With it being RRSP season, some of your clients may borrow money to fund their RRSP contribution.
RRSP loans can be an effective way to boost retirement savings quickly, especially if your clients want to take advantage of the full contribution limit for the year. One of the major pros is the immediate tax deduction your clients receive when contributing to their RRSP, as the amount they contribute can reduce their taxable income for that year. This could lead to a sizable tax refund, which they could use to pay off the loan or reinvest into their retirement savings.
However, there are some cons with taking out an RRSP loan. For one, clients are essentially borrowing money to fund retirement, which introduces the risk of not being able to repay the loan if a client’s financial situation changes. Furthermore, if a client fails to repay the loan within the set terms, it can impact their credit score or put them under financial strain.
The one important thing to remember is that tax refunds should be reinvested to make RRSP savings meaningful.
This calculator illustrates this and compares investing in an RRSP vs. TFSA.
For your reference, below is a comparison chart between iA (Industrial Alliance) and Manulife for RRSP Loan Programs.
We hope this information will help you help your clients.
As always, we look forward to your comments.
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