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Is it a great idea to repay my mortgage with my RRSP money after which after I pay it off, put the quantity of my mortgage payment back into the RRSP? What are the professionals and cons of this strategy for being mortgage free?
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Pay off a mortgage or proceed investing with RRSPs?
Paying off your mortgage along with your Registered Retirement Savings Plan (RRSP) after which putting the quantity of your mortgage back into the RRSP will not be a great strategy for several reasons.
- When you withdraw money out of your RRSP, it’s taxed as income. Withholding tax will initially apply to the withdrawal, but the full tax will depend upon your other sources of income for the yr through which you file your tax return.
- If you withdraw from an RRSP, you won’t receive the unique RRSP contribution room back and should not have the ability to contribute the identical amount back into the RRSP unless you may have sufficient current contribution room. This means you forgo years of compound interest on the cash you withdraw, which might never be made up again. This is different to TFSAs, where withdrawal amounts are credited back into your contribution room the next yr.
- You may earn the next return inside your RRSP than the interest you pay in your mortgage. In this case, it is smart to proceed paying the mortgage while getting the next return in your savings.
- An RRSP is best withdrawn when your income is lower and contributions are best made when your income is higher. Depending in your current income, the timing will not be the very best and should you are receiving retirement advantages, withdrawing RRSP funds could put you in OAS clawback territory. This could lead to a tax rate of over 50% and as much as 62% in 2023 for a high earner in Quebec.
A greater strategy for paying off your mortgage is to hurry up payments by an extra – and inexpensive – amount that goes directly toward the principal balance. This shortens the payback period, even when it means reducing or foregoing RRSP contributions. Speak to your mortgage lender or use a mortgage calculator to estimate the impact of accelerated repayment in your specific case.
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The post Should I money in my RRSP to repay my mortgage? appeared first on MoneyDown.
