Tax · Canada
RRSP tax savings.
See exactly how much an RRSP contribution will save you in tax, at your marginal rate, in your province.
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Tax savings
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How an RRSP saves you tax
Every dollar you contribute reduces your taxable income by one dollar. Your tax saving is the marginal tax rate × contribution. The higher your income, the bigger the saving on each dollar, which is why RRSPs are most powerful in your top earning years.
TNAADO Inc. · Toronto
Why an RRSP deduction is a loan against your future rate
An RRSP contribution is a deduction, not a credit, so it comes off the top of your income and saves tax at your marginal rate rather than at some flat percentage. Contribute $10,000 in a year when your top dollar is taxed at 43% and you defer roughly $4,300 of tax. That is the entire mechanism, and it is also why the refund is not free money: every dollar deducted now is taxed as ordinary income when it comes back out.
The mistake people make. Contributing in a low-income year. The deduction is worth your marginal rate today set against your marginal rate in retirement, so contributing at 20% and withdrawing at 30% is a loss. You can contribute now and carry the deduction forward to a higher-income year: the contribution and the deduction are two separate decisions, and most people take both in the same year without realising they had a choice.
Disclaimer
Estimates for educational purposes only. Verify your personal RRSP contribution room with the CRA before contributing: over-contributions incur penalties.