How do RRSP Tax Deductions Work?
Whenever you contribute (put money into) an RRSP the contributions are tax deductible, up to certain limits.
But how does that work?
Here’s a simplified example:
Let’s say you’re an employee and you make $150,000 a year. And all year long tax is being taken off your cheques whenever you get paid.
Now let’s say your tax rate is 40%. And you decide that you want to put $10,000 into your RRSP to save for retirement.
So far, you’ve been taxed based on making $150,000. But when you put $10,000 into your RRSP, the government sees that $10,000 as income for later, when you retire. So really, you only made $140,000 this year. So they have to give you the tax back on that extra $10,000.
And at a 40% tax rate, that’s $4,000 back. In your pocket. Not the government’s. And that is lovely.
Get to know Rhys Martell by clicking HERE.
Meet the Rhys Martell Financial Advisor Team by clicking HERE.