Saving money for future years requires effort and sacrifice, so at tax time people often wonder if it's wiser to pay down a mortgage or to invest in an RRSP?
The answer, according to financial planners at Alterna Savings, depends on one's mortgage circumstances, but the bottom line: you can't go wrong putting money into a registered retirement savings plan.
"All of the savings in an RRSP get tax-free compounding," says Michael Singson, a senior planner at Alterna, "and contributions within your maximum yearly contribution room, make you eligible for a tax refund. On the other hand, if you pay down your mortgage with a lump sum, the monthly payments are reduced, but there is no tax-free compounding, or refund."
You could however do both at the same time: use your funds to pay down the mortgage and buy an RRSP with the savings. Or, invest in an RRSP first, and use the tax refund to pay down the mortgage. Factors to consider are the:
- Mortgage rate
- Years to retirement
- Rate of investment return
- Marginal tax rate
If you have questions on this topic be sure to discuss them with a financial planner and online investment information is also available at alterna.ca.
Credit: www.newscanada.com