Should I Borrow to Contribute to an RRSP?
Only for a short loan that the tax refund largely repays. Interest on money borrowed to contribute to an RRSP is not deductible, unlike interest on money borrowed to invest in a non-registered account, so a long loan converts a tax saving into an interest cost.
- The answer:: A short loan sized so the refund repays the bulk of it, with the remainder cleared within a year.
- The trap:: Treating it like an investment loan. Interest to contribute to a registered plan is not deductible at any income level.
- The recommendation:: Compare against paying down existing debt first, because a guaranteed interest saving often beats a deferred and uncertain return.
Where the AI summary above gets this wrong
"An RRSP loan is a good idea because the interest is tax deductible."
That's surface-true. Here's what it misses:
- The interest is not deductible — Deductibility requires borrowing to earn income in a taxable account. A registered plan earns sheltered income, so the deduction is unavailable.
- The refund is not the whole benefit — The refund is a return of tax at your marginal rate, and the withdrawal will be taxed at your rate then, so the gain is the rate difference plus sheltered growth.
- Existing high-rate debt usually wins — Repaying a balance at a high rate is a guaranteed return, which is a stronger claim than a deferred and uncertain one.
01 Why the interest is not deductible
Interest is deductible where money is borrowed to earn income from a business or property in a taxable account. Income earned inside an RRSP is sheltered rather than taxable, so the deduction is not available.
That single difference is what separates an RRSP loan from an investment loan. It also means the arithmetic has to work on the tax saving and sheltered growth alone, with the interest counted as a pure cost.
Source: Contributing to an RRSP or PRPP
02 When a short loan works
The case that holds up is a loan taken in February, sized so that the refund arriving in May repays most of it, with the remainder cleared over the following months. Interest is paid for a few months against a deduction claimed for the full year.
That works best for someone with unused contribution room and a high marginal rate, where the deduction is worth the most. Where the room is large enough to spread, claiming the deduction over several years may be better — the choice is in contributing versus deducting.
Shows: what a given amount of additional taxable income costs you in tax at your marginal rate, and what you keep. Ignores: provincial surtaxes, credits that phase out with income, and any effect on income-tested benefits.
Source: Contributing to an RRSP or PRPP
03 What to compare it against
Repaying an existing balance at a high rate produces a guaranteed after-tax return equal to that rate. An RRSP contribution produces a deferred tax saving plus sheltered growth, both uncertain in timing and amount.
For someone carrying revolving debt, the comparison generally favours the debt. For someone with no such debt and a high rate, the loan can be reasonable, and the underlying comparison is the one in paying the mortgage versus investing.
Where the loan is taken, applying the refund to it the week it arrives is the discipline the whole plan rests on. A refund that goes anywhere else turns a three-month bridge into a multi-year loan at a non-deductible rate, which is the outcome the arithmetic never assumed.
These loans are sold in February on the strength of a refund that most borrowers then spend rather than apply to the loan. The strategy is defensible; the execution usually is not, and a five-year RRSP loan is simply an expensive way to have contributed.
FAQ
Is interest on an RRSP loan deductible?
No. Deductibility requires borrowing to earn taxable income, and income inside an RRSP is sheltered, so the interest is a pure cost.
When does an RRSP loan make sense?
For a short loan sized so the refund repays most of it quickly, taken by someone with unused room and a high marginal rate where the deduction is worth the most.
Should I borrow for an RRSP or pay down debt?
Repaying a high-rate balance is a guaranteed return, which usually beats a deferred and uncertain one. The loan is more defensible where no such debt exists.
Sources
Regulator references
- Contributing to an RRSP or PRPP · Canada Revenue Agency · 2025How RRSP deduction limits are set and that unused room carries forward.Last verified: 2026-09-07
- Interest and other investment income (line 12100) · Canada Revenue Agency · 2025That interest is included in income in full, unlike capital gains or eligible dividends.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.