I agree that RRSP's are a stupid thing to do for most Canadians...
Here is why:
If you put 261 $ a month in your RRSP's over 35 Years with a 10% return you will have 1,000,000 $. When you retire you want to draw a 10% income= 100 000 $/year, assuming a Marginal Tax rate of 35% you will pay 35 000$ in tax an you are left with 65,000$ (100,000-65,000)
the better alternative:
Use 261 $/month to service a non-callable, interest payment only investment loan of 46 400$, invest it over 35 years at 10%, you will have 1,300,000$.
you may or may not decide to pay back the loan, lets assume you do 1,300,000-46,400= 1,253,600$
Now on retirement you draw an income of 125,360 $ but here is the kicker, now you are on a Capital gain scenario and only 50% of that money is taxed at your marginal tax rate (62,680 X .35 = 21,938 $)
so in the investment loan scenario you end up with 103,422 $ after tax (125,360 - 21,938)
In the RRSP scenario you end up with 65,000$ after tax...
So yes, Cat and Hedley are right, when you know better, you do better...
Oh by the way, RRSP's are a tax deduction, so are the interest paid on and investment loan!
Every time you borow money to invest, the interest paid on that money is a tax deduction!
So yes, RRSP's are not the smartest thing to do!
If you want to know more about that kind of strategies, come by at my "money seminar" every wednesday at 7:30 PM in Winnipeg at the WFG office on 3140 portage av
If you are really serious about becoming tax efficient read the book "the 10 secrets revenue Canada doesn't want you to know" by David M. Voth
cheers
T4 and Tax
Moderators: sky's the limit, sepia, Sulako, lilfssister, North Shore, I WAS Birddog
Here's secret number one from Voth's book.
Secret 1
Take Maximum Advantage Of Your RRSP
An RRSP is by far the best tax break you will find. The book does not discuss the details but does highlight a few lesser known tips and strategies.
Contribute as early in the year as possible. If you contribute at the start of the year, all of the income earned will accumulate TAX-FREE. The effect of early contributions over a few years will be incredible (just watch the RRSPcompany advertising over the next six weeks and you will get all the detailed examples you need!)
Contribute anyway. If you have money to make a contribution, but don't want to claim the deduction in the current year because you are already in a low income position, make the contribution but delay the deduction. You can claim the deduction in a later year. This way, if you know your income will be higher in future years, you can maximize the TAX-FREE growth of your money now while maximizing your tax savings later.
Put your interest earning investments into your RRSP. If your portfolio consists of investments that earn interest such as GICs and bonds, and investments that earn capital gains and dividends such as growth mutual funds, consider putting your interest earning investments in your RRSP. This reduces your tax because until you sell your investment fund shares you will not have to pay much tax on their annual income. But interest income is taxed at your highest rate of tax, annually. NOTE: This does not mean that your RRSP should not own growth investments, only that if you have interest bearing investments outside your RRSP, this is one very good way of sheltering them. Transfer your retiring allowance or severance pay to your RRSP. The RRSP deadline is 60 days into the next tax year (March 1st for regular years and February 29th in a leap year). Your limit is based on 18% of your prior year "earned income" plus any carryforward amount. Check the notice of assessment for your prior year tax return to find out your maximum limit. If you are in a low tax bracket now, consider making a contribution now but not using it until a later year when you are in a higher bracket.
Secret 1
Take Maximum Advantage Of Your RRSP
An RRSP is by far the best tax break you will find. The book does not discuss the details but does highlight a few lesser known tips and strategies.
Contribute as early in the year as possible. If you contribute at the start of the year, all of the income earned will accumulate TAX-FREE. The effect of early contributions over a few years will be incredible (just watch the RRSPcompany advertising over the next six weeks and you will get all the detailed examples you need!)
Contribute anyway. If you have money to make a contribution, but don't want to claim the deduction in the current year because you are already in a low income position, make the contribution but delay the deduction. You can claim the deduction in a later year. This way, if you know your income will be higher in future years, you can maximize the TAX-FREE growth of your money now while maximizing your tax savings later.
Put your interest earning investments into your RRSP. If your portfolio consists of investments that earn interest such as GICs and bonds, and investments that earn capital gains and dividends such as growth mutual funds, consider putting your interest earning investments in your RRSP. This reduces your tax because until you sell your investment fund shares you will not have to pay much tax on their annual income. But interest income is taxed at your highest rate of tax, annually. NOTE: This does not mean that your RRSP should not own growth investments, only that if you have interest bearing investments outside your RRSP, this is one very good way of sheltering them. Transfer your retiring allowance or severance pay to your RRSP. The RRSP deadline is 60 days into the next tax year (March 1st for regular years and February 29th in a leap year). Your limit is based on 18% of your prior year "earned income" plus any carryforward amount. Check the notice of assessment for your prior year tax return to find out your maximum limit. If you are in a low tax bracket now, consider making a contribution now but not using it until a later year when you are in a higher bracket.
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Cat Driver
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I will admit I'm not an investment expert, but I also didn't just fall off the turnip truck this morning.
Nowhere on earth have I seen a governmet that will tax you and then come up with a complex scheem that will result in overall lower taxation.
If your government truly wanted to give you a break with lower overall taxation why don't they just lower the percentage of money they tax you upfront?
Bottom line is I may not be the swiftest money manager in town, but I trust me more than the government.
By the way Pika if you were getting some renevations from a local house renevator and they gave you two prices, one with a paper receipt for the work done and one with no paper work but lets say a 14% reduction in price for cash.
Which one would you choose?
Nowhere on earth have I seen a governmet that will tax you and then come up with a complex scheem that will result in overall lower taxation.
If your government truly wanted to give you a break with lower overall taxation why don't they just lower the percentage of money they tax you upfront?
Bottom line is I may not be the swiftest money manager in town, but I trust me more than the government.
By the way Pika if you were getting some renevations from a local house renevator and they gave you two prices, one with a paper receipt for the work done and one with no paper work but lets say a 14% reduction in price for cash.
Which one would you choose?
The hardest thing about flying is knowing when to say no
After over a half a century of flying no one ever died because of my decision not to fly.
After over a half a century of flying no one ever died because of my decision not to fly.
I think we already referenced simple questions. I'm not sure how this adds to an RRSP thread?
By the way Pika if you were getting some renevations from a local house renevator and they gave you two prices, one with a paper receipt for the work done and one with no paper work but lets say a 14% reduction in price for cash.
Which one would you choose?
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Cat Driver
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Just trying to figure out what avenues you would see as beneficial to saving a few dollars pika, but as you say it really does not have any connection with RRSP's.
The hardest thing about flying is knowing when to say no
After over a half a century of flying no one ever died because of my decision not to fly.
After over a half a century of flying no one ever died because of my decision not to fly.
So here is my situation. I'm contributing the minimum to my RRSP, and my company matches it. So its basically free money. Might as well continue contributing, no?
Secondly, my household income is going to rise quite a bit over the next year, from about $50K to over $100K and I was looking at RRSP's as a way to stay in the lower tax brackets. If RRSP's aren't such a good idea, what can I do to lower the amount of taxes I pay? Or do I just have to suck it up?
Thanks to everyone that has provided information. I'm not exactly a financial whiz, but I'm just trying to find a legal and easy way to keep the gov't dirty hands off my money.
Secondly, my household income is going to rise quite a bit over the next year, from about $50K to over $100K and I was looking at RRSP's as a way to stay in the lower tax brackets. If RRSP's aren't such a good idea, what can I do to lower the amount of taxes I pay? Or do I just have to suck it up?
Thanks to everyone that has provided information. I'm not exactly a financial whiz, but I'm just trying to find a legal and easy way to keep the gov't dirty hands off my money.
Is a melt down something like I was suggesting, (last page), where you start taking out fairly large chunks of cash starting at age 60? How does a T-series work?gowest wrote:RRP's have their use only if you have an exit strategy, don't start to think about it at age 69.
You can do a RRSP melt down over 12 years using a T-serie
As much as I like David's Voth book, I desagree with him on RRSP's
Thats all I was trying to do, but until recently the "voices of experience" were pretty tight lipped about sharing their experience. Thanks for the help though, I'll have to read it over a few more time to extract full value for your knowledge. Man I hate finances.W0X0F wrote:Pika, Goose, Pay some attention to the voices of experience.
I haven't read the whole thread so I apologize if someone has already said this - your free tax RRSPs will get you in the end - if you are clever enough to salt away lots of dosh, you reward will be effective taxation of around, I believe, 70%. If your retirement income is above the top limit, the government "claws back" your CPP, effectively taxing you at a waaay higher rate than you ever paid when you worked. Same thing if you are only living on the CPP and senior's thing, if you get a job as a WalMart greeter (perfect for you, CID! 
) you will get that clawed back too, paying the highest tax rate of your miserable life, just when you're trying to afford KD twice a week and maybe add a little Purina to the pot.
Read all the fine print carefully!
) you will get that clawed back too, paying the highest tax rate of your miserable life, just when you're trying to afford KD twice a week and maybe add a little Purina to the pot.Read all the fine print carefully!
"What's it doing now?"
"Fly low and slow and throttle back in the turns."
"Fly low and slow and throttle back in the turns."
The amount of misunderstanding and misinformation regarding RRSP's is mind blowing.
Xsbank you are not even close. Here is some light reading for you and anyone else who wants to know the do's and don'ts of RRSP's
http://www.investopedia.com/university/rrsp/default.asp
Xsbank you are not even close. Here is some light reading for you and anyone else who wants to know the do's and don'ts of RRSP's
http://www.investopedia.com/university/rrsp/default.asp
Whipline, nowhere in your little article do they talk about the taxes - they talk about marginal rates and such but they do not talk about clawback. Find a pensioner and ask one how that works.
I was talking RATES.
Nothing in you article contradicts what I said. In Canada, you don't get something for nothing unless you own a business and there is a strong movement in some investor circles to just pay the taxes and don't bother with the shelter. Especially true if you have been divorced or bankrupt and are starting over later in life (gee, ever heard of AIDS?). Or if the market falls and you lose your shirt, at least you can claim capital losses. Things look pretty good right now but my pension was biting it for years before it started to earn again. Don't forget your savings are only safe in a sock under your bed or hammered into your teeth.
If you are disciplined and start young you can do well, but I guarantee that you will get taxed to death LATER.
Don't believe everything you hear from an investment guy.
I was talking RATES.
Nothing in you article contradicts what I said. In Canada, you don't get something for nothing unless you own a business and there is a strong movement in some investor circles to just pay the taxes and don't bother with the shelter. Especially true if you have been divorced or bankrupt and are starting over later in life (gee, ever heard of AIDS?). Or if the market falls and you lose your shirt, at least you can claim capital losses. Things look pretty good right now but my pension was biting it for years before it started to earn again. Don't forget your savings are only safe in a sock under your bed or hammered into your teeth.
If you are disciplined and start young you can do well, but I guarantee that you will get taxed to death LATER.
Don't believe everything you hear from an investment guy.
"What's it doing now?"
"Fly low and slow and throttle back in the turns."
"Fly low and slow and throttle back in the turns."
To re-cap, that's still a 100% correlation:
- the older guys think RRSP's are a bad idea
- the younger guys think RRSP's are a great idea
Hmmm.
The important thing to keep in mind is that, despite the massive government debt Canada is saddled with - which is not unlike staring down the barrel of a financial cannon - we can rely on our kind and benevolent government to always make better decisions with our money than we would, because they always the taxpayer's financial interests as their highest priority
- the older guys think RRSP's are a bad idea
- the younger guys think RRSP's are a great idea
Hmmm.
The important thing to keep in mind is that, despite the massive government debt Canada is saddled with - which is not unlike staring down the barrel of a financial cannon - we can rely on our kind and benevolent government to always make better decisions with our money than we would, because they always the taxpayer's financial interests as their highest priority
Personally I am not a fan of RRSPs either...I find the growth too slow and dollar for dollar, you will pay more tax on the profit of an RRSP than that of a capital gain.
I prefer using borrowed money to invest in funds that provide me a capital gain. The interest on loans used to invest is tax deductable and the investments gain is long term capital gains, which when 'cashed out' will only be taxed on 50% of the gain! If you borrow a lot of money to invest the investment obviously has the potential to gain and lose quicker, but for long term growth....its really the ideal situation.
Read the book about the "Smith Manoeuvre", or learn about leveraging...if you have a house, you are already leveraging! Forget RRSPS....listen to the old timers!
I prefer using borrowed money to invest in funds that provide me a capital gain. The interest on loans used to invest is tax deductable and the investments gain is long term capital gains, which when 'cashed out' will only be taxed on 50% of the gain! If you borrow a lot of money to invest the investment obviously has the potential to gain and lose quicker, but for long term growth....its really the ideal situation.
Read the book about the "Smith Manoeuvre", or learn about leveraging...if you have a house, you are already leveraging! Forget RRSPS....listen to the old timers!
"So where'd you get the beauty scar, tough guy? Eatin' pineapple?"
Apparently none of the above posters read the article.
XS...when you retire the money turns into a RRIF. Instead of you paying into it...it now pays you. You are only taxed on the portion you take out each year. If you take out 100,000 you get taxed the same as any regular 100,000 income earner. You don't get taxed at 70% or some other foolish number.
This page is for you Tesox
http://www.investopedia.com/university/rrsp/rrsp6.asp
Clunkdriver...your initials wouldn't happen to be LL would it? Your story sounds very familiar.
XS...when you retire the money turns into a RRIF. Instead of you paying into it...it now pays you. You are only taxed on the portion you take out each year. If you take out 100,000 you get taxed the same as any regular 100,000 income earner. You don't get taxed at 70% or some other foolish number.
This page is for you Tesox
http://www.investopedia.com/university/rrsp/rrsp6.asp
Clunkdriver...your initials wouldn't happen to be LL would it? Your story sounds very familiar.
tesox, are you dead on, leveraging the banks money is the way to go,
turning your house from your biggest liability to your biggest asset is the way to go to: get a tax deductible "HELOC" payment and make an income out of your home.
RIF are still useless, they are better ways to bail out of RRSP's
turning your house from your biggest liability to your biggest asset is the way to go to: get a tax deductible "HELOC" payment and make an income out of your home.
RIF are still useless, they are better ways to bail out of RRSP's
Go west young men, go west...
Whipline, if you are taxed on your income at the highest marginal rate, somewhere about 50%, and you are entitled to get another $800 a month or so as a CPP benefit that you've paid into your whole working life, but THEY CLAW THAT BACK BECAUSE YOU ARE IN THE HIGHEST BRACKET it effectively taxes you at a rate that is waaaay higher than the top bracket you would ever have paid as a wage earner.
What part of this don't you understand? Pay the highest rate on your RRSP, then pay MORE by getting your benefit clawed back - your effective tax rate is 70-ish percent.
Also, the clawback is progressive, so rather than getting it all whacked off at once, if you are not quite in the highest bracket they will take SOME off, bumping you into a higher bracket that you would not be in if you were earning income.
Therefore after retirement, pay more taxes than you did when you worked = government never gives you something for nothing.
Sorry to shout but ask your investment guy - remember who is earning your commission and who has a vested interest in getting you to buy his RRSPs coz I'll bet dollars to doughnuts you've bought stocks or mutual funds not deposits and I'll also bet dollars to doughnuts you pay him, oh 2% M.E.R. too. Am I right? Why do you think investment guys drive the Porsches and we have TDIs???
What part of this don't you understand? Pay the highest rate on your RRSP, then pay MORE by getting your benefit clawed back - your effective tax rate is 70-ish percent.
Also, the clawback is progressive, so rather than getting it all whacked off at once, if you are not quite in the highest bracket they will take SOME off, bumping you into a higher bracket that you would not be in if you were earning income.
Therefore after retirement, pay more taxes than you did when you worked = government never gives you something for nothing.
Sorry to shout but ask your investment guy - remember who is earning your commission and who has a vested interest in getting you to buy his RRSPs coz I'll bet dollars to doughnuts you've bought stocks or mutual funds not deposits and I'll also bet dollars to doughnuts you pay him, oh 2% M.E.R. too. Am I right? Why do you think investment guys drive the Porsches and we have TDIs???
"What's it doing now?"
"Fly low and slow and throttle back in the turns."
"Fly low and slow and throttle back in the turns."
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Cat Driver
- Top Poster
- Posts: 18921
- Joined: Sun Feb 15, 2004 8:31 pm
Why do you think investment guys drive the Porsches and we have TDIs???
And we have no idea how much money good old Paul Martin has because he knows better than pay Canadian taxes on his company.
The hardest thing about flying is knowing when to say no
After over a half a century of flying no one ever died because of my decision not to fly.
After over a half a century of flying no one ever died because of my decision not to fly.
Whipline,
You sound so convinced of RRSPs that I am beginning to think you are Federal...
The link you provided "just for me" is not indicative of the benefits of leveraging vs RRSPs...I think your opinion regarding RRSPs is valid to the extent of what you are educated. You are encouraging poorly devised tactics for wealth management to people here whilst you are probably not even qualified to argue the point or certified to suggest the benefits of one over the other. I suggest you learn more about diversified investing and understand the complexity of retirement planning before you google a term and pass on the information as your own. I then suggest you hit up your nearest financial planner and get all your RRSP working properly for you, get informed on leveraging and ask about what your home can do for you other than burden your paycheque...it can do so much more, trust me!
You sound so convinced of RRSPs that I am beginning to think you are Federal...
The link you provided "just for me" is not indicative of the benefits of leveraging vs RRSPs...I think your opinion regarding RRSPs is valid to the extent of what you are educated. You are encouraging poorly devised tactics for wealth management to people here whilst you are probably not even qualified to argue the point or certified to suggest the benefits of one over the other. I suggest you learn more about diversified investing and understand the complexity of retirement planning before you google a term and pass on the information as your own. I then suggest you hit up your nearest financial planner and get all your RRSP working properly for you, get informed on leveraging and ask about what your home can do for you other than burden your paycheque...it can do so much more, trust me!
"So where'd you get the beauty scar, tough guy? Eatin' pineapple?"
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Cat Driver
- Top Poster
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And would his wealth be that much had he registered his company in Canada and paid Canadian taxes?Estimates put his wealth at $225 million.
The hardest thing about flying is knowing when to say no
After over a half a century of flying no one ever died because of my decision not to fly.
After over a half a century of flying no one ever died because of my decision not to fly.
