RRSPs RRIFs and TFSAs -> Maximize your RRSPs
Maximize your RRSPs and/or TFSAs, and Start as Young as Possible!
Even a small amount contributed annually becomes a large amount over time, as shown by the table below.
| Annual Contributions | Total Contributions Over 30 Yrs |
Value in 30 years | ||||
| Case | Years 1 to 15 |
Years 16 to 20 |
Years 21 to 30 |
5% return | 10% return | |
| Case 1 | $1,000 | $1,000 | $1,000 | $30,000 | $ 69,761 | $ 180,943 |
| Case 2 | zero | $2,000 | $2,000 | $30,000 | $ 45,315 | $ 69,899 |
| Case 3 | zero | zero | $3,000 | $30,000 | $ 39,620 | $ 52,594 |
| Case 4 | $1,000 | zero | zero | $15,000 | $ 47,103 | $ 145,993 |
| Case 5 | zero | $1,000 | $1,000 | $15,000 | $ 22,657 | $ 34,950 |
In cases 1 to 3, a total of $30,000 was contributed to RRSPs or TFSAs, earning either 5% or 10% per year.
In Cases 4 and 5, only $15,000 was contributed in total.
The above results don't reflect the amount of tax that can be saved by contributing to RRSPs.
Tip: Note the huge difference by contributing earlier. However, see our article Are you better off to pay down your mortgage, or contribute to an RRSP?.
If you are in the lowest tax bracket, it may be better to put your money into a Tax Free Savings Account (TFSA) rather than an RRSP - it will still earn income tax-free. When you are in a higher tax bracket, the funds can be transferred from the TFSA to the RRSP. This would result in an RRSP contribution equal to the market value of the investments in the TFSA at the time of the transfer.
TaxTips.ca Resources
What is better - TFSA or RRSP?
Rule of 72 - how long does it take to double your investment?
Historical Investment Returns on Stocks, Bonds, T-Bills
Revised: October 26, 2023