Tax season is just around the corner. Heard a financial expert on TV suggested to borrow to contribute to RRSP. The rationale is that there will be tax refund since RRSP reduces the taxable income. I am not quite sure.
If a person has to borrow to contribute to RRSP and he or she has earned enough to benefit from the tax refund, what does it mean to this person’s finance? Is it possible he or she is living paycheck to paycheck and cannot generate any savings at all?
Now the interest rate is so high. The tax refund is not enough to return the borrowed fund assuming the refund is around 20% to 30% of RRSP contributions which is the borrowed amount. How can the person pay back the borrowed amount and when?
I recalled when I was working at minimum wage many years ago as a secretary at a jewelry wholesale office. A lady from Scotiabank asked me to open an RRSP account at her branch. I don’t know what the commission or incentive systems at the bank at that moment for her exactly. I knew very little about RRSP at that time because I was new to Canada. I knew that I only have enough to pay for my rent, grocery, and other necessities. I was a bit embarrassed to tell her that I didn’t have any extra money for RRSP. I am glad that I didn’t borrow money back then to contribute. The RRSP room generated from my earnings back then carried forward and I was able to use them later after I got a better-paid job.
Please be very careful when it comes to borrow money to invest especially when a person is new to investing and also hardly can generate any savings.