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This pretty much goes against all conventional thinking especially at this time of the year, but there are times when investing in your RRSP might not be the best idea.

The main reason many of us invest in our RRSPs to begin with is for the tax refund, who doesn’t like getting a cheque after filing their taxes? Of course, if we’re getting a refund all that means is that we gave the government an interest free loan.

Generally speaking, investing in your RRSP is always a good idea, but on occasion, it’s okay to avoid your RRSP.

You have debt issues

This is pretty straightforward, if you have some high interest debt owing e.g. credit card debt, then don’t even think about investing in your RRSP. I know what you’re thinking, you want that refund that’s why you invest in your RRSP. I’m well aware of what you plan on doing with that refund, you’re going to spend it. Under no circumstances should you be investing in your RRSP if you have debt issues.

You’re expecting a higher income in the future

This is an old argument; In Canada, we are taxed on a marginal basis so some of us would avoid making RRSP contributions until we reached a higher tax bracket. The logic was the RRSP contributions made later would drop us back to a lower bracket. I certainly understand why this sounds appealing but what many of us forget is that we can carry our RRSP contributions forward.

If your income is low

Everyone in Canada is allowed a basic personal amount of $11,388 as stated on line 300 of our income tax return. If we’re making less than that amount there’s really no point in making an RRSP contribution unless we plan on carrying that forward.

When other investments take priority

Investing in our child’s RESP guarantees a return of 20% (up to $500) yearly from the Canadian Education Savings Grant so it’s no surprise some parents decide to make this a priority over their RRSP. Investing in our TFSA may not give us a tax break, but any capital gains on our investments are completely tax free which is very appealing especially if time is on our side.

You have a defined benefit pension

Pensions are becoming increasingly rare so if you have a DB pension through your employer, consider yourself lucky. Since DB pensions offer a guaranteed payout upon retirement you won’t need to worry about your RRSP savings as much. Of course, it’s still important but you could easily concentrate on other investments. That being said, no pension plan is ever 100% safe (well maybe government pensions are safe) so you should always have some other form of savings.

Your retirement income will be higher than your current income

Our RRSP account is meant to be a tax deferral, the theory is once we retire we’ll be making a lower income which makes this account appealing for the majority of us. In some situations we may expect our retirement income to be higher than our current income, if that’s the case then it’s probably best to skip making any RRSP contributions.

Final word

Another reason to avoid your RRSP is if you plan on investing in your TFSA instead. That being said, it’s only good if you know how to invest and you’re disciplined enough to not withdraw any money from there when the rough times eventually come.


About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi


  1. Avatar KC on February 19, 2015 at 7:19 AM

    I would argue that there is an exception to the rule re: debt. If the company offers matching RRSP money, you need to take advantage of that. I wasn’t able to do this fully, only partial but now I have this awesome nest egg. Even just being able to some advantage of this is better than none.

    • Avatar Barry Choi on February 19, 2015 at 9:14 AM


      That’s a good point, free money is great and the power of compound interest is even better. But if you have a maxed out credit card at 25% interest, you really need to think about what’s the best solution for you.

  2. Avatar simplecheapmom on February 19, 2015 at 8:33 AM

    We probably won’t be contributing to our RRSP this year. The Mr. has a government DB pension, we’re paying down our mortgage, contributing to our RESP and with the income splitting credit this year bringing down his income, there’s not much value to contribute to an RRSP over a TFSA. After the mortgage is gone, we’ll work to max our RRSPs but not this year.

    • Avatar Barry Choi on February 19, 2015 at 9:21 AM

      Simple Cheap Mom,

      Having a DB pension is so sweet, especially government ones. Great strategy to maximize your money.

  3. Avatar Tawcan on February 19, 2015 at 1:17 PM

    If your company has RRSP matching you should contribute as much as what the company matches to take advantage of the free money.

    Having a DB pension would be pretty sweet. Great point on other investments taking priority. Depends on your situation it may make more sense to invest in TFSA first.

    • Avatar Barry Choi on February 19, 2015 at 1:52 PM


      I’m pretty fortunate to have a DB plan so I can concentrate on other savings. The introduction of the TFSA all those years ago was a God send.

  4. Avatar Stephanie on February 19, 2015 at 7:23 PM

    Great article! All too often RRSPs are presented like the “ultimate & only” choice when it comes to retirement planning. In reality they are not the right product for a lot of people….

    • Avatar Barry Choi on February 19, 2015 at 9:00 PM


      You’re absolutely right, I used to think my RRSP was the only way to go but there are so many options these days.

  5. Weekend Reading: Outdated CFP Curriculum Edition on February 21, 2015 at 12:01 PM

    […] Barry Choi at Money We Have looks at the times when you should avoid your RRSP. […]

  6. Avatar Sean Cooper, Financial Journalist on February 21, 2015 at 9:39 PM

    One of the luxuries of a defined benefit pension plan is that you can afford to take more risks with your RRSP. But like you said, nothing is guaranteed. It’s a good to review your annual pension statement and keep an eye on the solvency ratio. A low solvency ratio can mean tough times are ahead.

    • Avatar Barry Choi on February 22, 2015 at 12:07 AM


      Yes having a pension is sweet, I would just never trust that or any single asset to fund my retirement.

  7. Avatar Jackie on February 22, 2015 at 9:33 AM

    I’d also suggest that you consider contributing to an RRSP if you have a DB pension (like I do) but don’t plan on staying with the company your whole working career (because I don’t). Having both a DB and an RRSPs mean I have more flexibility and can take advantage of other work options.

    • Avatar Barry Choi on February 22, 2015 at 9:34 AM


      Yes continuing to save even if you have a DB plan is important. Personally I prefer to max out my TFSA now as I have some worries about my tax situation when I retire.

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