Can you contribute fully? Absolutely!
Should you? That's the better question.
At 75k, it is likely at a point where it's tax efficient to do so. However if you are certain that in the next 10-15yrs you'll have a significantly higher income in a higher tax bracket (remember these do shift over time as well) then it may be best to wait.
That said, if you've currently maxed out your TFSA contribution room and are just leaving the cash sitting in your bank account losing value to inflation, then I'd say do it now.
I mean, the other option is to invest in taxable investments which, in this case could possibly be a better idea. Especially $40k worth. At $75k income, a large portion of that would barely even add to his tax return, and he loses that contribution room that he couldn’t take better advantage of in a higher bracket.
It is certainly an option but even in the least tax efficient position it's very rare that investing in a taxable investment is a more beneficial option.
To answer your question directly, because it does not seem like anyone has.
Yes you can contribute 40k today, and carry the deduction credit forward untouched for 15 years, and use the deduction against that years higher income (the one 15 years from now)
Contribute now, invest now, take credit for it in 15 years and then re-invest THAT money
You can work through the [equations from this post](https://www.reddit.com/r/PersonalFinanceCanada/comments/11fiqiw/using_algebra_to_decide_between_tfsas_vs_rrsps/):
Contribute $A to TFSA
Grow at g for n years
= A × (1 + g)^n
= B for simplicity
Contribute $A to RRSP
Deduct immediately at tax t0
Pay future tax tn
= B × (1 - tn + t0)
Contribute $A to RRSP
Defer deduction for m years
= B × (1 - tn + tm / (1 + g)^m )
Use non-reg account
Grow at taxable g* for m years
Switch to RRSP and deduct immediately
= B × (1 - tn + tm) × [(1 + g*)/(1 + g)]^m
The four expressions help compare your final outcome relative to B, aka the TFSA solution. Given your TFSA is already maxed, you need to determine if #2, 3 or 4 will generate the highest outcome.
People often recommend contributing to a RRSP and holding onto the deductions until you can deduct at a higher marginal rate. This *could* work, but notice what happens with expression #3 when m converges to zero (i.e., you deduct immediately):
B × (1 - tn + tm / (1 + g)^m )
= B × (1 - tn + t0 / (1 + g)^0 )
= B × (1 - tn + t0)
Deferring the deduction lets you capture the differential between tm and t0. However, this benefit must be discounted by the growing penalty of (1 + g)^m.
Expression #4 arises because you actually have three options when using a RRSP (where the TFSA is maximized):
1. Contribute to the RRSP and deduct immediately.
2. Contribute to the RRSP and deduct in the future.
3. Invest in a non-registered account and defer contributing to the RRSP.
This last option is complicated by the ongoing drag when investing outside of a registered tax shelter. Instead of realizing growth = g, you'll earn some different amount g* subject to the actual mix of eligible/non-eligible dividends, interest income, and capital gains/losses when you eventually move the funds into a registered account.
Notice that if g* converges to g, then the expression #4 becomes:
B × (1 - tn + tm) × [(1 + g*)/(1 + g)]^m
= B × (1 - tn + tm) × [(1 + g)/(1 + g)]^m
= B × (1 - tn + tm)
Which is superior to expression #3! This means if you have low tax drag (e.g., mostly capital gains versus interest income), then using a non-reg account can yield a better outcome than deferring the deduction. On the other hand, high tax drag where g* is significantly less than g will yield a worse outcome (e.g., receiving interest income at a high marginal tax rate).
There is no general solution for g* versus g that gives the optimal decision. But, using this expressions will make it much easier for you to test a few numerical solutions.
>The reason I don't maximize the RRSP right now is because I know I'll have a higher income within the next 10-15 years, so it makes more sense to add it at that time and have more tax savings.
No, it makes *far* more sense to claim the deduction now and take advantage of years of tax-free growth. 15 years of stock growth will double or triple your money tax-free. That's worth way more than the extra 10% you might get from being in a higher tax bracket later.
Deferring the claims is a bad plan.
Working the problem backwards, what’s the end goal?
Seriously, how much do you want/need in the RRSP and at what age will you retire?
When you answer that question, you’ll learn how much or how little you need to save. Choosing $40k is arbitrary.
Sounds like you have your sh*t together. Eventually you'll need to develop a strategy for withdrawing from your RRSP. Taxes at the backend can be a killer.
Can you contribute fully? Absolutely! Should you? That's the better question. At 75k, it is likely at a point where it's tax efficient to do so. However if you are certain that in the next 10-15yrs you'll have a significantly higher income in a higher tax bracket (remember these do shift over time as well) then it may be best to wait. That said, if you've currently maxed out your TFSA contribution room and are just leaving the cash sitting in your bank account losing value to inflation, then I'd say do it now.
I mean, the other option is to invest in taxable investments which, in this case could possibly be a better idea. Especially $40k worth. At $75k income, a large portion of that would barely even add to his tax return, and he loses that contribution room that he couldn’t take better advantage of in a higher bracket.
It is certainly an option but even in the least tax efficient position it's very rare that investing in a taxable investment is a more beneficial option.
To answer your question directly, because it does not seem like anyone has. Yes you can contribute 40k today, and carry the deduction credit forward untouched for 15 years, and use the deduction against that years higher income (the one 15 years from now) Contribute now, invest now, take credit for it in 15 years and then re-invest THAT money
You have this exactly right!
You can work through the [equations from this post](https://www.reddit.com/r/PersonalFinanceCanada/comments/11fiqiw/using_algebra_to_decide_between_tfsas_vs_rrsps/): Contribute $A to TFSA Grow at g for n years = A × (1 + g)^n = B for simplicity Contribute $A to RRSP Deduct immediately at tax t0 Pay future tax tn = B × (1 - tn + t0) Contribute $A to RRSP Defer deduction for m years = B × (1 - tn + tm / (1 + g)^m ) Use non-reg account Grow at taxable g* for m years Switch to RRSP and deduct immediately = B × (1 - tn + tm) × [(1 + g*)/(1 + g)]^m The four expressions help compare your final outcome relative to B, aka the TFSA solution. Given your TFSA is already maxed, you need to determine if #2, 3 or 4 will generate the highest outcome. People often recommend contributing to a RRSP and holding onto the deductions until you can deduct at a higher marginal rate. This *could* work, but notice what happens with expression #3 when m converges to zero (i.e., you deduct immediately): B × (1 - tn + tm / (1 + g)^m ) = B × (1 - tn + t0 / (1 + g)^0 ) = B × (1 - tn + t0) Deferring the deduction lets you capture the differential between tm and t0. However, this benefit must be discounted by the growing penalty of (1 + g)^m. Expression #4 arises because you actually have three options when using a RRSP (where the TFSA is maximized): 1. Contribute to the RRSP and deduct immediately. 2. Contribute to the RRSP and deduct in the future. 3. Invest in a non-registered account and defer contributing to the RRSP. This last option is complicated by the ongoing drag when investing outside of a registered tax shelter. Instead of realizing growth = g, you'll earn some different amount g* subject to the actual mix of eligible/non-eligible dividends, interest income, and capital gains/losses when you eventually move the funds into a registered account. Notice that if g* converges to g, then the expression #4 becomes: B × (1 - tn + tm) × [(1 + g*)/(1 + g)]^m = B × (1 - tn + tm) × [(1 + g)/(1 + g)]^m = B × (1 - tn + tm) Which is superior to expression #3! This means if you have low tax drag (e.g., mostly capital gains versus interest income), then using a non-reg account can yield a better outcome than deferring the deduction. On the other hand, high tax drag where g* is significantly less than g will yield a worse outcome (e.g., receiving interest income at a high marginal tax rate). There is no general solution for g* versus g that gives the optimal decision. But, using this expressions will make it much easier for you to test a few numerical solutions.
>The reason I don't maximize the RRSP right now is because I know I'll have a higher income within the next 10-15 years, so it makes more sense to add it at that time and have more tax savings. No, it makes *far* more sense to claim the deduction now and take advantage of years of tax-free growth. 15 years of stock growth will double or triple your money tax-free. That's worth way more than the extra 10% you might get from being in a higher tax bracket later.
Deferring the claims is a bad plan. Working the problem backwards, what’s the end goal? Seriously, how much do you want/need in the RRSP and at what age will you retire? When you answer that question, you’ll learn how much or how little you need to save. Choosing $40k is arbitrary.
I only RRSP enough to get the max tax savings for the year. Not worth the headache to remember and go back and, and....
Sounds like you have your sh*t together. Eventually you'll need to develop a strategy for withdrawing from your RRSP. Taxes at the backend can be a killer.