RRSP Catch Up Loans

Borrowing to maximize your RRSP contribution usually leaves you further ahead than making a smaller contribution without a loan. Even though interest on an RRSP loan is not tax deductible, the combination of low borrowing rates and paying off the RRSP loan within one year will result in more total assets.

For example, if you take out an RRSP loan of $5,000 to increase your total contribution to $10,000, after one year you will wind up with $10,425 in total assets versus $7,721 in the "no loan" case - a $2,705 advantage.

This assumes you are in the 46.41% tax bracket the RRSP grows at 8.00% per year and you pay 8.00% in loan interest. This also assumes that you use the $4,641 tax refund to pay down the loan as soon as it is received.