Wednesday, February 13, 2013

RRSP Boost and Waiting on Taxes

As of the end of business day tomorrow I should have just under $19,500 in my RSP. This is a combination of my usual $550 per pay automatic contribution and a $4,450 extra contribution I made.

$4K of this money is a loan from my aunt. I simply showed her my income tax report I did on turbo tax. It showed that if I made an extra $4K RSP contribution before March 1st that I would get back $3,989 as a refund. So, its basically an RSP loan that I'm paying back as soon as I get my refund.

After I pay her back this $4K I will be borrowing another $5K to bring my RSP up to the $25K max allowed under the first-time homebuyers plan. I will be paying her back in $500 monthly installments until the end of the year (10 months at $500 per month = $5K, she doesn't charge me interest :) )

I'm doing this for a few reasons.
  1. Why not take a RSP loan if you can pay it back right away without interest?
  2. There is a rule that you have to have the money in your RSP at least 90 days before you can withdrawal it from the plan for the HBP. If I wait and contribute as I have been, I won't be finished until mid-July. What if we find a place in September and I can't make a full withdrawal?
  3. I still have to save extra outside my RSP. We live in Toronto. The average townhouse here costs about $355K if we want to have a 20% downpayment (and we do, screw CMCH fees!) then we have to save $71K! And there's closing costs as well. T already has his $25K in his RSP and about $7K saved outside. With my $25K RSP we are at $57K and need $14K more to have that 20%. If I pay my aunt back $500 a month, I can save the other $500 a month outside the RSP. Giving me another $5K before the end of the year and if T can save $9K then we are done. We are hoping to get something under this range, of course :) But better to be prepared.
  4. This gives me another $100 per month to put towards debt. Yes, I realize this isn't a lot but every extra bit helps. I will be stopping my automatic deposit to my RSP. I may have to make a 1st 60 day contribution in 2014 to avoid paying tax (I'm now making more money than I ever have). But if we do buy a home in 2013 I have to pay some back to HBP and we will have the first time buyers tax credit as well :)
So now I just have to wait until I get my T4 and last RSP contribution record and I can file my taxes. I hate the waiting game ;)

And yes, I consider myself extremely lucky to have an aunt that is willing (and able) to help us out in this way. I've borrowed money from her in the past and have paid it back, so she knows that I'm good for this. So, why not get her to lend me the money to pay off my debt? Yes, I could save quite a bit in interest, but I'm doing it this way to "feel the pain" so that I never go into debt for stupid stuff again.

How much are you getting for your income tax refund and what are you planning on doing with it?


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