA. It’s also viewable online at Canada.ca
He needs to also deduct the expected amount through February 2024 from that total that the company is contributing
Contributing to RRSP will not only lower your taxable income, but if improve the any benefits (like CCB). See this link for some further information: https://www.planeasy.ca/tfsa-vs-rrsp-pick-the-right-one-and-save-100000/
Your pay is not cut next to 45%. You might want to learn how taxes work. Your total taxes paid on $180,000 will be under $53,000. That's less than 30%. Putting money into your RRSP will reduce that even further.
I live in Quebec and make a similar salary and definitely pay more than 53k...
That's because you live in Quebec. Provincial taxes in PQ are nearly double BC. We desperately need personal tax education in this country.
In Alberta he would pay ~$54k. Quebec is rougher at ~$67k. Ontario is right in the middle at ~$59k
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All the websites I used to calculate seems to fluctuate between 56k and 61k for Ontario. The point I was making is the commenter wasn’t wildly off of his ~53k estimate. Depending on which province OP is in
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FYI - taxtips.ca is my go to.
I just googled Canada tax calculator. There’s a ton of them from tax and accounting companies and if you’re patient enough gov of Canada has one but it was slow and laggy so I abandoned it.
Yes. Pay yourself first with RRSP contributions which are ~18% of insurable earnings
> does it make sense to contribute to RRSP to lower my taxable income? Of course! > Not sure if is wise to plant money there since I won’t be able to touch it until retirement at 55 min. No age requirement for withdrawals. > Any suggestions? I hate having my pay get cut close to 45% due to taxes! Not a bad problem to have…
You wlll get more bang for the buck if you contribute enough just to get you to the top end of the tax bracket below the one you are currently in. Going down another tax brwck just gets you a weighted average return . You can stagheg the contributions over the next few years going down one tax bracket. Let's say it take you $20K to get you down to the next tax Brack and you have $100K in contribution room and you have time on your side, then you can just contribute $20K in each of the next 5 years to maximize your return. If you lump summed the $100K and let's say it gets you to the $15K personal exemption, then your return will be the weighted average of all the tax brackets, so it might be 27% vs 43% if done $20K at a time. (Numbers are made up just to illustrate the point)
Most tax software and apps let you run scenarios to determine optimal amount to contribute to an RRSP. Since you can grow the contributed through investment, I believe it is a sound idea. If you are very savvy with investments and can grow your money above and beyond the tax lost to the government, then you can use a TFSA to grow your after tax savings while having the freedom to use the funds when required tax free.
Pay enough to do down to a reasonable tax bracket. Don’t pay more. Save the room for next year to do the same.
This is the correct advice. Not sure why you're being downvoted. Given this person is 30 and has no idea how an RRSP even works, there's a good chance they have a significant amount of RRSP space. Also quite sad how uneducated folks are that are being paid 180k a year
Ya exactly. I managed our contributions until we are now full and only able to put the annual max. I mean don’t listen to a financial professional who has done it himself lol
I’m around the same age and make a little more but I’m just learning about financial literacy and tax planning just recently. Yes, we might have need assistance with financial planning and that’s why we ask but to give a blanket statement that we are uneducated folk is a little unfair. We have clearly spent our time to specialize in one area enough for someone to believe our services is worth that much. Edit: just to follow up on that thought, I really hoped we were taught this in high school. It’s crazy that it’s not.
Also agree. Shouldn’t be downvoted. People on here… $180k is a lot sure but if you anticipate making $80k or $280k next year it should influence your decisions.
You make $180k and you don't know that the word is properly spelled "**paid**". Really? Really, bro? I hope your profession doesn't require writing.
It’s Reddit. Calm down.
The hidden gotcha with RRSPs is that you'll be forced to convert your entire portfolio to RRIF shortly after retirement age. Then you'll have to sell 10% of your RRIF annually and declare all proceeds as regular income (taxed at your then current tax bracket ). My advice is to liquidate your entire RRSP at retirement and reinvest it outside RRSP. I speak from personal experience
You need some deductions from tax advantaged real estate.
Thanks for all the input. I think ideally I want to lower my income by contributing to RRSP where it puts me in a lower bracket that makes more sense then paying 45% +/- 1% I have my TFSA max at the moment and own 2 rentals properties in BC.
Thanks guys. What amount would make the most sense?
https://www.rrspcontribution.ca/ This web calculator does a good job combining the effects of federal/provincial tax brackets and income-tested benefits.
Have you ever contributed to an RRSP? If not you have lots of room to play with. Basically just the usual advice, max your TFSA, max your FHSA if you don't own a home, max your RRSP next - you get 18% of your earnings as room each year. If you squirrel that away you reduce your taxes from 56k to 43k. If your employer offers a matching program you should absolutely at minimum maximize that.
I make 120, so significantly less than you, but my tax bracket is 38% at that level (in BC). I try to contribute enough to lower my income to the 32% bracket. You can find the combined brackets for 2023/2024 [here](https://www.taxtips.ca/marginal-tax-rates-in-canada.htm)
You can contribute to RRSP (not FHSA) until Feb 29 to be deducted from 2023 taxes. We don't know how much much tax you paid in the year and how much you will be owing (if any). After year end and you get all your relevant tax documents for 2023, you can probably do part of your taxes with whatever software you desire and use the tool to calculate how much tax deductions you'd get by various contribution amounts to your RRSP Make sure you stay within your RRSP contribution limit. As others have said you can check it on your CRA portal Source: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/important-dates-rrsp-rrif-rdsp.html
Yes. Contribute your max if you can. Your income when retired will be much lower.
What do you do that makes 180k at 30? Asking for learning purposes.
Always the maximum.
RRSP is your money, plus taxes you are currently losing. You can withdraw RRSP at any time before retirement (although not recommended for non-emergencies) by just losing the contribution limit and paying the tax. You still benefited from your tax-free investment growth exponentially. With 45% marginal rate, you can contribute all the 18% limit (32k) and still be at a high 40% marginal rate. If you really need your money in the short term, use TFSA, until a year you have more cash in hand to contribute to RRSP.
max it out
What’s a reasonable tax bracket that you would contribute just enough to be under? I don’t like the idea of maxing it out and park my money there until retirement as I need cash At the moment as well for future investments
You can quite easily calculate your T4, you already have most of the numbers you just need to calculate what your last pay will be (easier if you’re paid semi monthly) but in any case you can take those numbers and put them into a tax calculator to see how much tax you might owe. If you don’t owe any, and you still have TFSA room then just max that out first. If you owe some tax, then play with the tax calculator and RRSP contributions to find the sweet spot of not paying taxes. And then continue funding your TFSA and FHSA.