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As a recent grad my income is lower now than it will ever again be in the future, even after retirement. So is it a good idea to be maxing out my RRSP at this point in my life? If I put money in my RRSP now and then take it out after I retire when I'll probably be in a higher tax bracket, won't I be increasing the amount of tax I pay over my lifetime, which is the exact opposite of what an RRSP is intended for? Now that my student loan is finally paid off I'm saving about $1500/month. Would it be better to just put my money in a regular non-registered account instead of an RRSP (after maxing out my TFSA of course)?
 

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Nope, I already did all that.

By recent grad I meant graduated 3 years ago, I guess it's not so recent now that I think about it, but I'm still in the early stages of my career, so although my salary has grown a little bit since my first job (I switched jobs recently) I still believe it will only go up from here.

Car all paid off long ago, have apartment (furnishing it didn't cost much because I bought my furniture very gradually rather than all at once), no significant expenses to speak of other than rent. However I have very little savings because I have been throwing all my money at my student loan. Now that it's finally done with I expect I'll be accumulating money very quickly.
 

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Not sure on how much RRSP room you have or what your life situation is, but after maxing TFSA, maxing the RRSP room that you have might be a fine idea. I mean, you can always w-draw 20K if needed for a home in the future.
 

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In my opinion, if you are in a lower tax bracket now and set on contributing to your RRSP, I would carry forward the deduction for higher income years.
I was not aware that this was an option.

So basically I can put money in my RRSP but not claim it when I do my taxes? So if I put in $5000 in 2010 and don't claim it on my tax return in April 2011, then put in another $5000 in my RRSP for 2011, that means when I do my taxes in April 2012 I can claim that I contributed $10000 in my RRSP for 2011? But if my deduction limit for 2011 was $10000 then why wouldn't I just contribute that much in 2011 even if I didn't have the extra $5000 from 2010? Claiming contributions in later years only makes sense if I believe that I will at some point in the future have less money to contribute to my RRSP than my deduction limit, correct? What if I believe I will be able to max out my RRSP every year? Or is it a good idea to leave some contribution room unused in an RRSP, just in case some expensive life event occurs (home purchase, expensive vacation, etc) that leaves me incapable of maxing out the RRSP one year?
 

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I was not aware that this was an option.

So basically I can put money in my RRSP but not claim it when I do my taxes? So if I put in $5000 in 2010 and don't claim it on my tax return in April 2011, then put in another $5000 in my RRSP for 2011, that means when I do my taxes in April 2012 I can claim that I contributed $10000 in my RRSP for 2011?
No, it won't work that way. You have to claim the $5000 for 2010 taxes and $5000 for 2011 taxes on a schedule 7 each year. That way you have reported the contribution properly and it is on record at CRA. However, if you follow schedule 7, there is a place where you can put how much you want to use as a deduction against income or to carry forward. In this case, you would write $5000 for each year as a carry forward. CRA will add these amounts to your undeducted contributions and show the total on the Notice of Assessment. Just make sure the number of $$ you contribute is not over your limit as shown on your Notice of Assessment. (You can over-contribute up to $3000 without attracting penalties)

Note: there is a difference between contribution room and undeducted contributions
Contribution room is the amount based on your earned income each year; if you don't contribute, this amount is carried forward, blended with your next year's amount, and reduced by anything you actually do contribute.
Undeducted contributions are the cumulative amounts that you actually contribute but don't use as a deduction against income. This amount can be carried forward and is shown on your Notice of Assessment. If this amount gets larger than your cumulative contribution room, you may have to use some of it up.

But if my deduction limit for 2011 was $10000 then why wouldn't I just contribute that much in 2011 even if I didn't have the extra $5000 from 2010?
You don't have to contribute every year; if you do you get the advantage of tax-free compounding. You can hold off until later, then contribute a larger lump sum, as long as you have the room as shown on your Notice of Assessment.

Claiming contributions in later years only makes sense if I believe that I will at some point in the future have less money to contribute to my RRSP than my deduction limit, correct? What if I believe I will be able to max out my RRSP every year? Or is it a good idea to leave some contribution room unused in an RRSP, just in case some expensive life event occurs (home purchase, expensive vacation, etc) that leaves me incapable of maxing out the RRSP one year?
Whether you actually deduct the contribution in the same year you fork out the money or not, it must be reported in the year, you actually make the contribution. You can still contribute your full contribution every year, as long as you don't need the money for emergency purposes or other such as vacation. Then you would report it on a schedule 7 each year, use only as much as you need as a deduction to bring your taxes down, and carry the balance forward as undeducted contributions to be used in a year that you don't have any cash.

Once you marry and have children, believe me, things will come up to eat your cash.
 

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No, it won't work that way. You have to claim the $5000 for 2010 taxes and $5000 for 2011 taxes on a schedule 7 each year. That way you have reported the contribution properly and it is on record at CRA. However, if you follow schedule 7, there is a place where you can put how much you want to use as a deduction against income or to carry forward. In this case, you would write $5000 for each year as a carry forward. CRA will add these amounts to your undeducted contributions and show the total on the Notice of Assessment. Just make sure the number of $$ you contribute is not over your limit as shown on your Notice of Assessment. (You can over-contribute up to $3000 without attracting penalties)

Note: there is a difference between contribution room and undeducted contributions
Contribution room is the amount based on your earned income each year; if you don't contribute, this amount is carried forward, blended with your next year's amount, and reduced by anything you actually do contribute.
Undeducted contributions are the cumulative amounts that you actually contribute but don't use as a deduction against income. This amount can be carried forward and is shown on your Notice of Assessment. If this amount gets larger than your cumulative contribution room, you may have to use some of it up.



You don't have to contribute every year; if you do you get the advantage of tax-free compounding. You can hold off until later, then contribute a larger lump sum, as long as you have the room as shown on your Notice of Assessment.



Whether you actually deduct the contribution in the same year you fork out the money or not, it must be reported in the year, you actually make the contribution. You can still contribute your full contribution every year, as long as you don't need the money for emergency purposes or other such as vacation. Then you would report it on a schedule 7 each year, use only as much as you need as a deduction to bring your taxes down, and carry the balance forward as undeducted contributions to be used in a year that you don't have any cash.

Once you marry and have children, believe me, things will come up to eat your cash.
+1 what stardancer said!
 

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I'm not even sure if contributing to an RRSP and carrying-forward the tax benefit is all that worthwhile.

What if you want to remove some money from the RRSP - would the funds still be considered income, even if you haven't claimed the tax benefit yet?

If your income isn't that high, then taxation on earnings won't be high either. Dividends might even be free.

As was said, you might need this money someday...
 

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You've received very good advice in this thread. You can carry forward your RRSP deduction, but I agree with four pillars. The carry-forward is generally best used when you have a predictable, sharp increase in income. Given your age and circumstances, a TFSA may be more valuable than a RRSP. You can withdraw from a TFSA easily without tax consequence (unless you re-contribute in the same year). You're right in that a TFSA beats a RRSP when your tax rate upon withdrawal is higher than on contribution. A RRSP beats a TFSA when saving for a house because the pre-tax dollars from a RRSP can be withdrawn tax-free through HBP.

If you invest in (eligible) dividend paying corp. outside a registered account, your marginal tax rate may be negative if your at a low tax bracket. Please note that the dividend tax credit will be reduced, starting this year. See www.taxtips.ca/dtc/enhanceddtc.htm
 

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You've received very good advice in this thread. You can carry forward your RRSP deduction, but I agree with four pillars. The carry-forward is generally best used when you have a predictable, sharp increase in income. Given your age and circumstances, a TFSA may be more valuable than a RRSP. You can withdraw from a TFSA easily without tax consequence (unless you re-contribute in the same year). You're right in that a TFSA beats a RRSP when your tax rate upon withdrawal is higher than on contribution. A RRSP beats a TFSA when saving for a house because the pre-tax dollars from a RRSP can be withdrawn tax-free through HBP.

If you invest in (eligible) dividend paying corp. outside a registered account, your marginal tax rate may be negative if your at a low tax bracket. Please note that the dividend tax credit will be reduced, starting this year. See www.taxtips.ca/dtc/enhanceddtc.htm
All good points. Though I believe the comment on the TFSA was that the RRSP was an option as the TFSA was already maxed out. Or maybe I misunderstood.

The tradeoff is that if it grows consistently, more time for the RRSP investment to grow without any tax reductions is a benefit over the long haul.
 

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I'm a recent grad too (I think- about 5-6 years) and I made the mistake of contributing to my RRSP and using the tax deduction when I wasn't making as much as I am now. I think that using that money to grow tax sheltered in an RRSP is a good idea, unless you work in a place with a defined pension plan.

Agree with the excellent advice already given! :D
 
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