I’ve invested in RRSPs as I mentioned previously, but I’ve come to realize that I have a second, albeit not as pressing, dilemma. As I mentioned before, I haven’t edged into the next tax bracket, so I don’t need RRSPs to lower my tax bracket; although even that is moot because you only pay extra tax on the marginal portion above the bracket. If you’re only slightly over, using RRSPs to lower the tax bracket doesn’t seem to save much tax, so whether or not one should claim RRSPs should be due to whether they want to pay less tax or not.

The question for me is whether I want to claim my contributed RRSPs this year, and save on tax now, or save it for a future year. I’m not desperately needing the extra tax relief my RRSP contributions would save so I’m considering whether I should save my claim for future years where I may need the extra money. The danger in saving up my contributions is that I run the risk of my previous contributions plus the current year’s contributions exceeding my total available contribution cap. My accumulated cap may seem high (i.e., > $20k) but I might end up contributing close to the cap in order to benefit from the HBP. Although it seems like I have sufficient room to not have to worry about that.

I guess the final point is that if I were to not claim my contribution, I pay a (real) opportunity cost now for the possibility of a benefit later. I could take my tax savings now and invest it or buy a new camera etc. Although when you consider what ~40% of 10% of my annual income is, it’s not a terribly large amount of interest I can earn.

Posted by Kevin in Blogs Tags: money, taxes