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Work bonus must be sheltered

Posted by mapetitechou on Apr 9, 2015 in saving

Just got the email from the CEO about the company bonus that is coming in 2 weeks! Needless to say, it’s very exciting. And we have the choice of putting it into RRSP. What am I going to do with my bonus? You guessed it, I’m going to put a major portion into my RRSP account. I would’ve liked to put the whole thing in my RRSP, but I would end up over-contributing. So 68% is the appropriate amount after I did some calculation. It’s too bad that the Tax Man still gets to take a big chunk out of the remaining. But I’m not too broken up about it, I will have some mad money to spend on fashion! 😀

The decision to shelter the bonus was a no-brainer. That’s what I’ve always done with my bonuses. I was so shocked to hear from some of my coworkers that they were still debating whether or not to put theirs in their RRSPs. One even said he was not going to put any of it in his RRSP and would rather take the tax hit! That is a huge tax hit. These are all high-income earners, so their marginal tax rate is very high.

For me, sheltering bonuses is a must. It does not matter if you think you need the cash so badly. It is not worth taking the tax hit, especially if you still have RRSP room. Put it in your RRSP, then take your tax refund and spend it however you like. Heck, if you really need the cash now, take out a small line of credit. The interest rate is so low right now, it’s not going to hurt you as long as you pay it off quickly. Save that glorious bonus and let it grow in a tax shelter.

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