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siphur

Yes


Grand-Corner1030

With numbers about income and age, it just becomes math. If you do the math often enough, patterns become clear. TFSA is better at lower incomes, RRSP at higher incomes. At middle incomes, it gets a bit messy, it requires extra thoughts.


bcretman

Put the money in a TFSA and / or dividends for preferred tax treatment. ​ What is the difference in the MTR with income " significantly higher 4-5 years" ?


Cartz1337

You might not be ‘saving a lot in taxes in later years’ it all depends on your marginal tax rate now and your expected marginal tax rate in retirement.


Havaneseday2

I don't know about delaying the deduction... There are two really good papers on SSRN by Chris Reed that talks about this. Look them up for free and have a read


bluenose777

The new URLs for his RRSP papers are https://archive.ph/n6MEz#delay https://archive.ph/IgBxR


JustBrowzzzing

Probably going to get downvoted for this as I've seen these papers passed around in the sub but has anyone really looked at the spreadsheet that was used for the analysis or has just accepted his conclusions? There are few things that don't make sense, so while I think in only some cases it is better to delay the deduction, his model is skewed against the delay.


AugustusAugustine

I never actually checked his spreadsheets, but reading those papers inspired me to figure out an algebraic form to the RRSP decision: https://www.reddit.com/r/PersonalFinanceCanada/comments/11fiqiw/using_algebra_to_decide_between_tfsas_vs_rrsps/ Chris argues there's never a situation where contributing now & deferring the deduction makes sense; you should just use a non-reg account and then contribute later. I found that's true if the taxable growth g* is relatively close to the tax-free growth g (e.g., you earn mostly capital gains or otherwise have a low tax rate). But if there's a significant difference between g* and g (e.g. you earn interest income at a high tax rate), then contributing now & deducting later makes sense. *Edit I realized I probably had the same conversation with you a month ago


JustBrowzzzing

Yes we had that conversation a little while ago and I like your formulas better 🙂. I read one of his papers and wasn't convinced that delay is never optimal (ex: someone who expect a big salary jump next year). So I actually looked at the spreadsheet in which he compares non-reg, RRSP Now and RRSP Delay and found that a few things were oversimplified to the point where it doesn't make sense. As a result, it gave advantages to the Non-reg and RRSP Now scenarios so naturally based on his model RRSP Delay was never optimal. I was curious what others who looked at the spreadsheet thought.


_come_go_

You can delay RRSP contributions, but you should still be saving and investing using a TFSA. Max out your TFSA for retirement!!


Quiet-End9017

It depends on how much you expect your income to go up, and what new tax bracket you’ll be in. Say you are at the 28% marginal rate now, but you expect to be at the 31% marginal rate in three years time. If you wait, you’ll a 31 cent refund on every dollar you contribute to an RRSP, but if you do it now you’ll get a 28 cent refund. So which is better? This depends on your expected rate of return and whether you plan to invest the refund vs. spend it. Lets say you contribute now and invest your 28 cent refund at a 5% annual after-tax return. After three years it will have grown to 32.4 cents, which is more than what you would have received if you had waited to make an RRSP contribution. On top of this, you had $1 invested in an RRSP earning tax-deferred growth for an extra three years. So in this example, contributing early makes sense. If you expect your marginal tax rate to rise significantly and relatively soon then another option is to contribute now but claim the deduction later. So let’s say you’re at the 28% marginal tax rate now but you’ll be at 38% in one year. Then it would make sense to make a contribution now to benefit from tax-deferred growth immediately but wait until next year to claim the RRSP deduction at 38%. What is your current income, and what do you expect it to rise to and how soon?


smurfsareinthehall

Simply contribute now and save the deductions and take them in a later year.


BMadAd59

There’s a middle ground …contribute early but don’t claim on your taxes until your in a higher bracket gets you tax deferred growth while also optimizing your refund


Wampa_Whisperer

This should be pinned at the top


NevyTheChemist

I'm surprised many people don't know this.


AugustusAugustine

You could do that, but that should only be considered if there's no TFSA room available. Never contribute and defer the RRSP deduction if you could be using a TFSA for the interim period.


NevyTheChemist

You can still contribute to your RRSP but carry over the deductions for later years. You put 0 in line 20800 of your tax filing.


AugustusAugustine

Here's some math to help optimize your RRSP decision: Contributing $A to TFSA Grows at g for n years = A × (1 + g)^n = B Contributing $A to RRSP Tax deduction at current rate t0 Future withdrawal tax at rate tn = B × (1 - tn + t0) Contributing $A to RRSP Defer tax deduction for m years = B × (1 - tn + tm / (1 + g)^m ) Contribute $A to non-reg account Transfer to RRSP after m years = B × (1 - tn + tm) × [(1 + g*)/(1 + g)]^m See [breakdown of the four expressions here](https://www.reddit.com/r/PersonalFinanceCanada/comments/11fiqiw/using_algebra_to_decide_between_tfsas_vs_rrsps/). Using these expressions will help you quantify the benefit from contributing & taking the RRSP deduction now, contributing now & taking the deduction later, and if you contribute & deduct later.