Thursday, October 29th, 2009

RRSP’s: Is there an equation to calculate tax savings from an RRSP contribution of x amount of dollars?

I’m looking for an equation, not an automated calculator (ie: not E&Y) for Ontario tax savings for x amount of RRSP contributions and based on a z earning salary.

There is none, unless you want to create a complicated formula (say in Excel) which references all the various tax brackets. That can get very complicated, since provincial rates and brackets no longer match Federal brackets. You’d also have to include any other deductions that apply to you.

Without knowing all your financial details, it’s impossible to tell, but in general, your marginal tax bracket (the amount you’ll pay on your next dollar of earnings) will often work as the correct savings. However, if you are near the bottom of the bracket, OR it is a large contribution, this might slightly overstate the savings, since the RRSP contribution will drop you to a lower bracket.

One Response to “RRSP’s: Is there an equation to calculate tax savings from an RRSP contribution of x amount of dollars?”

quizzard123 Says:

There is none, unless you want to create a complicated formula (say in Excel) which references all the various tax brackets. That can get very complicated, since provincial rates and brackets no longer match Federal brackets. You’d also have to include any other deductions that apply to you.

Without knowing all your financial details, it’s impossible to tell, but in general, your marginal tax bracket (the amount you’ll pay on your next dollar of earnings) will often work as the correct savings. However, if you are near the bottom of the bracket, OR it is a large contribution, this might slightly overstate the savings, since the RRSP contribution will drop you to a lower bracket.
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