RRSPs.. Need schooling

[LiquidTurbo]

Hi,

Need advise on RRSPs, strategy, how much to contribute, how they work, etc. Correct me if I'm wrong but there's probably a bunch of people who don't know a lot about RRSPs.

Any help?

[F30]

In short, it is a good thing, maximize your RRSP if you have the funds to do it. Also maximize your TFSA

RRSPs allow you to contribute now towards funding your retirement. Contributing to an RRSP has two main benefits: first, your contribution is tax deductible and second, your contributions grow tax sheltered inside your RRSP and as a result, they have the potential to grow at a much faster rate than funds saved outside an RRSP.

Long version (with all kinds of goodies):

Registered Retirement Savings Plan (RRSP)

http://www.rbcroyalbank.com/products/rrsp/index.html

[waddy41]

Yes I'm very surprised to find that a lot of people have no idea about what rrsp's are and some of the basic rules..

Before deciding to contribute and how much to contribute, thoroughly learn the rules, work out the math/tax savings and plan far out into the future..

[adrnlnrush00]

To truly determine if an RRSP is worth your while, you really need to do some tax planning.

The purpose of an RRSP is to defer taxes that would have been payable now to future years when you're in retirement and drawing from your retirement fund. In order to truly benefit from an RRSP, your taxable income today must be higher than what you anticipate to be your taxable income when you retire. If it isn't that you may ultimately pay more taxes over your lifetime had you not contributed to your RRSP.

On a related note, an RRSP is yet just another savings vehicle. It should only be a part of your overall portfolio of savings vehicles... not the only savings vehicle.

[Selanne_200]

A simple strategy I can offer is to buy RRSP and use the refund you get to buy in a TFSA account, therefore you can maximize your retirement planning.

[waddy41]

Also remember that when you withdraw from an RRSP (if not for 1st time home buying or schooling), you will lose the contribution room FOREVER

I forgot that rule last yr and learned the hard way..it feels like my money is locked in there for LIFE

[taylor192]

Originally Posted by LiquidTurbo

Hi,

Need advise on RRSPs, strategy, how much to contribute, how they work, etc. Correct me if I'm wrong but there's probably a bunch of people who don't know a lot about RRSPs.

Any help?

The advice is different for each situation, you need to provide more info of where you're at and where you want to be.

Here's some general guidelines:

If you have a defined benefit pension plan (like most government employees) then RRSPs are probably not for you. Use your TFSA.

If you make less than $50K, then TFSA is probably a better bet. If you search for TFSA vs RRSP you'll find lots of material showing how at lower incomes the tax return now doesn't help as much as no tax on withdrawal.

If you make more than $50K, then RRSP.

---

As for how much to contribute, you'll need to decide when you want to retire, how much savings you have now, and how much you want to retire on. I want to retire 50% of my salary, and I know CPP/OAS will provide ~30% of that. So I need to save enough to provide 35% of my salary starting at 65yo.

There are different ways to reach that target. I could have saved a percentage of my salary each year for the rest of my life. Instead I decided that trying to save while having a family would be difficult, so I wanted to have enough in my RRSP by age 30 and set a goal when I was 25yo. I'm 33yo now and have surpassed my goal, yet recently lowered my expectations of growth from 7% to 6% cause the markets suck, so I've been maxing out my RRSP and have set a new goal.

So... back to my first question: where are you at and where do you want to be?

PM me if you have more questions, as I often forget to check this forum.

[Tapioca]

It's hard to not get sucked into the hype around RRSPs. I had a meeting with my mortgage manager over the weekend and she chatised me for not contributing to my RRSP. Then I told her that I have a defined benefit pension and she later backpedalled and said that RRSPs aren't for everyone. Her ex-husband is a public servant and she flat out stated that his pension is worth a million bucks (of course, she's entitled to half of that.)

It pains me to say this, but I think I'm going to pay taxes this year instead of contributing to my RRSP. At my income level, I would have to pay nearly 5 grand to off-set any taxes that I owe. I want to preserve my emergency fund and if I were to make an RRSP contribution this year, I would have to put a serious dent into that fund. Some food for thought for others who may be in my situation (or who spent beyond their means this year.)

[4444]

RRSP's are an interesting fella, and everyone will have their opinion on them.

Do you need the money? If not, and your TFSA is maxed out, then by all means, use the vehicle to get a tax refund - the value of that money today, combined with your RRSP could be important to you (time value of money too)

Some say to put money into RRSP, and use the tax refund to fund TFSA.

If you need that money now and you're earning more and more money, then I'd say don't contribute as you'll be getting larger refunds later on (in next 3, 5, 10 years) - its not like you lose the contribution room, and once its in, its in, it becomes quite expensive money to retrieve (other than through a tax deferred plan, like the first time homebuyers thingee) as you have to pay marginal tax on it (especially important if you are increasing your earnings).

Also consider the fact that tax rates will likely rise overtime given the fact that we, as the western world are just effectively 'kicking the can down the road' - someone has to pay for all of our parents when they retire and all the doucebags who get government defined benefit plans (YES, i said that right, government workers getting DB plans are d-b's as we have to pay for them, if you get a DB from a public company, good for you

Another option is to reinvest your tax refund (more RRSP or TFSA as mentioned) and enjoy the power of compounding returns (reinvested dividends, reinvested capital gains) - HOWEVER, you should watch what you have in these accounts, capital gains are taxed favouribly (1/2 of the gain), dividends attract the dividend tax credit (favourable to be taxed), REIT distributions are taxed at the highest marginal rate so they are good RRSP candidates.

Not all earnings are alike - so that is a MUST for consideration once you figure out what you want to invest in and your time frame.

RRSP contribution is a totally personal choice - 10 people with identical earnings will end up with 10 different decisions for a reason

[mr_chin]

What's the difference between keeping money in a savings account and a TFSA? You don't have to report the interest earned in the savings account anyways, right?\

Originally Posted by Tapioca

It's hard to not get sucked into the hype around RRSPs. I had a meeting with my mortgage manager over the weekend and she chatised me for not contributing to my RRSP. Then I told her that I have a defined benefit pension and she later backpedalled and said that RRSPs aren't for everyone. Her ex-husband is a public servant and she flat out stated that his pension is worth a million bucks (of course, she's entitled to half of that.)

It pains me to say this, but I think I'm going to pay taxes this year instead of contributing to my RRSP. At my income level, I would have to pay nearly 5 grand to off-set any taxes that I owe. I want to preserve my emergency fund and if I were to make an RRSP contribution this year, I would have to put a serious dent into that fund. Some food for thought for others who may be in my situation (or who spent beyond their means this year.)

IMO you should buy enough RRSP to not pay tax. Once you pay tax to the government, the money is gone and can never be retreived again. At least once you have your money in your RRSP, you can withdraw if there ever is an emergency. If not, then let it sit.

To me, RRSP saves us from giving money to the government and it's stupid not to contribute if you owe tax this april.

[F30]

Wrong. LOL, out of curiosity, what made you think that? Or is my e-sarcasm meter broken?
Posted via RS Mobile

[Tapioca]

Originally Posted by mr_chin

What's the difference between keeping money in a savings account and a TFSA? You don't have to report the interest earned in the savings account anyways, right?\



IMO you should buy enough RRSP to not pay tax. Once you pay tax to the government, the money is gone and can never be retreived again. At least once you have your money in your RRSP, you can withdraw if there ever is an emergency. If not, then let it sit.

To me, RRSP saves us from giving money to the government and it's stupid not to contribute if you owe tax this april.

If I had an emergency, I would still be taxed if I took the RRSP out (unless I lost my job and wouldn't be expected to work for over a year.) RRSP are tax deferrals, not tax avoidance instruments.

I prefer to have a liquid emergency fund. Sure, I have home equity, but I'm not comfortable tapping into that.

[mr_chin]

Originally Posted by Tapioca

If I had an emergency, I would still be taxed if I took the RRSP out (unless I lost my job and wouldn't be expected to work for over a year.) RRSP are tax deferrals, not tax avoidance instruments.

I prefer to have a liquid emergency fund. Sure, I have home equity, but I'm not comfortable tapping into that.

Don't get me wrong, I'm not expert in RRSP, just started learning it myself.

But isn't the tax you pay from taking out an RRSP the same as if you are paying it now?

So for example, if you owe $4000 on your income tax. If you buy say $12000 to defer it. Later in that same year, if you take it out, you get taxed $4000 right?]

No sarcasm or anything, just purely trying to learn RRSP myself.

PS - My TFSA question has been answered in the mail today. Received a T5 for all the interest I've earned in my high interest savings account.

[SumAznGuy]

Originally Posted by mr_chin

IMO you should buy enough RRSP to not pay tax. Once you pay tax to the government, the money is gone and can never be retreived again. At least once you have your money in your RRSP, you can withdraw if there ever is an emergency. If not, then let it sit.

To me, RRSP saves us from giving money to the government and it's stupid not to contribute if you owe tax this april.

Originally Posted by mr_chin

Don't get me wrong, I'm not expert in RRSP, just started learning it myself.

But isn't the tax you pay from taking out an RRSP the same as if you are paying it now?

So for example, if you owe $4000 on your income tax. If you buy say $12000 to defer it. Later in that same year, if you take it out, you get taxed $4000 right?]

No sarcasm or anything, just purely trying to learn RRSP myself.

Please don't be giving out RRSP advice if you have no clue how it works.

First off, even if you do not use up all your RRSP room, whatever is left over is carried over to the following year, so NO, your tax money is not GONE FOREVER.

Say you have $42,000 of taxible income this year.

2012 Income Tax Rates Canada | Tax Brackets 2012 | Canadian Income Tax Calculator | Canada Tax Information

You would be in the lowest tax bracket, 15%.

Sure, you could use up all your eligible RRSP room this year and save 15% on that amount, or save it for a year you make more money.

And on your question about taxing your money if you take out your RRSP's, well that amount that you take out get's added to your income from that year. Say you need to take out the $12K in RRSP's. And you made $60K that year. Well, your taxible income is now $72K. Tax amount taken in tax could be equal to, greater than, or less than what you got back when you first invested the $12K in RRSP's depending on what your tax rate was at the time of the purchase.

RRSP's are meant for long term, and is tax deferral not advoidance.

In a perfect world, when you are 65 and retired, your income should be a lot less than what it is now and that is when you would pull your money out of RRSP's because at the end of the year, your taxible income should be a lot less.

And remember, the more money you have in RRSP's, the less money you get from the government.

[Szeto]

RRSP versus TFSA: Head to Head Comparison

LINK

Give it a read and you should know what you need.

[mr_chin]

It's that time of the year again, and I'm battling if I should contribute this year. I haven't contributed any throughout the year.

Will I benefit much if my contribution doesn't bring me to a lower tax bracket? Well, obviously there is a little benefit of some sort, but I mean in a strategic sense.

[phrozen3]

Sorry for being such a noob, but I was wondering how do I go about purchasing RRSP's? My brother says that I can transfer funds on a monthly basis using a Daily Interest Savings RRSP? Is this correct?

Thanks in advance for any help you guys can provide.

[Szeto]

best bet is to call your bank first and book an appointment with the advisor and they can provide in-depth answers. As taylor has mentioned, RRSP tend to benefit those who are making a higher income.

ETF is another good direction to look into in terms of investing/saving or so I was told.

[duc_evo_sp]

Here's a good piece of advice..... DON"T DO IT!"

[twdm]

Originally Posted by mr_chin

It's that time of the year again, and I'm battling if I should contribute this year. I haven't contributed any throughout the year.

Will I benefit much if my contribution doesn't bring me to a lower tax bracket? Well, obviously there is a little benefit of some sort, but I mean in a strategic sense.

You need to understand how the Canadian tax system works. I hate it when people say you should contribute to your RRSP to bring down your tax bracket. It doesn't work like that. Our taxes are layered. So let's say you get taxed 30% on your income at your income bracket, you get $0.30 back for every dollar you contribute. When you go into the next bracket which taxes 26%, you get $0.26 for every dollar you contribute within that bracket.

So no matter how far you are from the next bracket, you are lowering your average tax rate by reducing the amount of income taxed at your highest bracket.

[LiquidTurbo]

Originally Posted by duc_evo_sp

Here's a good piece of advice..... DON"T DO IT!"

Explain?

[bobbinka]

it is ALWAYS a good thing to purchase RRSPs and TFSA provided you have the means to do so. if you have the contribution room for RRSPs and the funds to do so, it is beneficial to maximize your contributions to simply increase your savings. afterall, that is what the purpose of an RRSP is, for your savings.

You dont need to use the contributions as a deduction on your taxes in that immediate year if you choose not to (for example, if you foresee an increase in income in future years). you should always make contributions when you can, so that you have the option to choose when to use it as a deduction in the future.

Originally Posted by twdm

So no matter how far you are from the next bracket, you are lowering your average tax rate by reducing the amount of income taxed at your highest bracket.

true, but it still stands that it is more beneficial for you use your RRSPs as a deduction for every dollar over the first tax bracket first. if i make $45,000 and had $5000 in RRSP contributions, i could simply just use $3000 of my contributions as a deduction so that i can avoid paying tax for the portion of income in the 2nd tax bracket (roughly 42k) of 22%, and then save the other $2000 as an unused contribution amount for future years where i may get a raise and be further in the 2nd tax bracket, instead of using the $2000 now to save 15%

[mr_chin]

Reviving old thread.

Would it be wise to take out a big loan on low interest to maximize my contribution and then pay off the loan as fast as possible?

[sdubfid]

Originally Posted by 4444

Another option is to reinvest your tax refund (more RRSP or TFSA as mentioned) and enjoy the power of compounding returns (reinvested dividends, reinvested capital gains) - HOWEVER, you should watch what you have in these accounts, capital gains are taxed favouribly (1/2 of the gain), dividends attract the dividend tax credit (favourable to be taxed), REIT distributions are taxed at the highest marginal rate so they are good RRSP candidates.

I thought none of those matter in an rrsp account as the tax is triggered on the lump sum that you remove?

I know that US dividends in TFSA have withholding taxes compared to RRSP.

[SumAznGuy]

Originally Posted by mr_chin

Reviving old thread.

Would it be wise to take out a big loan on low interest to maximize my contribution and then pay off the loan as fast as possible?

All depends on how much you plan on borrowing and at what interest rate.
Every person is going to be different but generally speaking, you get back $0.30 on the dollar that you put into RRSP's.
So if you borrow $5K to buy RRSP's, expect a tax return around $1500.
So now you owe $3500 at whatever interest rate you borrow at.

My own personal belief is that if you have to borrow money to buy RRSP's, then you shouldn't do it.

You are taking on debt to put money away into something that is pretty locked in or has high cost to withdraw from.

Like we have all said, you will not lose the contribution room so why borrow for the same of defering taxes. Save the room till you make more money.