RRSP Tax Savings Calculator

How RRSP Tax Deductions Work

When you contribute to an RRSP, the contribution amount is deducted from your taxable income. This means you pay tax on a lower amount, resulting in a tax refund. The size of your tax savings depends directly on your marginal tax rate -- the rate applied to your highest dollars of income.

For example, if your marginal tax rate is 29.65% and you contribute $10,000 to your RRSP, your taxable income drops by $10,000, and you save approximately $2,965 in taxes. This is not free money; you will pay tax when you withdraw from the RRSP in retirement, but ideally at a lower rate.

Marginal vs Effective Tax Rates

Your marginal tax rate is the rate on your last dollar of income. It determines how much you save per dollar of RRSP contribution. Your effective tax rate is your total tax divided by total income -- it is always lower than your marginal rate because earlier dollars are taxed at lower brackets.

The effective savings rate shown in this calculator is your actual tax savings divided by your contribution amount. When your contribution is small enough to stay within one bracket, the effective savings rate equals your marginal rate. When a large contribution crosses into a lower bracket, the effective savings rate drops because part of the contribution only saves taxes at the lower bracket rate.

Why RRSP Savings Vary by Income Level

Higher-income earners benefit more from RRSP contributions because they face higher marginal tax rates. Someone earning $250,000 in Ontario has a combined marginal rate of about 53.53%, so a $10,000 RRSP contribution saves over $5,353 in taxes. Someone earning $45,000 has a marginal rate of around 20.05%, saving only about $2,005 for the same contribution.

This is why financial advisors often recommend RRSPs primarily for middle-to-high income earners, while lower-income earners may benefit more from TFSAs.

Optimal Contribution Strategies

Fill your current bracket: The most efficient strategy is to contribute enough to reduce your income to the bottom of your current tax bracket. Every dollar in this range saves at your full marginal rate. Once you cross into the next lower bracket, additional dollars save at a reduced rate.

Carry forward for higher-income years: If you expect your income to increase in future years, you may want to save your RRSP contribution room and use it when your marginal rate is higher. Unused RRSP room carries forward indefinitely. Contributing at a 20% marginal rate and later withdrawing at 30% would result in a net tax cost, so timing matters.

RRSP Refund Recycling

A powerful strategy is to take your RRSP tax refund and contribute it back into your RRSP the following year. For example, if you contribute $10,000 and receive a $2,965 refund, contributing that refund next year generates another ~$879 refund, and so on. Over time, this recycling significantly accelerates your retirement savings.

RRSP vs TFSA for Different Income Levels

• RRSP is better when: Your current marginal rate is higher than your expected rate in retirement. This applies to most middle-to-high income earners. The tax deduction now is worth more than the tax paid on withdrawal later.
• TFSA is better when: Your current marginal rate is low (e.g., early career, part-time work) and you expect your income to grow. TFSA contributions are made with after-tax dollars but all growth and withdrawals are completely tax-free.
• Use both: If you can afford it, maximize both. RRSP gives you an immediate tax deduction, and TFSA provides tax-free income flexibility in retirement.