Pay yourself first
Does it feel like there isn’t much money left in your paycheque after the government takes its share? Then pay yourself first – before the government taxes you. Payroll deductions can be deposited directly into your retirement plan before income tax is calculated. Here’s how it works:
Let’s say you earn $1,000 of gross pay. With a tax rate of 35 per cent, you pay $350 in tax. If you contribute $150 each pay period to a retirement plan, such as the one you have at work, you only pay $297.50 in tax. So, while $150 is invested in your retirement, your take-home pay is only reduced by $97.50. You’re not only paying yourself first, you’re paying less tax upfront and saving for the future.
Same monthly savings, higher take-home pay
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||
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Retail |
Group plan |
Monthly take-home pay |
$500 |
$560 |
Monthly savings |
$300 |
$300 |
Taxes paid |
$201 |
$140 |
Same take-home pay, higher monthly savings
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||
|
Retail |
Group plan |
Monthly take-home pay |
$500 |
$500 |
Monthly savings |
$300 |
$375 |
Taxes paid |
$201 |
$125 |
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|
|
Take a tax break. Make it a habit to have a portion of every pay deposited directly into your group retirement plan.
Paying yourself first pays off.
The above example is for illustrative purposes only; situations may vary according to specific circumstances. Tax rates are based on 2013 Ontario provincial and federal rates combined. Source: Canada Revenue Agency.