Okay, let’s talk RRSPs for a minute. You’ve probably heard they’re awesome because contributions are tax-deductible, right? Basically, you’re delaying paying tax until retirement when—fingers crossed—you’ll be in a lower tax bracket and owe less. Pretty sweet deal.
But here’s the thing: most of us aren’t actually maxing out our contributions. Between rent, groceries that somehow cost $200 a week now, and just… life, putting thousands into retirement savings feels impossible. The good news? That unused contribution room doesn’t disappear—it carries forward indefinitely. The bad news? Many Canadians are sitting on massive amounts of unused room they just can’t fill.
Enter the RRSP loan—basically borrowing money specifically to make your contribution, often planning to pay it back with your tax refund. Sounds clever, right?
But hold up. We need to talk about the elephant in the room: interest rates aren’t what they used to be. Back when rates were super low, RRSP loans were a no-brainer for many people. Now? With rates potentially hitting 4% to 8%, the math gets way trickier. Your investments have to earn more than what you’re paying in interest, and honestly, that’s not guaranteed anymore.
What Actually Is an RRSP Loan?
Alright, so what is an RRSP loan exactly? It’s pretty straightforward—it’s a personal loan you take out specifically to contribute to your RRSP. Usually, these loans come with better interest rates than your typical consumer loan, but there’s a catch: the money has to go into your RRSP.
These loans generally come in two flavors:
Short-term loans are usually designed for one-year repayment. Think of these as your “hit this year’s contribution limit” loans—you borrow, contribute, get your refund, pay it back. Done.
Long-term or catch-up loans can stretch from 5 to 10 years and let you tackle massive unused contribution room (we’re talking $50,000 or more). These are for folks who’ve been meaning to contribute for years but just… haven’t.
Important Dates and Numbers You Need to Know
- 2024 Tax Year Deadline: March 3, 2025 (mark your calendar!)
- 2024 Contribution Limit: 18% of your previous year’s income, maxing out at $31,560
To actually qualify for one of these loans, you’ll need decent credit (think 660-724 score range), a reliable income, and not too much existing debt weighing you down.
The Strategies: How People Actually Use RRSP Loans
Let me break down the main ways people approach RRSP loans. Fair warning—there’s some math ahead, but I promise to keep it as painless as possible.
Strategy 1: The Gross-Up Strategy (The Clever One)
This is where things get interesting. The idea here is to borrow an amount where your tax refund will basically cover the entire loan (minus the interest). You’re maximizing what gets invested upfront without really being out of pocket.
Here’s an example: Let’s say your marginal tax rate is 40%. If you borrow $3,000 and contribute it to your RRSP, you’ll get a $1,200 refund (40% of $3,000). Wait, that doesn’t sound like it covers the loan, does it?
Actually, the real strategy is a bit more complex. Some people borrow in a way where the contribution plus the refund work together. It’s like borrowing $2,143, getting a $857 refund (at 40%), and using that refund to keep investing, essentially creating a multiplier effect.
The best part? Many lenders offer 60 to 120 days of deferred payments, giving you time to get that tax refund and immediately knock down the loan.
Strategy 2: The Top-Up Strategy (The Modest Approach)
This one’s for folks who’ve already got some savings but need a little boost. Maybe you’ve saved $4,000 but can contribute $6,000. You borrow the difference, knowing the refund will only cover part of the loan, but it helps you hit your goal without completely draining your bank account.
Strategy 3: The Catch-Up Strategy (The Bold Move)
This is the big one—taking out a long-term loan to drop $15,000, $30,000, or even $50,000 into your RRSP to use up years of unused contribution room.
Real talk: This strategy is risky. You’re taking on serious, long-term debt (potentially a decade’s worth), and your investments need to perform well enough over that time to make it worthwhile. Market volatility is real, folks.
The Interest Rate Reality Check
Here’s where things get serious. In today’s market, RRSP loan interest rates range from around 4.45% (if you’re getting prime rate) to possibly 8% or higher depending on your credit situation.
The brutal truth: Your RRSP investments need to earn more than whatever interest you’re paying on the loan. If you’re paying 6% interest, your investments better be earning more than 6% consistently, or you’re literally losing money.
Most financial advisors will tell you that to beat these rates, you need to invest in growth-focused stuff like equities (stocks), which historically have higher returns over the long run. But—and this is a big but—stocks also come with more risk.
The Annoying Detail Nobody Mentions
Unlike some investment loans, the interest you pay on an RRSP loan isn’t tax-deductible. So you’re paying that interest with after-tax dollars, which makes the loan less attractive overall.
The Scary Part
Let’s say you borrow $10,000, invest it, and the market has a bad year. Your investment drops to $8,000. Guess what? You still owe $10,000 plus interest. There’s no guarantee your investment will grow, but that loan payment is guaranteed.
Who Should Actually Consider an RRSP Loan?
These loans might make sense if you:
- Are in a high tax bracket now but expect to be in a lower one during retirement
- Work on commission or have seasonal income (so you know money’s coming, just not right this second)
- Have a big tax bill coming and need to offset it ASAP
Better Alternatives (Because Debt Isn’t Always the Answer)
Look, RRSP loans aren’t for everyone. Here are some other ways to boost your retirement savings without taking on debt:
Pay Yourself First with Pre-Authorized Contributions
Set up automatic transfers from your bank account to your RRSP—treat it like you’re paying a bill to your future self. Even $100 or $200 a month adds up way faster than you’d think.
The beauty of this approach? You’re using dollar-cost averaging (DCA), which is a fancy way of saying you’re buying investments regularly regardless of market conditions. Sometimes you buy when prices are high, sometimes when they’re low, and it all averages out. No market timing stress, no debt.
Take Advantage of Employer Matching
If your employer offers RRSP matching, USE IT. Seriously, it’s free money. If they match dollar-for-dollar up to a certain amount, you’re literally getting a 100% return immediately. You won’t find that anywhere else.
Spousal RRSPs for Income Splitting
If you’re in a relationship where one person earns significantly more, spousal RRSPs can be a game-changer. The higher-earning spouse makes the contribution and gets the tax deduction, but the lower-earning spouse owns the plan. When it comes time to withdraw in retirement, you’re potentially paying less tax overall as a household.
One catch: If the lower-earning spouse withdraws money within three years of a contribution, the taxes get attributed back to the contributor. So this is really a long-term strategy.
The RRSP Double-Duty Trick
Your RRSP isn’t just for retirement. Through the Home Buyers’ Plan (HBP), first-time home buyers can withdraw up to $35,000 from their RRSP tax-free to buy a house (you just have to pay it back over 15 years). There’s also the Lifelong Learning Plan (LLP) for education expenses.
Important note: If you use an RRSP loan for the HBP, those funds need to sit in your RRSP for 90 days before you can withdraw them.
The “Before You Borrow” Checklist
Before you even think about signing up for an RRSP loan, let’s get real about a few things:
Pay off high-interest debt first. If you’ve got credit card debt at 19% interest, paying that off should absolutely be your priority before taking on an RRSP loan at 6%. It’s just math.
Make sure you can actually afford the payments. Adding another loan payment to your monthly budget can affect your credit score and your ability to get other loans (like a mortgage) down the road. Don’t overextend yourself.
Don’t spend the refund. I cannot stress this enough. When that tax refund hits your account, it’s SO tempting to book a vacation or buy something fun. Don’t. That refund needs to go straight toward paying down the loan. Otherwise, the whole strategy falls apart.
Talk to a professional. Everyone’s financial situation is different. What works for your coworker or your friend might not work for you. Chat with a financial advisor about your specific situation before committing to anything.
The Bottom Line: Turbocharger or Steady Fuel?
Here’s how I like to think about the choice between an RRSP loan and regular contributions:
An RRSP loan is like putting a turbocharger on your car. You get a massive immediate boost—a big chunk of money invested all at once that starts compounding right away, plus an upfront tax break. But that turbocharger fuel (the borrowed money) is expensive (high interest), and if your engine (investments) can’t generate enough power (returns) to overcome the cost, you might end up going backwards.
Pre-authorized contributions are like using reliable, regular fuel. You get steady, consistent progress through dollar-cost averaging. It’s not flashy, but you’re moving forward without the risk of expensive debt or a major breakdown if the market tanks.
In 2025, with interest rates where they are, the turbocharger approach is riskier than it’s been in years. For most people, the slow-and-steady approach probably makes more sense. But if you’re in a high tax bracket, have unused contribution room you’re dying to use, and are confident your investments will outperform loan rates? An RRSP loan might still be worth considering.
Just promise me you’ll do the math first, okay?