I know tax time is behind us.. but you know, I just found this blog article and decided to write about it. I haven’t written many financial posts lately and this is one that I didn’t want to leave till the last minute.
It’s really a straight forward concept, but I’ve never really thought of it this way.
If somehow you ended up saving, or have $10,000 to contribute to your RRSP – instead of taking the refund (say you’d get back $4600 for that contribution) and spending it, you turned around and contributed it back into the RRSP again. You would then have $14,600 in your RRSP – AND you’d get back another $2,116 approximately (if you’re in the top tax bracket). That year you put that into the RRSP as well.. you’re now up to $16716 in your RRSP – and you have yet to re-contribute anything! This year, you get back $973 from the tax man for that refund and then you put that back in again.. you see where I’m going with this?
Eventually you’d have over $18000 from your original $10,000 working for you in your RRSP without having to anything – and hopefully that amount would be growing as well since it’s invested properly…. right??
To recap the years:
- 10,000 in refund of 4600
- 4600 in RRSP, get back 2116
- 2116 in RRSP, get back 973
- 973 in RRSP, get back 448
- 448 in RRSP – buy dinner with refund
So let’s see now, $10000 year 1, $18000 year 5… hell that’s a 12.5% growth rate without making an investment at all.. not bad eh??
I’ve actually spoken to a few friends about this and they all agree that this is what was meant to be done with RRSP returns.. odd I never thought of it like this.. I know I have a LOT of room for investing into my RRSP – and I’m seriously debating going this route to maximize the return on my money.