So, now that you have the basics of how the government allows you to save on taxes, you want to see the numbers right? Ok, let’s assume you decide you can save $5,000 a year until you have $25,000 which in a savings account would take 5 years ($5,000 x 5 years = $25,000). However, if you put that $5,000 into an RRSP, you wouldn’t have had to pay tax on that, saving you approx $1,500 in taxes that year. The next year, you again save $5,000 and add the $1,500 you got back in taxes from the year before for a total contribution of $6,500 in year 2. This time, you would save approx $1,950 in tax. In year 3, you again save $5,000 plus the $1,950 you saved on taxes for a contribution of $6,950 and another tax savings of approx $2,085. In year 4, that becomes $5,000 of your own money plus $2,085 in tax savings for a contribution of $7,085 and another tax saving of $2,125.
So after only 4 years, you have contributed:
year 1 $5,000
year 2 $5,000 + $1,500 tax savings
year 3 $5,000 + $1,950 tax savings
year 3 $5,000 + $2,085 tax savings
year 4 $5,000 = $25,535 (in your RRSP) plus year 4’s tax savings of $2,125.
So, after 4 years you can withdraw $25,000 from the
RRSP(with no tax consequences) and add
the tax saving of $2,125 from year 4’s contribution to get a total of
$27,125 in just 4 years compared to only $25,000 in 5 years outside an RRSP. Broken
down, the government allowed you to save approx $7,660 in taxes. Not bad, huh?
This calculation assumes a tax bracket of only 30% so if you are in a
higher tax bracket, you would be able to do it even faster! If you want to save over $7,000 in taxes and
use it towards your first down payment contact me TODAY at 604-649-9253
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