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#6716234 - 11/15/12 04:57 PM RRSP contributions - What do you do
Chocolate RSS Offline
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As a percentage of your salary, what do you contribute? The max contribution for 2012 was $22,970. Anyone maxing out? I remember when Chris L was around, he was maxing it out.

I am not maxing it out, \:\( I got a nice raise at work, and I will be in the max federal tax bracket, so I am thinking about doing it next year, and doing a spousal RRSP contribution too

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#6716246 - 11/15/12 04:59 PM Re: RRSP contributions - What do you do [Re: Chocolate RSS]
loudsubz Offline
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Registered: 08/16/01
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Loc: Mississauga, Ontario, Canada
the last few years I have maxed mine out. It gets taken out every month and I havn't had a chance to correct it but the last 2 years I have gone over a bit.
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#6716266 - 11/15/12 05:06 PM Re: RRSP contributions - What do you do [Re: loudsubz]
Chocolate RSS Offline
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 Originally Posted By: loudsubz
the last few years I have maxed mine out. It gets taken out every month and I havn't had a chance to correct it but the last 2 years I have gone over a bit.
That must feel awesome!

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#6716277 - 11/15/12 05:09 PM Re: RRSP contributions - What do you do [Re: Chocolate RSS]
xza8 Offline
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Registered: 12/18/09
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Nope... I want to use the money now, to earn more money for the future. But if you don't have better use of the money (like pay off your bills/mortgage or act on an investment opportunity), you should max it out.
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#6716278 - 11/15/12 05:09 PM Re: RRSP contributions - What do you do [Re: xza8]
Chocolate RSS Offline
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^^ So you don't believe in deferred taxation, or are you assuming that your marginal tax rate will never be lower than it is now.

What strategies are you using to earn that money? Investment in equities/futures is shit right now, interest rates at crazy low. If you have a strategy, please share \:D

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#6716316 - 11/15/12 05:26 PM Re: RRSP contributions - What do you do [Re: Chocolate RSS]
robbbby Offline
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I only contribute whatever amount it takes to bring my tax return down to $0. I contribute the full amount to the TFSA every year though.
I kind of have old school European mentality, i'd rather not stash cash away when I still have debts. I'd rather take that extra RRSP money and put it towards the principal of my mortgage, I want to bang that shit off as fast as I can. I can make up the RRSP savings/contributions in 5-10 years when the house is paid and I have a lot more free cash.

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#6716393 - 11/15/12 05:55 PM Re: RRSP contributions - What do you do [Re: robbbby]
Chocolate RSS Offline
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^^ Thats a good strategy too. You can do both though, the money you get back, you can do lump sum payments, or double up payments.
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#6716446 - 11/15/12 06:15 PM Re: RRSP contributions - What do you do [Re: Chocolate RSS]
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Under 10k a year, enough to pay off the minimum requirements (Took 20k out of a RRSP when I bought my house) and I end up with a nice little return in April. No complaints. No RRSP contribution plans at work, although we have a ESPP plan which I've maxxed out at 10% of my pay.
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#6716513 - 11/15/12 06:56 PM Re: RRSP contributions - What do you do [Re: LNXGUY]
Chocolate RSS Offline
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Where is the $200 garage building / gas line moving accountant when you need him
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#6716516 - 11/15/12 06:57 PM Re: RRSP contributions - What do you do [Re: Chocolate RSS]
LNXGUY Moderator Offline
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I'm all for free financial advice, lol.
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#6716536 - 11/15/12 07:05 PM Re: RRSP contributions - What do you do [Re: LNXGUY]
robbbby Offline
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 Originally Posted By: LNXGUY
I'm all for free financial advice, lol.


ship me fish and I promise you riches beyond your wildest dreams

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#6716590 - 11/15/12 07:31 PM Re: RRSP contributions - What do you do [Re: robbbby]
eddie _69 Offline
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I max mine out, plus my HBP repayments. I already plan to be mortgage free in my early 40s, so I prefer to make use of compound interest now, especially with mortgage rates so low. Early retirement is a lot closer that way.
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#6716618 - 11/15/12 07:41 PM Re: RRSP contributions - What do you do [Re: robbbby]
titty sprinkles Offline
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 Originally Posted By: robbbby
I only contribute whatever amount it takes to bring my tax return down to $0. I contribute the full amount to the TFSA every year though.
I kind of have old school European mentality, i'd rather not stash cash away when I still have debts. I'd rather take that extra RRSP money and put it towards the principal of my mortgage, I want to bang that shit off as fast as I can. I can make up the RRSP savings/contributions in 5-10 years when the house is paid and I have a lot more free cash.


+1. i put in enough so that i don't have to pay back taxes, or get a nice little $1000 return.

I kinda screwed myself with my RRSP's. i've been putting away since i started @ the hospital, planning to do the first time home buyers thing, but didn't end up using them. i don't need the coin that i'm putting away either. 0 debts and other savings.

at the rate i'm going at, i'll have work pension, canada pension, retirement savings and then RRSP's on top of that, so i think i'll be making too much and have to pay alot in taxes...i don't know if i should keep on putting in or do something else with the money and if so what?


Edited by Flexin5 (11/15/12 07:43 PM)
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#6716642 - 11/15/12 07:55 PM Re: RRSP contributions - What do you do [Re: titty sprinkles]
eddie _69 Offline
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 Originally Posted By: Flexin5
i'll have work pension, canada pension


I wouldn't count on either of those.

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#6716683 - 11/15/12 08:14 PM Re: RRSP contributions - What do you do [Re: eddie _69]
titty sprinkles Offline
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^no not counting on it but it is income. so far according to my last statement my work pension if i retire at 65 is like $4xx/month?

Edited by Flexin5 (11/15/12 08:16 PM)
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#6716806 - 11/15/12 09:11 PM Re: RRSP contributions - What do you do [Re: titty sprinkles]
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Depending on how much you make, my advice at the current economic times is to max out your RRSP and pay down your mortgage like a mother fucker. Forget investments, capital markets, GICs, mutual funds, etc. RRSPs and mortgage alone net you a WAAAAAY higher (as well as GUARANTEED) yield and ROI for your dollars contributed than anything else out there.

That's just my two cents, what the fuck do I know anyway.

P.S. the good thing about RRSPs is that if you have an emergency and you need the cash, you can pull out, just pay the deferred tax back. It's no biggie. Never understood why people don't take advantage of that

TFSA at this point in time...not even worth it.

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#6716816 - 11/15/12 09:15 PM Re: RRSP contributions - What do you do [Re: titty sprinkles]
phildc238 Offline
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Ideally when you and your spouse retire your incomes should be roughly the same so you're taxed at the lowest marginal tax bracket without incurring OAS clawbacks.
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#6716838 - 11/15/12 09:25 PM Re: RRSP contributions - What do you do [Re: phildc238]
Risky Business Offline
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 Originally Posted By: phildc238
Ideally when you and your spouse retire your incomes should be roughly the same so you're taxed at the lowest marginal tax bracket without incurring OAS clawbacks.


+1

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#6717207 - 11/16/12 05:29 AM Re: RRSP contributions - What do you do [Re: Risky Business ]
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 Originally Posted By: Risky Business
Depending on how much you make, my advice at the current economic times is to max out your RRSP and pay down your mortgage like a mother fucker. Forget investments, capital markets, GICs, mutual funds, etc. RRSPs and mortgage alone net you a WAAAAAY higher (as well as GUARANTEED) yield and ROI for your dollars contributed than anything else out there.

That's just my two cents, what the fuck do I know anyway.

P.S. the good thing about RRSPs is that if you have an emergency and you need the cash, you can pull out, just pay the deferred tax back. It's no biggie. Never understood why people don't take advantage of that

TFSA at this point in time...not even worth it.

Thats what I've been saying. Because of the low interest rates, and low liquidity in the markets, max out your RRSPs, take the refund, double up your mortgage payments.

If you put the money in your TFSA, what are you investing it in, Equities, futures, forex, bonds, what? Chances are its just sitting there not making much money at all. Its not like you lose the TFSA contribution room anyway.

When higher interest rates return, and they will, that opportunity to reduce your mortgage amortization will be gone, since you won't be able to pay down the principle as quickly

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#6717219 - 11/16/12 05:57 AM Re: RRSP contributions - What do you do [Re: titty sprinkles]
eddie _69 Offline
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 Originally Posted By: Flexin5
^no not counting on it but it is income. so far according to my last statement my work pension if i retire at 65 is like $4xx/month?


It's not income if the plan has collapsed in the next 30 years and your actual payment is $0/month.

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#6717282 - 11/16/12 07:32 AM Re: RRSP contributions - What do you do [Re: eddie _69]
Euphoric Offline
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tfsa is a joke
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#6717298 - 11/16/12 07:44 AM Re: RRSP contributions - What do you do [Re: Euphoric]
Risky Business Offline
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 Originally Posted By: Euphoric
tfsa is a joke


TFSA is great, it's the volatility of the markets lately that put it on the back burner.

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#6717306 - 11/16/12 07:46 AM Re: RRSP contributions - What do you do [Re: Risky Business ]
LNXGUY Moderator Offline
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I guess I don't see the benefit of the TFSA, Vas you mind explaining it to say a RRSP? (Why you'd use one over the other?)
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'03 S10 ZR2
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#6717311 - 11/16/12 07:51 AM Re: RRSP contributions - What do you do [Re: Risky Business ]
Euphoric Offline
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 Originally Posted By: Risky Business
 Originally Posted By: Euphoric
tfsa is a joke


TFSA is great, it's the volatility of the markets lately that put it on the back burner.
thanks captain obvious. Why did I know I was going to have to clarify to the last detail because someone would shit themselves.
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#6717313 - 11/16/12 07:52 AM Re: RRSP contributions - What do you do [Re: LNXGUY]
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^^If you anticipate that your marginal tax rate being higher when you retire, then no point in deferring taxes by using an RRSP. If you put money in there that would have been taxed at 30%, but when you pull it out, its taxed at 40%, you get fux0r3d.

Any gains on investments in an TFSA are not taxed. You are limited to 5k a year, and its after tax income that goes in. Depending on what you invest in within your TFSA, it may be worth it for you

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#6717314 - 11/16/12 07:52 AM Re: RRSP contributions - What do you do [Re: Euphoric]
Euphoric Offline
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this is is a intredasting post

http://www.greaterfool.ca/2012/01/16/dont-save/



also good piece on the market crash
http://www.greaterfool.ca/
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#6717334 - 11/16/12 08:05 AM Re: RRSP contributions - What do you do [Re: LNXGUY]
Risky Business Offline
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 Originally Posted By: LNXGUY
I guess I don't see the benefit of the TFSA, Vas you mind explaining it to say a RRSP? (Why you'd use one over the other?)


There is no clear cut answer because it depends on variety of factors:

How much you've contributed up to now, are you at zero, 100k, etc.
What kind of debt you have, rates, etc.
When you plan to retire.
How much money you currently make.

If you are making 40k, RRSP isn't all that benefical imo. Locking that money away doesn't make sense when you need it for multiple other things.

Now let's say you are making 100k, no debt, (not counting mortgage) you contribute 15k, right off the bat you are getting ~30% return on that 15k via tax refund. This is guaranteed, but on the flip side you have to be careful how much you contribute over the term not to save for the sake of saving when you could balance funding of mortgage and other things. It's basically spending after tax dollars vs. gross dollars.

Right now IMO, it's more beneficial to pay down your mortgage, like Wayne said at the current rates you can put a big dent in principal. Provided you make 100k (for the sake of this example) and you will continue to make this money in the forseeable future you still have to take into account your mortgage will have to be paid with after tax dollars...this is set in stone. The interest rate however isn't, so for most people it's better to pay it down now, when rates go up you really can't do much. THe ideal setup is a mix imo, where you contribute enough into your rrsp to clear off that 30%+ income tax rate, where you bring yourself into a lower bracket (If you make over a 100k this isn't possible) and the rest you put into mortgage.

So the whole point isn't about maxing our RRSP or TFSA, it's about contributing the right amounts into each to make that dollar work for you the hardest. That "right" amount varies between people and financial situation/objective. With proper planning you can really outpace the sheep in multiple areas. Save/save/save with no planning is old school, doesn't work.

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#6717350 - 11/16/12 08:11 AM Re: RRSP contributions - What do you do [Re: Risky Business ]
Euphoric Offline
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 Quote:
Jason thinks he’s kinda rich. Not just for the townhouse in Oakville (mortgaged) or the Land Rover (leased) or the hot wife (not working), but mostly for his liquid assets. “Just like you keep on telling people,” he said to me after that last intimate event in Toronto, “balanced and diversified, making dividends and capital gains. All four hundred.”

Well these days having $400,000 saved is no mean feat for a 46-year-old. Rich, it’s not. A decent start, it is. But Jason’s got a problem. It’s all registered money.

Sadly this is a common affliction, and before we hit that time of the year when every bank and mutual fund is yelling at you to ‘buy’ an RRSP, let’s drill into this for a few minutes. As I told Jason, he should stop stuffing money into his plan, redirect his energies and never again think of a retirement savings plan as something for retirement.

A quick summary: RRSPs are not products or things, but just tax shelters. You can put in them whatever you want, like stocks, funds, ETFs, bonds or cash. Each year you’re allowed to contribute up to 18% of your earned income, which includes salary or rental income, but not investment earnings or that wet T-shirt prize money. The 2012 max is almost $23,000.

You can also make a contribution without money, by shifting into an RRSP stuff you already own, such as a mutual fund or a pathetic GIC. That’s called a ‘contribution in kind’ and for selling yourself assets you already own, you’ll get a tax deduction.

In fact, that’s why most people contribute at all, to (as everybody says) ‘save taxes.’ The annual contribution can be deducted from your taxable income, which means the more money you earn the greater the benefit of doing this. What’s lost on many is the fact taxes are not being saved at all, but merely put off until a later time – when the consequences can be disastrous.

The other benefit of an RRSP is that the things you put inside there can grow in value, and the growth will not be taxed. Cool. But now that we have the TFSA, where the same tax-free compounding can take place, the clunker retirement plan – invented in the 1950s – is probably obsolete. At least when it comes to saving money for the wrinkly, sexless years.

First (as mentioned) taxes ‘saved’ today are payable later. Many people assume they’ll be in a drastically lower tax bracket when they retire than when they work, and therefore pay less tax by deferring it. That seldom works. For example, if you earn $80,000 and live in BC your marginal tax rate is 32%. But if your income plunges by half in retirement, and you’re squeaking by on $40,000, your tax rate’s still 23%.

But a bigger concern is that for anyone less than a decade away from post-work stupor, personal tax rates could actually be higher. After all, the federal government’s deficit has ballooned to a record $582 billion in the Harper years, while the federal deficit went from zero to $55 billion during the financial crisis, and still sits at $28 billion. That amount is added to the debt annually. The simplest way to deal with this? Raise taxes. Especially on ‘wealthy’ retirees who have fat RRSPs, which are conveniently registered with the government.

But RRSPs have more warts. If yours is full of stocks, ETFs or mutual funds that earn you dividends and capital gains, it’s a failing strategy. Sure, you can shelter the growth, but you’re squandering tax efficiencies. That’s because money received in the form of capital gains or dividends is taxed at about half what you pay on your salary. But all money taken out of an RRSP is taxed as income, which means the advantage is lost. This is why it’s good to have highly-taxed assets (like bonds, for example) inside an RSP, while dividend-producers are outside.

Also don’t forget that all RSPs must eventually convert into RRIFs (at age 71). This forces you to start draining off those funds and add them to your annual income. So retirees with swollen retirement plans can see themselves forced into a higher tax bracket, when they could have avoided that if the funds were in non-registered investments.

Finally, like Jason, many people grow an utterly false sense of security from having their savings in a pre-tax vehicle like an RRSP. A $400,000 RRSP can actually end up being $100,000 less when the money finally makes it into your hands. And that’s at today’s tax levels. I shudder to think what the bill might be when a 30-year-old finally starts collecting CPP in 2047.

So, are these things financial dinos? As puffed up and useless as, say, Kevin O’Leary?

Hardly. There are some very sexy things that RRSPs can accomplish, and none of them have to do with Viagra or knee transplants. They can play a pivotal role in everything from income-splitting to making babies to finding your inner self.

More tomorrow.


 Quote:



[quote]Under 40% of people aged 18 to 34 have retirement savings. That compares with two-thirds of everybody else who has an RRSP. If you don’t think this thing is dying, chew on that. Even though shoving cash into a plan nets you a tax refund, the cynical, digital crowd is turning its back.

Maybe this is because young people have no money. (After all, there’s more than $14 billion in student debt.) Perhaps it’s because this is a generation of house porn addicts. (Almost 45% of them say ‘getting real estate’ is their top priority.) Or, possibly, nobody trusts the government any more. (So why would you register your savings with the feds or believe taxes won’t be higher in three decades?)

Yesterday I gave you reasons why RRSPs, created along with all those teeming little Boomers half a century ago, deserve to fall out of favour. And while lots of posters piled on to praise the taxes they ‘save’ by making contributions, there’s one inescapable threat for everyone who has been building their nesteggs inside of RRSPs. It’s politics.

The age of retirement is being raised to 67, and then to 68 in Britain. In the States, it’s been reset to 67 for those born after 1960, and will likely be raised again. You can bet the same will eventually happen here, with CPP benefits being delayed by years for those now under thirty. Already Ottawa has started to goose the qualifying age for the OAS – a universal payment of a little over 500 bucks a month – to age 67.

So how does this affect RRSPs?

First, getting cheap with public pensions is an admission we probably have troubles ahead. Canada has a record federal debt, and continues to add to it. In fact, F admitted some weeks ago the debt will continue to grow for at least a dozen more years. Already governments are cutting back, and health care’s in a funding crisis. Imagine when the average Boomer age is 75 – which happens as today’s 35-year-olds hit fifty. In short, does anyone seriously believe tax rates won’t inflate?

If they do, using an RRSP to supplement the public pension pittance could bring a nasty surprise. How smart is it to deduct 30% of your contribution from taxable income in 2012 if you have to pay 50% tax to get the money out in 2032? Yikes. And expect new legislation to force conversion of RRSPs into RRIFs years earlier than the current 71. That means the feds would make you draw down the registered plan at, say, 67, whether you wanted to or not – and cough up the tax.

So, RRSPs are probably lousy bets if you plan on deferring taxes until you’re old. But they are excellent for other stuff, like shifting tax. Here are five Greater Fool-sanctioned uses for an RRSP:

First, income-splitting. For example, if you make boatloads of money being a lousy, bald mutual fund manager and a puffed-up TV host, and your wife stays at home shopping, then use a spousal RRSP. You can contribute up to your own limit, and claim the deduction against your fat income, and yet the money goes into your wife’s retirement plan. After three years it becomes her property, so she can cash it in and buy more Hermes bags, and pay little if any tax. You got the deductions. She gets the money. This is social justice.

Second, it also works for babies. Simply time your next pregnancy for 36 months after your spouse finishes dumping a wad of money into your spousal RRSP. Then when you’re on mat leave you can use the cash to live on (restrict withdrawals to $5,000 or less), while your husband has enjoyed the deductions from his taxable income. This way the feds subsidize your family. Yeah, revenge.

Third, RRSPs are useful little devils when you lose your job. Contribute while working and get a tax break, then suck them dry in a year when income vaporizes. This is tax-shifting, and it beats the pants off tax-deferral.

Fourth, you can use RRSP money for a house or for schooling. In the latter situation, withdraw $20,000 and have a decade to put it back into your plan (you can also collapse your plan to fund your spouse’s studies). And a young couple can suck out up to $50,000 for a down payment, then have more than 15 years to repay. So if you’ve got fifty grand, stick it in an RRSP at least 90 days before closing, then withdraw it tax-free. Just for having passed that cash through the plan, you’ll get a tax refund of $15,000 or so. Imagine all the important and valuable granite that’ll buy!

Or, you can use your RRSP to fund your mortgage. If you have enough cash in your plan, for example, to pay off your home loan, then do it. The bank loan can be replaced with an RRSP mortgage, which means you then make monthly payments into your own retirement plan. Sounds cool, however remember the interest you charge yourself needs to be at ‘market’ rates and you must CMHC-insure the thing. But, it can still be sweet.

If any of this turns you on (and I’m quite aroused myself at the moment) let me know. I might even tell you how to cash in an RRSP without paying tax.
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#6717383 - 11/16/12 08:24 AM Re: RRSP contributions - What do you do [Re: Euphoric]
Chocolate RSS Offline
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^^ Thats interesting, I never thought of doing a spousal RRSP when we were having kids. Effectively taking money from me that would get taxed at almost 40%, putting it in my wifes RRSP, and letting her withdraw it when she was on maternity leave with reduced income.
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#6717389 - 11/16/12 08:26 AM Re: RRSP contributions - What do you do [Re: Chocolate RSS]
Euphoric Offline
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Im enjoying his blog(Garth Turner) Lots of useful info.
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#6717417 - 11/16/12 08:38 AM Re: RRSP contributions - What do you do [Re: Euphoric]
LNXGUY Moderator Offline
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My current mortgage payments are based upon a higher rate (I think 9% or so) so I'm paying more principle down with every payment. I should be mortgage free in about 7 years. Although I should probably dump any extra $$$ on it, rather then investing..
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The GN would OWN you, your children and your children's children.
'03 S10 ZR2
'05 Jetta TDI Wagon

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#6717426 - 11/16/12 08:44 AM Re: RRSP contributions - What do you do [Re: Euphoric]
Risky Business Offline
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Registered: 05/17/10
Posts: 20684
Loc: Craigslist's Personals
 Originally Posted By: Euphoric
 Quote:
Jason thinks he’s kinda rich. Not just for the townhouse in Oakville (mortgaged) or the Land Rover (leased) or the hot wife (not working), but mostly for his liquid assets. “Just like you keep on telling people,” he said to me after that last intimate event in Toronto, “balanced and diversified, making dividends and capital gains. All four hundred.”

Well these days having $400,000 saved is no mean feat for a 46-year-old. Rich, it’s not. A decent start, it is. But Jason’s got a problem. It’s all registered money.

Sadly this is a common affliction, and before we hit that time of the year when every bank and mutual fund is yelling at you to ‘buy’ an RRSP, let’s drill into this for a few minutes. As I told Jason, he should stop stuffing money into his plan, redirect his energies and never again think of a retirement savings plan as something for retirement.

A quick summary: RRSPs are not products or things, but just tax shelters. You can put in them whatever you want, like stocks, funds, ETFs, bonds or cash. Each year you’re allowed to contribute up to 18% of your earned income, which includes salary or rental income, but not investment earnings or that wet T-shirt prize money. The 2012 max is almost $23,000.

You can also make a contribution without money, by shifting into an RRSP stuff you already own, such as a mutual fund or a pathetic GIC. That’s called a ‘contribution in kind’ and for selling yourself assets you already own, you’ll get a tax deduction.

In fact, that’s why most people contribute at all, to (as everybody says) ‘save taxes.’ The annual contribution can be deducted from your taxable income, which means the more money you earn the greater the benefit of doing this. What’s lost on many is the fact taxes are not being saved at all, but merely put off until a later time – when the consequences can be disastrous.

The other benefit of an RRSP is that the things you put inside there can grow in value, and the growth will not be taxed. Cool. But now that we have the TFSA, where the same tax-free compounding can take place, the clunker retirement plan – invented in the 1950s – is probably obsolete. At least when it comes to saving money for the wrinkly, sexless years.

First (as mentioned) taxes ‘saved’ today are payable later. Many people assume they’ll be in a drastically lower tax bracket when they retire than when they work, and therefore pay less tax by deferring it. That seldom works. For example, if you earn $80,000 and live in BC your marginal tax rate is 32%. But if your income plunges by half in retirement, and you’re squeaking by on $40,000, your tax rate’s still 23%.

But a bigger concern is that for anyone less than a decade away from post-work stupor, personal tax rates could actually be higher. After all, the federal government’s deficit has ballooned to a record $582 billion in the Harper years, while the federal deficit went from zero to $55 billion during the financial crisis, and still sits at $28 billion. That amount is added to the debt annually. The simplest way to deal with this? Raise taxes. Especially on ‘wealthy’ retirees who have fat RRSPs, which are conveniently registered with the government.

But RRSPs have more warts. If yours is full of stocks, ETFs or mutual funds that earn you dividends and capital gains, it’s a failing strategy. Sure, you can shelter the growth, but you’re squandering tax efficiencies. That’s because money received in the form of capital gains or dividends is taxed at about half what you pay on your salary. But all money taken out of an RRSP is taxed as income, which means the advantage is lost. This is why it’s good to have highly-taxed assets (like bonds, for example) inside an RSP, while dividend-producers are outside.

Also don’t forget that all RSPs must eventually convert into RRIFs (at age 71). This forces you to start draining off those funds and add them to your annual income. So retirees with swollen retirement plans can see themselves forced into a higher tax bracket, when they could have avoided that if the funds were in non-registered investments.

Finally, like Jason, many people grow an utterly false sense of security from having their savings in a pre-tax vehicle like an RRSP. A $400,000 RRSP can actually end up being $100,000 less when the money finally makes it into your hands. And that’s at today’s tax levels. I shudder to think what the bill might be when a 30-year-old finally starts collecting CPP in 2047.

So, are these things financial dinos? As puffed up and useless as, say, Kevin O’Leary?

Hardly. There are some very sexy things that RRSPs can accomplish, and none of them have to do with Viagra or knee transplants. They can play a pivotal role in everything from income-splitting to making babies to finding your inner self.

More tomorrow.


 Quote:



[quote]Under 40% of people aged 18 to 34 have retirement savings. That compares with two-thirds of everybody else who has an RRSP. If you don’t think this thing is dying, chew on that. Even though shoving cash into a plan nets you a tax refund, the cynical, digital crowd is turning its back.

Maybe this is because young people have no money. (After all, there’s more than $14 billion in student debt.) Perhaps it’s because this is a generation of house porn addicts. (Almost 45% of them say ‘getting real estate’ is their top priority.) Or, possibly, nobody trusts the government any more. (So why would you register your savings with the feds or believe taxes won’t be higher in three decades?)

Yesterday I gave you reasons why RRSPs, created along with all those teeming little Boomers half a century ago, deserve to fall out of favour. And while lots of posters piled on to praise the taxes they ‘save’ by making contributions, there’s one inescapable threat for everyone who has been building their nesteggs inside of RRSPs. It’s politics.

The age of retirement is being raised to 67, and then to 68 in Britain. In the States, it’s been reset to 67 for those born after 1960, and will likely be raised again. You can bet the same will eventually happen here, with CPP benefits being delayed by years for those now under thirty. Already Ottawa has started to goose the qualifying age for the OAS – a universal payment of a little over 500 bucks a month – to age 67.

So how does this affect RRSPs?

First, getting cheap with public pensions is an admission we probably have troubles ahead. Canada has a record federal debt, and continues to add to it. In fact, F admitted some weeks ago the debt will continue to grow for at least a dozen more years. Already governments are cutting back, and health care’s in a funding crisis. Imagine when the average Boomer age is 75 – which happens as today’s 35-year-olds hit fifty. In short, does anyone seriously believe tax rates won’t inflate?

If they do, using an RRSP to supplement the public pension pittance could bring a nasty surprise. How smart is it to deduct 30% of your contribution from taxable income in 2012 if you have to pay 50% tax to get the money out in 2032? Yikes. And expect new legislation to force conversion of RRSPs into RRIFs years earlier than the current 71. That means the feds would make you draw down the registered plan at, say, 67, whether you wanted to or not – and cough up the tax.

So, RRSPs are probably lousy bets if you plan on deferring taxes until you’re old. But they are excellent for other stuff, like shifting tax. Here are five Greater Fool-sanctioned uses for an RRSP:

First, income-splitting. For example, if you make boatloads of money being a lousy, bald mutual fund manager and a puffed-up TV host, and your wife stays at home shopping, then use a spousal RRSP. You can contribute up to your own limit, and claim the deduction against your fat income, and yet the money goes into your wife’s retirement plan. After three years it becomes her property, so she can cash it in and buy more Hermes bags, and pay little if any tax. You got the deductions. She gets the money. This is social justice.

Second, it also works for babies. Simply time your next pregnancy for 36 months after your spouse finishes dumping a wad of money into your spousal RRSP. Then when you’re on mat leave you can use the cash to live on (restrict withdrawals to $5,000 or less), while your husband has enjoyed the deductions from his taxable income. This way the feds subsidize your family. Yeah, revenge.

Third, RRSPs are useful little devils when you lose your job. Contribute while working and get a tax break, then suck them dry in a year when income vaporizes. This is tax-shifting, and it beats the pants off tax-deferral.

Fourth, you can use RRSP money for a house or for schooling. In the latter situation, withdraw $20,000 and have a decade to put it back into your plan (you can also collapse your plan to fund your spouse’s studies). And a young couple can suck out up to $50,000 for a down payment, then have more than 15 years to repay. So if you’ve got fifty grand, stick it in an RRSP at least 90 days before closing, then withdraw it tax-free. Just for having passed that cash through the plan, you’ll get a tax refund of $15,000 or so. Imagine all the important and valuable granite that’ll buy!

Or, you can use your RRSP to fund your mortgage. If you have enough cash in your plan, for example, to pay off your home loan, then do it. The bank loan can be replaced with an RRSP mortgage, which means you then make monthly payments into your own retirement plan. Sounds cool, however remember the interest you charge yourself needs to be at ‘market’ rates and you must CMHC-insure the thing. But, it can still be sweet.

If any of this turns you on (and I’m quite aroused myself at the moment) let me know. I might even tell you how to cash in an RRSP without paying tax.



He is saying basically what I said:

- No point to save/save/save or max them out.
- You can use RRSP money if you need to withdraw (not locked in).

What I don't agree with is his doom and gloom B.S. for the future yet he doesn't provide any investment vehicles or alternatives.

Income splitting works, just not for everyone...it's not as sexy as he makes it sound to be.

Paying off your mortgage loan with RRSP, never heard of that. Gotta look into it.

It all comes down to personal financial situation IMO. What works for me, won't work for many of you and vice versa.

I love when people talk about all these *loop holes* or b.s. things when they are all a bunch of T4'ers. You are not conglomorate, no one will come slap GAAR on you from the CRA

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#6717429 - 11/16/12 08:45 AM Re: RRSP contributions - What do you do [Re: LNXGUY]
Risky Business Offline
Post Master Supreme


Registered: 05/17/10
Posts: 20684
Loc: Craigslist's Personals
 Originally Posted By: LNXGUY
My current mortgage payments are based upon a higher rate (I think 9% or so) so I'm paying more principle down with every payment. I should be mortgage free in about 7 years. Although I should probably dump any extra $$$ on it, rather then investing..


You probably should, it's guaranteed and will return a hell of a lot more than any investment. Your contribution room will carry forward, once you are mortgage free, if it's beneficial you can start dumping into RRSP etc and defer that income.

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#6717438 - 11/16/12 08:52 AM Re: RRSP contributions - What do you do [Re: Risky Business ]
Euphoric Offline
Post Master Supreme


Registered: 11/05/03
Posts: 83778
Loc: Canadistan
 Originally Posted By: Risky Business

It all comes down to personal financial situation IMO. What works for me, won't work for many of you and vice versa.
agreed
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#6717519 - 11/16/12 09:25 AM Re: RRSP contributions - What do you do [Re: Euphoric]
c2k Moderator Offline
Post Master Supreme


Registered: 05/21/00
Posts: 14029
Loc: Wiesloch-Walldorf, Germany
how come risky business isnt the finance minister for ontario? he'd pull us out of the red faster than he can stare at it.
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