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Maximizing your RSP contribution every year pays off

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A majority of Canadians don't make the maximum RSP contribution they're entitled to make each year. Here's powerful evidence of why it may make sense to use a loan or line of credit to help bridge the gap.1

You know your registered Retirement Savings Plan (RSP) contribution could be the most important investment you make every year. But with a mailbox that may be full of holiday bills, household expenses to cover and the thought of a winter weekend away becoming irresistible, it may be hard to find the money you need to make that contribution. That's why a growing number of people consider using credit to top up their RSP. And after a quick look at the figures, you can see why.

Consider what happens if you miss a single $1,000 contribution at age 29. It doesn't sound like much, but if you were to factor in a 6% annual rate of return and assume you didn't make up for this missed contribution in a future year, you'd witness a dramatic $9,285.72 reduction in the net value of your RSP by the time you reached age 69.

Here's another way to look at it

The benefits of using credit to contribute
Borrow $1,000 and contribute it to your RSP

Return on RSP investment at 6%
        for 1 year:
        for 10 years:
        for 40 years:

Repay loan over 12 months - total of payments

Loan interest paid over the 12 months





The example above assumes that your RSP earns 6% interest compounded annually, the loan interest rate is 6% compounded monthly and the loan is repaid in 12 equal monthly installments of approximately $86. Rates are for illustrative purposes only. They are not intended to be representative of current rates.

It can make good sense to invest your income tax refund in your RSP so it can earn tax-deferred interest until it is withdrawn. Or, you can use it to pay off your RSP loan early with no penalty, or to pay down your line of credit.

Things to consider

As appealing as using credit may be, there are some factors to consider.

Ability to Repay. Don't borrow more than you can repay because it may make it difficult to save for the next year's RSP contribution. You want to be able to pay off your balance and, if possible, begin saving for next year.

Ability to Borrow. An RSP Loan or Line of Credit, like any other, will increase your debt service ratio, which is the percentage of your monthly income that goes to pay off debts. Lenders rely on this ratio to determine your loan eligibility. Keep your other borrowing needs in mind before you take out an RSP Loan or Line of Credit.

Remember, investing all you can in an RSP makes good financial sense. Check out why --

 Catching up for missed contributions makes sense

Visit the RSP Centre for RSP information, investment choices and tools.

1 Subject to meeting TD Canada Trust lending criteria. Using borrowed money to finance the purchase of securities involves greater risk than a purchase using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the securities purchased declines.

Rates & Numbers

  • TD Prime Rate: 2.70%
    Effective Date July 17, 2015
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