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If you’ve accumulated RSP contribution room over the years (this is unused RSP contribution carried forward from previous years), and you’d like to catch up on these unused RSP contributions, consider borrowing money through a low-rate line of credit.
You can check the Notice of Assessment you receive from the Canada Revenue Agency every year to see how much unused RSP contribution room you have available.
You can lower your taxable income and benefit from compound returns by investing earlier and contributing as much as possible. This may result in significant gains over time - compared to the low interest cost you pay while your debt is being paid off.
Remember that a good way to pay off the line of credit quicker is to apply any tax refund you receive against your line of credit balance
| Here's an example of how borrowing for your RSP works* |
| Borrow to invest in your RSP: |
$5,000 |
Tax refund - applied to line of credit:
(Assumes a 40% marginal tax rate) |
$2,000 |
| Suggested monthly payments: |
$150 |
| Estimated time to pay off the line of credit: |
3 years or less |
| Total interest cost at 5%: |
$175 |
| Compare to... |
Savings on your Income Taxes:
(Tax refund less interest cost) |
$1,825 |
RSP value at the end of 10 years:
(Assumes 8% annual compound rate of return) |
$10,795 |
* This example assumes a tax refund is applied to the line of credit in the fourth month and rates are constant. Monthly payment is based on a repayment schedule of 3 years. If the tax refund is applied to the line and the repayment amount remains constant, the line of credit can be paid off in approximately 1 year and 10 months. The figures above are an example only. Actual interest rates will vary. Amounts were rounded.
Build your RSP through a Scotia RSP CatchUp™ Line of Credit. Use the funds to max out your current RSP contribution, or to take advantage of any unused RSP contribution room you may have accumulated from previous years.
Want to know more about the benefits or borrowing to catch-up on your RSPs? Try our Scotia RSP Catch-Up™ Calculator.
We can help you find the money you didn't know you had for your RSP. Come in and chat. Our Scotiabank advisors will help you determine how you can reach your goals. Contact your local branch to make an appointment.
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