Your RRSP's true return.

Why Marginal Effective Tax Rate matters

Every RRSP calculator online shows you a tax refund equal to contribution × marginal rate. That formula is right for income tax — but it's incomplete for families with kids.

The Canada Child Benefit is reduced as your Adjusted Family Net Income (AFNI) rises above $36,502. The clawback rate depends on how many kids you have and your AFNI level:

• 1 child: 7% on AFNI between $36,502 and $79,087, 3.2% above
• 2 children: 13.5% in the first phase, 5.7% above
• 3 children: 19% / 8%
• 4+ children: 23% / 9.5%

An RRSP contribution reduces your AFNI dollar-for-dollar, so it recovers CCB at the clawback rate. For a family with 2 kids in Ontario earning $70K, that's ~30% statutory marginal rate + 13.5% CCB recovery = 43.5% effective rate on RRSP contributions. The calculator above does this math automatically.

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Frequently asked questions

What is Marginal Effective Tax Rate (METR)?

METR is your true rate of tax savings on an RRSP contribution once you factor in benefit clawbacks — not just statutory income tax. For a family with kids in the Canada Child Benefit clawback band, each dollar of RRSP contribution recovers a portion of clawed-back CCB on top of the standard income tax refund. The effective rate can be 5–25 percentage points higher than the statutory marginal rate. Most online RRSP calculators ignore this entirely.

Why does CCB recovery affect my RRSP decision?

Canada Child Benefit is income-tested. The CRA reduces it as your Adjusted Family Net Income (AFNI) rises above $36,502. An RRSP contribution lowers your AFNI by the contribution amount, which restores CCB you'd otherwise lose. For a family with 2 kids earning $60K, the clawback rate is 13.5% — meaning each $1,000 of RRSP contribution restores about $135 of CCB on top of the income tax refund. That's a significant boost most calculators don't show.

Where does my RRSP contribution room come from?

Each year you generate new RRSP room equal to 18% of your previous year's earned income, capped at the annual maximum ($31,560 for 2024, $32,490 for 2025, ~$33,810 for 2026). Any pension adjustment from a workplace pension plan reduces this. Unused room carries forward indefinitely. Your total available room is on your CRA Notice of Assessment, line A — that's the number to enter here.

What's the over-contribution penalty?

CRA allows a $2,000 lifetime over-contribution buffer without penalty. Beyond that, excess contributions face a 1% per month penalty until withdrawn. The penalty isn't tax-deductible, so this is one to avoid. If you've accidentally over-contributed, withdraw the excess immediately and file form T1-OVP if needed.

Is RRSP always better than TFSA?

No, and METR is part of why. If your METR today is *higher* than your expected marginal rate in retirement, RRSP wins. If retirement income will be higher (uncommon, but possible for some early-stage entrepreneurs), TFSA wins. For families with high METR today (CCB clawback band) and modest retirement income, RRSP usually wins by a large margin. For singles in mid-brackets, the math is closer.

What does this calculator NOT account for?

Three additional METR contributors are not yet included. (1) GST/HST credit clawback (5% on income above ~$42K), (2) Canada Workers Benefit phase-out, (3) provincial benefit clawbacks (Ontario Trillium, BC Family Benefit, etc.). For most families these add another 3–8 percentage points to your true effective rate. We'll add them in a future update. The CCB number alone is the largest individual factor for families with young kids.