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

 

 

Retail

Group plan

Monthly take-home pay

$500

$560

Monthly savings

$300

$300

Taxes paid

$201

$140

     

Same take-home pay, higher monthly savings

 

 

Retail

Group plan

Monthly take-home pay

$500

$500

Monthly savings

$300

$375

Taxes paid

$201

$125

 

 

 

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.