London, ON: "When you invest, you should be careful to not put dry pasta in your RRSP," says Talbot Stevens, author of the new book The Smart Debt Coach.

What does pasta have to do with RRSPs?

"Pasta is a simple way to help investors understand the critical difference between after-tax and before-tax dollars," Stevens explains. "When investing in RRSPs, understanding this impact can increase the size of your retirement fund by 25 to 85%. It's one of the "can't lose" strategies introduced in The Smart Debt Coach."

Before-tax dollars, like those in your RRSP, are larger, like cooked pasta. But dollars that have already been taxed are smaller, like dry pasta.

Stevens offers this test to see if you could benefit from this poorly understood concept:

If you were in a 40% tax bracket with $3,000 after taxes to invest, how much could you (and should you) contribute to your RRSP?

If you're not sure of the answer, you're probably like the majority of Canadians who are unknowingly investing less than you could, and intend, in your RRSP.

Most with $3,000 to invest, contribute to their RRSP, and think they've added $3,000 to their retirement funds. "But if, like the majority of savers, you spend the RRSP refund, you've invested less than you think," informs Stevens. "In a 40% tax bracket, spending that $1,200 refund means you've really only invested $1,800 after tax."

The good news is that people are starting to talk about the importance of reinvesting their RRSP refunds. In this case, reinvesting the $1,200 refund results in a $4,200 total RRSP contribution. Better, yes, and a 40% increase in your retirement fund. "But this results in putting partially cooked pasta in your RRSP," warns The Smart Debt Coach. "Investors could do better, sometimes much better."

Stevens is committed to helping everyone understand that the $3,000 to invest equates to even more than 4,200 before-tax dollars in an RRSP. On his web site, SmartDebtCoach.com, he has a free chapter of his book that explains the two ways you can avoid putting dry pasta in your RRSP to increase retirement funds by 25 to 85%. There's also a free calculator to find out how much you could increase your RRSP contribution, for your tax bracket.

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Talbot Stevens is a speaker and author of The Smart Debt Coach. His first books Financial Freedom Without Sacrifice and Dispelling the Myths of Borrowing to Invest have sold almost a quarter of a million copies. For more information, contact Talbot Stevens, by calling (519) 663-2252, or emailing talbot@TalbotStevens.com.

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