A tax refund is not free money. It’s your money. And if you reinvest it, you can grow your money.
If you checked out our helpful tips about how to get the most out of tax season, then maybe you’re expecting a tax refund this year from the Canada Revenue Agency (CRA). And you’re thinking about all the things you could do with that refund. Investing it for the long term is one nice idea. Actually, we ran the numbers – so you can see exactly how nice it can be.
Let’s say you reinvested a tax refund of $1,620 (close to the average tax refund for Canadians in 2016) every year for 30 years at a rate of return of 5.5%. If you did that, on top of the average Canadian RRSP contribution of $5,400 — you’d be looking at nearly $600,000. That’s quite the nest egg!
Putting it into context
The average Canadian contributes $5,400 to their RRSP each year and gets a $1,620 tax refund*. Reinvest your refund every year (instead of spending it) and…
|In X years||You’ll have an extra
|To potentially do one of these things…|
|10 Years||$29,464||Purchase a new car
Downpayment for a condo
|20 Years||$82,116||Downpayment for recreation property
Major home renovations
Retire nearly 2 years sooner
|30 Years||$173,261||Retire nearly 4 years sooner
Note: How did we get these numbers?
Numbers are calculated based on a 30% Marginal Tax Rate, January $5,400 contribution followed by reinvested refund in May with a rate of return of 5.5% (which includes inflation and fees).
*Source: Statistics Canada
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