RRSP Loan Tips

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1 Look no further for smart, simple ways to borrow strategically. Elaine LaPlante, Florist How to RRSP VERSION GET RICH using other people s MONEY Advice on RRSP loans and more! Author of the bestseller HOW TO SAVE A MILLION DOLLARS 1

2 CONTENTS Introduction 3 1. Now, more about an RRSP loan 4 2. It even gets better 5 3. Ok, but does one year really matter? 6 4. Good debt vs. bad debt 7 In Closing 8 1

3 Debt is just like cholesterol. Too much of the wrong kind can kill you. But too little of the right kind can be a problem, too. Just as not all kinds of fat are equally bad for your health, not all kinds of debt are equally bad for your wealth. JON HANSON Good Debt Bad Debt 2

4 INTRODUCTION With the aforementioned quotation, Jon Hanson pretty much summed up a practical fact. There s good debt and there s bad debt the difference of which we ll get into a bit later. In the meantime, most financial experts will agree that acquiring a little debt by borrowing money for an RRSP is good debt. This is because an RRSP is one of the best tax shelters available. Any contribution you make is deducted directly from your income (thus reducing your taxable income) and it grows tax-free. Spread the news: Like butter, borrowing for an RRSP can be good for you. 3

5 1 Now, more about an RRSP loan. If you don t have funds readily available for this year s RRSP, an RRSP loan may be the way to go. As far as loans go, it s about as smart as they come. An RRSP loan will let you make your annual contribution so you can take advantage of the tax benefits today and in the future. Additionally, you may receive a tax refund, which you can then use to pay down the loan or even pay it off. Plus, if you have unused contribution room (and who doesn t?), an RRSP loan will allow you to top up your contribution level and again take advantage of the tax benefits. RRSP LOAN 4

6 2 It even gets better. Also, at Coastal Community, we offer RRSP loan rates as low as 2.60% and flexible payment terms. In fact, we will defer your first monthly RRSP loan payment for up to 90 days giving you the ability to apply your tax return directly to your loan. RRSP LOAN 2.60% *Rates subject to change without notice. See branch or online for details. Rate is based on Prime

7 3 Ok, but does one year really matter? Yes. Even small RRSP contributions can grow substantially over time thanks to compound interest. Compound interest is that wonderful force that calculates interest on the initial principal and also on the accumulated interest. When you miss a year, your base for compounding is exponentially lower. Skipping just one annual contribution of $5,000 could reduce the value of your RRSP by almost $17,000 at the end of 25 years.* Skipping multiple years, especially in your late twenties and thirties, compounds the reduction significantly. Small is beautiful never underestimate the growth potential of small amounts contributed consistently. *Assuming a 5% annual rate of return. 6

8 5 Good debt vs. bad debt. Interested, but leery of debt? We understand. But, yes, there is such a thing as good debt and bad debt. If you re a person of relatively modest means, bad debt includes luxury yachts, any kind of sports franchise and most European castles. On the other hand, an RRSP loan falls into the category of good debt. Rather than using the money to fill up your yacht or to pay for player salaries you are using it to help with retirement planning, lower your taxable income and have tax-deferred savings growth. Although an RRSP can be considered good debt, talk to one of our experts about what s right for you. You will want to make sure you are comfortable with the loan payments ideally being able to pay the loan off within a year % 7

9 IN CLOSING To learn more about how the experts at Coastal Community can help you get rich (or at least a little richer) using other people s money, call today or visit the branch nearest you. Make an appointment to meet with one of our experts and make sure you are on track to achieve your goals. We ll even be happy to answer questions about why debt for luxury yachts, any kind of sports franchise and most European castles is not a good idea. This e-book is presented as a general source of information only, and should not be considered as individual financial, investment, or tax-planning advice. Readers are urged to obtain professional advice before acting on the basis of the material contained in this e-book. Our best efforts have been made to ensure that the material within this e-book is accurate at the time of publication. 8