QUESTION: I'm thinking of withdrawing $2000 to pay down my mortgage. My concern is that not only will I be taxed on the withdrawal but also my total income will go to $35.500 approx from $33.500 approx for next yrs tax. I'm paying 5.11 on my mortgage and getting about 3% approx on the RRSP? What would you suggest? I would much appreciate your feed back on this question. Sincerely xxxxxxxxxxxxx
Income without RRSP equals | 33500 | a | ||||||
2007 tax equals | 4937.74 | b | ||||||
Remove money from RRSP | 10000 | c | ||||||
add to original income of | tax at | 43500 | d | |||||
2007 tax equals | 7179.49 | f | ||||||
Tax on extra $10,000 (f - b) | 2241.75 | g | ||||||
Pay down difference )c - g) | 7758.25 | h | ||||||
Present mortgage interest | 0.0511 | |||||||
interest one year equals (h x's i) | 396.4466 | |||||||
Compounded for 10 years annually | after tax | |||||||
interest | dollars | |||||||
YEAR | saved on | 7758.25 | ||||||
2009 | 396.45 | |||||||
plus .0511 | plus .0511 | 20.26 | 416.70 | 8174.95 | ||||
2010 | 396.45 | 813.15 | ||||||
plus .0511 x's savings | 41.55 | 854.70 | 8612.95 | |||||
2011 | 396.45 | 1251.15 | ||||||
plus .0511 x's savings | 63.93 | 1315.08 | 9073.33 | |||||
2012 | 396.45 | 1711.53 | ||||||
plus .0511 x's savings | 87.46 | 1798.99 | 9557.24 | |||||
2013 | 396.45 | 2195.44 | ||||||
plus .0511 x's savings | 112.19 | 2307.62 | 10065.87 | |||||
2014 | 396.45 | 2704.07 | ||||||
plus .0511 x's savings | 138.18 | 2842.25 | 10600.50 | |||||
2015 | 396.45 | 3238.69 | ||||||
plus .0511 x's savings | 165.50 | 3404.19 | 11162.44 | |||||
2016 | 396.45 | 3800.64 | ||||||
plus .0511 x's savings | 194.21 | 3994.85 | 11753.10 | |||||
2017 | 396.45 | 4391.30 | ||||||
plus .0511 x's savings | 224.40 | 4615.69 | 12373.94 | |||||
2018 | 396.45 | 5012.14 | ||||||
plus .0511 x's savings | 256.12 | 5268.26 | 13026.51 | |||||
2019 | 396.45 | 5664.71 | ||||||
plus .0511 x's savings | 289.47 | 5954.17 | 13712.42 | |||||
2020 | 396.45 | 6350.62 | ||||||
plus .0511 x's savings | 324.52 | 6675.14 | 14433.39 | |||||
2021 | 396.45 | 7071.58 | ||||||
plus .0511 x's savings | 361.36 | 7432.94 | 15191.19 | |||||
2022 | 396.45 | 7829.39 | ||||||
plus .0511 x's savings | 400.08 | 8229.47 | 15987.72 | |||||
2023 | 396.45 | 8625.91 | ||||||
plus .0511 x's savings | 440.78 | 9066.70 | 16824.95 | |||||
2024 | 396.45 | 9463.15 | ||||||
plus .0511 x's savings | 483.57 | 9946.71 | 17704.96 | |||||
2025 | 396.45 | 10343.16 | ||||||
plus .0511 x's savings | 528.54 | 10871.69 | 18629.94 | tax free | ||||
you save | ||||||||
this much | ||||||||
This is the $10,000 left in the RRSP at the 3% mentioned. | after tax | pay down | by paying | |||||
-25% tax | in RRSP | mortgage | down | |||||
2009 | 10000 | 0.031 | 310.00 | 10310.00 | 2577.50 | 7732.50 | 8174.95 | 442.45 |
2010 | 10310 | 0.031 | 319.61 | 10629.61 | 2657.40 | 7972.21 | 8612.95 | 640.75 |
2011 | 10630 | 0.031 | 329.52 | 10959.13 | 2739.78 | 8219.35 | 9073.33 | 853.99 |
2012 | 10959 | 0.031 | 339.73 | 11298.86 | 2824.72 | 8474.15 | 9557.24 | 1083.09 |
2013 | 11299 | 0.031 | 350.26 | 11649.13 | 2912.28 | 8736.84 | 10065.87 | 1329.03 |
2014 | 11649 | 0.031 | 361.12 | 12010.25 | 3002.56 | 9007.69 | 10600.50 | 1592.81 |
2015 | 12010 | 0.031 | 372.32 | 12382.57 | 3095.64 | 9286.92 | 11162.44 | 1875.52 |
2016 | 12383 | 0.031 | 383.86 | 12766.43 | 3191.61 | 9574.82 | 11753.10 | 2178.28 |
2017 | 12766 | 0.031 | 395.76 | 13162.18 | 3290.55 | 9871.64 | 12373.94 | 2502.30 |
2018 | 13162 | 0.031 | 408.03 | 13570.21 | 3392.55 | 10177.66 | 13026.51 | 2848.85 |
2019 | 13570 | 0.031 | 420.68 | 13990.89 | 3497.72 | 10493.17 | 13712.42 | 3219.26 |
2020 | 13991 | 0.031 | 433.72 | 14424.61 | 3606.15 | 10818.46 | 14433.39 | 3614.93 |
2021 | 14425 | 0.031 | 447.16 | 14871.77 | 3717.94 | 11153.83 | 15191.19 | 4037.36 |
2022 | 14872 | 0.031 | 461.02 | 15332.79 | 3833.20 | 11499.60 | 15987.72 | 4488.12 |
2023 | 15333 | 0.031 | 475.32 | 15808.11 | 3952.03 | 11856.08 | 16824.95 | 4968.87 |
2024 | 15808 | 0.031 | 490.05 | 16298.16 | 4074.54 | 12223.62 | 17704.96 | 5481.34 |
2025 | 16298 | 0.031 | 505.24 | 16803.41 | 4200.85 | 12602.55 | 18629.94 | 6027.39 |
pay down mortgage amount | 18629.94 | |||||||
tax free | ||||||||
ahead by paying down | profit | $6,027.39 | ||||||
Note - You save $396.45 interest each year by paying down the original amount. | ||||||||
Each year you save the interest again and again. | ||||||||
Then, because you have presumably made the same mortgage payments, you are | ||||||||
saving compound interest on the amount you save because you have paid down | ||||||||
an extra $396 each and every year. | ||||||||
Whatever you do - do NOT get caught with the concept of buying an RRSP and then | ||||||||
using the refund to pay down the mortgage. Although it looks good on paper, it is | ||||||||
only good because you are paying the amount of tax you would have saved extra. | ||||||||
Comments (0)
CEN-TA Cross Border Services - Tax, Visas, Immigration
http://www.centa.com/article.php/CanWeekofMon20080519000754.html