Comments on: Who should contribute to an RRSP? http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm Building Wealth through Saving and Investing Sun, 12 Feb 2012 20:56:43 -0330 http://wordpress.org/?v=abc hourly 1 By: FrugalTrader http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-123936 FrugalTrader Wed, 08 Feb 2012 23:17:44 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-123936 @mansbridge, that's what I would do. @mansbridge, that’s what I would do.

]]> By: Mansbridge http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-123931 Mansbridge Wed, 08 Feb 2012 20:12:51 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-123931 <-- govt worker with pension (for now) 23 yrs old, 51k... no debt. should i max out TSFA then start contributing to a RRSP? Thanks in advance. <– govt worker with pension (for now)

23 yrs old, 51k… no debt. should i max out TSFA then start contributing to a RRSP?

Thanks in advance.

]]> By: Perry http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-123912 Perry Tue, 07 Feb 2012 19:27:40 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-123912 Got it! Will do! I just checked the remaining balance..looks like I was slightly off....balance to date is $21,894....not fun. I realized if I increase my payments to $400 it won't make much of a difference. I will try for $500/month. At that rate, it would take me aprox 50 months to pay. I will also try applying for repayment assistance...in hopes to get a lower interest rate, or have the interest taken care of. Not sure how successful that will go with my current income bracket, but definitely worth a shot. Any other advice is greatly appreciated! Got it! Will do! I just checked the remaining balance..looks like I
was slightly off….balance to date is $21,894….not fun. I realized
if I increase my payments to $400 it won’t make much of a difference.
I will try for $500/month. At that rate, it would take me aprox 50
months to pay. I will also try applying for repayment assistance…in
hopes to get a lower interest rate, or have the interest taken care
of. Not sure how successful that will go with my current income
bracket, but definitely worth a shot. Any other advice is greatly appreciated!

]]> By: FrugalTrader http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-123911 FrugalTrader Tue, 07 Feb 2012 18:30:32 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-123911 @Perry, after counting for the student loan tax deduction, you are still paying an after tax rate of around 4.4%. As you are in a low tax bracket, I would personally pay off the student loan first. What is the balance remaining? @Perry, after counting for the student loan tax deduction, you are still paying an after tax rate of around 4.4%. As you are in a low tax bracket, I would personally pay off the student loan first. What is the balance remaining?

]]> By: Perry http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-123910 Perry Tue, 07 Feb 2012 18:18:31 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-123910 Hi FT!! Ontario Student loan Current Interest Rate: 5.50 % Floating....car loan is at 1.99 %. I'm currently paying $300/month to student loan, and $308/month to car loan. Would you advise me paying more monthly to both debts? I've got a couple hundred dollar (aprox $300) wiggle room after other expenses like rent, gas, insurance etc. Thanks so much!! Hi FT!!

Ontario Student loan Current Interest Rate: 5.50 % Floating….car loan is at 1.99 %. I’m currently paying $300/month to student loan, and $308/month to car loan. Would you advise me paying more monthly to both debts? I’ve got a couple hundred dollar (aprox $300) wiggle room after other expenses like rent, gas, insurance etc. Thanks so much!!

]]> By: FrugalTrader http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-123908 FrugalTrader Tue, 07 Feb 2012 18:09:02 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-123908 @Perry, what are the interest rates on the loans? @Perry, what are the interest rates on the loans?

]]> By: Perry http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-123906 Perry Tue, 07 Feb 2012 17:44:43 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-123906 Hi FT!! I'm 23, have 20K in student loan debt, and 20K for my car. Making 43K/year. Want to ensure I'm on the right thinking page. Should not make any RRSP contributions until I have paid off my student loan and car?? Or would paying one off ie. student loan be sufficient, then make contributions to RRSP while paying down the car? Thanks! Hi FT!!

I’m 23, have 20K in student loan debt, and 20K for my car. Making 43K/year. Want to ensure I’m on the right thinking page. Should not make any RRSP contributions until I have paid off my student loan and car?? Or would paying one off ie. student loan be sufficient, then make contributions to RRSP while paying down the car?

Thanks!

]]> By: josey124 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-121141 josey124 Tue, 02 Aug 2011 20:20:53 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-121141 I have a problem with my RRSP and I don't know where else I can post this. I have an account with Questrade (RRSP) and one of my posititons CONVERTED ORGANICS INC (COIN:US) is now declared non-eligible. I purchased the shares in February and now I am forced to transfer them out of the RRSP account or sell them? WTH? I can see that they are non-eligible now and one shouldn't be able to buy them under the RRSP umbrella but I bought them months ago. How can CRA force me to take a loss? Here is an excerpt from the email I got: The Canadian Revenue Agency (CRA) determines which securities are eligible to be held in RSPs. All non-eligible securities are taxed at a rate of 1% per month, based upon the value of the security at the time it was acquired. Your account currently holds the following non-eligible security (or securities): CONVERTED ORGANICS INC To remove non-eligible securities from your RSP select one of the following options: 1. Sell the security. 2. Transfer the security to a non-registered account. Note: transfers from a registered account (except TFSAs) are considered a plan deregistration and are subject to fees and a withholding tax. Can anybody let me know what my best option is here? Thanks! I have a problem with my RRSP and I don’t know where else I can post this. I have an account with Questrade (RRSP) and one of my posititons CONVERTED ORGANICS INC (COIN:US) is now declared non-eligible. I purchased the shares in February and now I am forced to transfer them out of the RRSP account or sell them? WTH? I can see that they are non-eligible now and one shouldn’t be able to buy them under the RRSP umbrella but I bought them months ago. How can CRA force me to take a loss?

Here is an excerpt from the email I got:

The Canadian Revenue Agency (CRA) determines which securities are eligible to be held in RSPs. All non-eligible securities are taxed at a rate of 1% per month, based upon the value of the security at the time it was acquired.
Your account currently holds the following non-eligible security (or securities):
CONVERTED ORGANICS INC

To remove non-eligible securities from your RSP select one of the following options:
1. Sell the security.
2. Transfer the security to a non-registered account.

Note: transfers from a registered account (except TFSAs) are considered a plan deregistration and are subject to fees and a withholding tax.

Can anybody let me know what my best option is here? Thanks!

]]> By: FrugalTrader http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-117487 FrugalTrader Fri, 17 Dec 2010 18:17:48 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-117487 @ Dr - Another thing to consider is that if the low income earner, instead, chose to invest in a non-registered account of dividend payers, they would pay very little or not tax on their dividends. Thus, in effect, if they held the portfolio for the long term, it has the same tax deferral benefits of an RRSP. And when they sell, they would only have to pay 50% of the gain, instead of 100% of an RRSP withdrawal. Yes, I agree that there are huge benefits of reinvesting the tax refund, but I've read that most people simply spend the refund. @ Dr – Another thing to consider is that if the low income earner, instead, chose to invest in a non-registered account of dividend payers, they would pay very little or not tax on their dividends. Thus, in effect, if they held the portfolio for the long term, it has the same tax deferral benefits of an RRSP. And when they sell, they would only have to pay 50% of the gain, instead of 100% of an RRSP withdrawal. Yes, I agree that there are huge benefits of reinvesting the tax refund, but I’ve read that most people simply spend the refund.

]]> By: Dr. Philosophy http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-117474 Dr. Philosophy Fri, 17 Dec 2010 17:18:00 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-117474 FT, thanks the for reply. It is only fair to point out that when you wrote this piece TFSAs hadn't been invented yet, so you couldn't have mentioned that option. I agree it is a good option for everyone, including low-income earners, to take advantage of. But it is not the best option: I still think you are wrong to think any person with a perennially low income should contribute to an RRSP rather than a TFSA. Let me try to show why. Your argument is that low income earners pay little tax on working income before retirement and will lose the GIS if they defer the tax on what little income they have into retirement. My response is that (legally) deferring paying taxes is almost always better than paying said taxes now. Let me explain. A low income earner with an RRSP and a TFSA faces the choice of what to do with, say, $200 left at the end of the month. He could slot it into an RRSP and get, at a brute 25% tax rate, an extra $50 on his tax refund at the end of the year. Or he could take the $200, forfeit the $50 tax he must pay on the $200, and slot it into a TFSA. Granted he has a better chance at getting the GIS if he takes the latter route. (I say chance because the rules for GIS may change between now and when he goes to collect OAS. I'm 27--I'm not counting on anything.) But think what he could do with the $50 refund *this year*. If he does choose to reinvest it I daresay the compound interest on the $50 FROM THIS MONTH ALONE will be worth quite a bit when he's ready to retire, particularly if the low income earner is young at the moment. But even if he just goes and spends it on whatever he still has extra money he otherwise would have lost to CRA in his pocket *now*. It's true that low income earners pay little tax in this country relative to the wealthy. That is a good thing which makes me proud to be Canadian. What I'm suggesting is that almost everyone, including low income earners, take advantage of the even more incredible option of being able to be, in some measure, in control of how much tax we pay in any given year. With RRSPs we are both in control of deferring current income taxes, but also in control, even after conversion of an RRSP to a RRIF, of how much income we want to be taxed on in any given year (besides the variable minimum amount which must be withdrawn from a RRIF yearly.) Deferring paying income tax is almost always better than paying it up front and saving with what's left, the possibility of losing the GIS notwithstanding. Cheers. FT, thanks the for reply. It is only fair to point out that when you wrote this piece TFSAs hadn’t been invented yet, so you couldn’t have mentioned that option. I agree it is a good option for everyone, including low-income earners, to take advantage of. But it is not the best option: I still think you are wrong to think any person with a perennially low income should contribute to an RRSP rather than a TFSA. Let me try to show why.
Your argument is that low income earners pay little tax on working income before retirement and will lose the GIS if they defer the tax on what little income they have into retirement.
My response is that (legally) deferring paying taxes is almost always better than paying said taxes now. Let me explain. A low income earner with an RRSP and a TFSA faces the choice of what to do with, say, $200 left at the end of the month. He could slot it into an RRSP and get, at a brute 25% tax rate, an extra $50 on his tax refund at the end of the year. Or he could take the $200, forfeit the $50 tax he must pay on the $200, and slot it into a TFSA. Granted he has a better chance at getting the GIS if he takes the latter route. (I say chance because the rules for GIS may change between now and when he goes to collect OAS. I’m 27–I’m not counting on anything.) But think what he could do with the $50 refund *this year*. If he does choose to reinvest it I daresay the compound interest on the $50 FROM THIS MONTH ALONE will be worth quite a bit when he’s ready to retire, particularly if the low income earner is young at the moment. But even if he just goes and spends it on whatever he still has extra money he otherwise would have lost to CRA in his pocket *now*.

It’s true that low income earners pay little tax in this country relative to the wealthy. That is a good thing which makes me proud to be Canadian. What I’m suggesting is that almost everyone, including low income earners, take advantage of the even more incredible option of being able to be, in some measure, in control of how much tax we pay in any given year. With RRSPs we are both in control of deferring current income taxes, but also in control, even after conversion of an RRSP to a RRIF, of how much income we want to be taxed on in any given year (besides the variable minimum amount which must be withdrawn from a RRIF yearly.) Deferring paying income tax is almost always better than paying it up front and saving with what’s left, the possibility of losing the GIS notwithstanding.
Cheers.

]]> By: FrugalTrader http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-117432 FrugalTrader Thu, 16 Dec 2010 22:31:54 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-117432 True that tax free growth is great, but remember that people MUST dissolve the RRSP at some time. So when a low income earner turns 71, they'll be forced to pay full income tax PLUS lose their GIS income. Personally, I think the TFSA is a much better vehicle for low income earners. http://www.milliondollarjourney.com/tfsa-vs-rrsp-clawbacks-income-tax-on-seniors.htm http://www.milliondollarjourney.com/old-age-security-and-the-oas-clawback.htm http://www.milliondollarjourney.com/guaranteed-income-supplement-gis-and-gis-clawback.htm True that tax free growth is great, but remember that people MUST dissolve the RRSP at some time. So when a low income earner turns 71, they’ll be forced to pay full income tax PLUS lose their GIS income. Personally, I think the TFSA is a much better vehicle for low income earners.

http://www.milliondollarjourney.com/tfsa-vs-rrsp-clawbacks-income-tax-on-seniors.htm
http://www.milliondollarjourney.com/old-age-security-and-the-oas-clawback.htm
http://www.milliondollarjourney.com/guaranteed-income-supplement-gis-and-gis-clawback.htm

]]> By: Dr. Philosophy http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-117430 Dr. Philosophy Thu, 16 Dec 2010 22:16:32 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-117430 Two points: 1)It is misleading to claim "On top of that, upon retirement, government benefits like GIS (guaranteed income supplement) may be clawed back if you have an RRSP that exceeds the maximum income requirement." HOLDING an RRSP regardless of value does not kick in an OAS or GIS clawback. OAS and GIS clawbacks occur based on the year's income, and RRSP WITHDRAWALS are the only thing that affects that. By the way, GIS is worth between $0 and roughly $10000/yr. All but the poorest/chronically un or underemployed/new to Canada get less than the full $10000 just by virtue of their CPP and OAS incomes. 2) It is foolish to recommend that a person in the lowest tax bracket not contribute to an RRSP. A person in the lowest tax bracket can benefit from tax-sheltered growth in savings just as easily as a person in the highest tax bracket! That the TAX savings on one's tax returns from year to year won't be as great for a person in the lowest tax bracket who's planning to stay there as they would be for a person in a higher tax bracket should not dissuade someone from taking advantage of tax-sheltered growth in savings. Put rhetorically, a person who is of low income would like to be worth approx 650K by retirement just as much as a person who is of high income! In summary, it is nearly always best to put away in an RRSP. There are circumstances where it doesn't make any sense. But these are rare, and none of them were mentioned in this article. Two points:
1)It is misleading to claim “On top of that, upon retirement, government benefits like GIS (guaranteed income supplement) may be clawed back if you have an RRSP that exceeds the maximum income requirement.”
HOLDING an RRSP regardless of value does not kick in an OAS or GIS clawback. OAS and GIS clawbacks occur based on the year’s income, and RRSP WITHDRAWALS are the only thing that affects that.
By the way, GIS is worth between $0 and roughly $10000/yr. All but the poorest/chronically un or underemployed/new to Canada get less than the full $10000 just by virtue of their CPP and OAS incomes.
2) It is foolish to recommend that a person in the lowest tax bracket not contribute to an RRSP. A person in the lowest tax bracket can benefit from tax-sheltered growth in savings just as easily as a person in the highest tax bracket! That the TAX savings on one’s tax returns from year to year won’t be as great for a person in the lowest tax bracket who’s planning to stay there as they would be for a person in a higher tax bracket should not dissuade someone from taking advantage of tax-sheltered growth in savings. Put rhetorically, a person who is of low income would like to be worth approx 650K by retirement just as much as a person who is of high income!

In summary, it is nearly always best to put away in an RRSP. There are circumstances where it doesn’t make any sense. But these are rare, and none of them were mentioned in this article.

]]> By: FrugalTrader http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-116056 FrugalTrader Mon, 25 Oct 2010 12:13:12 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-116056 @David, withdrawing from RRSP prior to pension is a strategy that many use to reduce tax on the RRSP withdrawals. I recommend that you consult a tax pro to verify. @David, withdrawing from RRSP prior to pension is a strategy that many use to reduce tax on the RRSP withdrawals. I recommend that you consult a tax pro to verify.

]]> By: David http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-116055 David Mon, 25 Oct 2010 02:24:19 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-116055 Please correct me if I am mistaken. As it stated on cra-arc.gc.ca If your RRSPs are not locked in, you can withdraw funds at any time According to the following rates. * 10% (5% in Quebec) on amounts up to $5,000; * 20% (10% in Quebec) on amounts over $5,000 up to$15,000 * 30% (15% in Quebec) on amounts over $15,000. We do not have to wait until pension. If for example I know that in two years I am going to study I can accumulate approximately 14400cad (contribution room for 2010 for my income) +14400cad(Cont. room for 2011) = 28800cad . If I deduct these 14400cad from my 80000cad income for two years I can save approximately 10000cad in terms of tax.(depends on your provice) I know in advance that during my 2 years course my income will be low, lets say 25000cad. So, I am going to withdraw 14400cad yearly from my RRSP. Thus, 14400* 20% = 2880 10000cad -(2880+2880)= 4240cad saved. I omitted marginal tax issue to make this article simpler which is not very significant here especially if my income even lower than 25000 . The good point in this scenario that I do not need to wait until my pension and my RRSP money will not be eaten by inflation which is about 2%in Canada. 2% multiply by 30 years =60% . I think that because my education is not less important when my pension I have moral right to withdraw my RRSP before pension and of course it is money wise. Please correct me if I am mistaken.

As it stated on cra-arc.gc.ca If your RRSPs are not locked in, you can withdraw funds at any time According to the following rates.

* 10% (5% in Quebec) on amounts up to $5,000;
* 20% (10% in Quebec) on amounts over $5,000 up to$15,000
* 30% (15% in Quebec) on amounts over $15,000.

We do not have to wait until pension. If for example I know that in two years I am going to study I can accumulate approximately 14400cad (contribution room for 2010 for my income) +14400cad(Cont. room for 2011) = 28800cad . If I deduct these 14400cad from my 80000cad income for two years I can save approximately 10000cad in terms of tax.(depends on your provice)
I know in advance that during my 2 years course my income will be low, lets say 25000cad. So, I am going to withdraw 14400cad yearly from my RRSP.
Thus, 14400* 20% = 2880

10000cad -(2880+2880)= 4240cad saved.

I omitted marginal tax issue to make this article simpler which is not very significant here especially if my income even lower than 25000 .

The good point in this scenario that I do not need to wait until my pension and my RRSP money will not be eaten by inflation which is about 2%in Canada. 2% multiply by 30 years =60% . I think that because my education is not less important when my pension I have moral right to withdraw my RRSP before pension and of course it is money wise.

]]> By: Stacy http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-110056 Stacy Thu, 28 Jan 2010 01:59:46 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-110056 Hi all, I'm 24 years old and I've been contributing my max allowed every year since I started working, I now have about $16,000+ in RRSPs. This year I made around $80k and I have $25k just lying around in my bank (already contributed my RRSPs). I have no school debts (paid off), I paid off my car in full, insurance - everything. I just pay what I need to live (rent, food, internet (lol), etc.) My question is.. where should I put this extra money? I'm scared to do anything in the stock markets and where I live I don't have enough money to buy even an apartment. Oh, I also have $10k in a tax-free savings account (contributed my max $5k last year and $5k this year) Any ideas? I'm a very hard worker and I spend my money very wisely. My plan is to eventually buy my own place, but I want to be smart about it and not jump into anything just yet. I'm also wondering what is the best plan when putting money in RRSPs. I know there's 2ys, 3yrs etc. I've been putting mine in a 3yr rising rate as my bank told me this was the best option for me but I haven't a clue if this is true. Thanks for any advice. Hi all,

I’m 24 years old and I’ve been contributing my max allowed every year since I started working, I now have about $16,000+ in RRSPs. This year I made around $80k and I have $25k just lying around in my bank (already contributed my RRSPs). I have no school debts (paid off), I paid off my car in full, insurance – everything. I just pay what I need to live (rent, food, internet (lol), etc.) My question is.. where should I put this extra money? I’m scared to do anything in the stock markets and where I live I don’t have enough money to buy even an apartment. Oh, I also have $10k in a tax-free savings account (contributed my max $5k last year and $5k this year)

Any ideas? I’m a very hard worker and I spend my money very wisely. My plan is to eventually buy my own place, but I want to be smart about it and not jump into anything just yet.

I’m also wondering what is the best plan when putting money in RRSPs. I know there’s 2ys, 3yrs etc. I’ve been putting mine in a 3yr rising rate as my bank told me this was the best option for me but I haven’t a clue if this is true.

Thanks for any advice.

]]> By: Bill http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-106148 Bill Sun, 11 Oct 2009 23:13:56 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-106148 Thanks FT. I have a family of 4. My wife and my 2 children. I am the only one working (35k/yr). At the moment I have neither a RRSP nor any saving account. I have 10k in my normal bank account and I would like to know what to do with the money? What would be the better option? a RRSP, Saving Bonds or a bank saving account? Thanks a lot! Bill Thanks FT.
I have a family of 4. My wife and my 2 children. I am the only one working (35k/yr). At the moment I have neither a RRSP nor any saving account. I have 10k in my normal bank account and I would like to know what to do with the money? What would be the better option? a RRSP, Saving Bonds or a bank saving account?

Thanks a lot!

Bill

]]> By: Case Study: High Income and Consumer Debt Free | Million Dollar Journey http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-98653 Case Study: High Income and Consumer Debt Free | Million Dollar Journey Wed, 12 Aug 2009 10:30:43 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-98653 [...] contributing to my RRSP, to bring the taxable gross down & to set up for the [...]

[...] contributing to my RRSP, to bring the taxable gross down & to set up for the [...]

]]> By: YYC27 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-92102 YYC27 Tue, 14 Jul 2009 22:58:23 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-92102 I think, unless you expect to be on GIS in retirement, it's almost always a good idea to invest in an RRSP. Here in Alberta, the lowest combined Federal/Provincial tax bracket is 25%. Even at that rate, you can boost your investments by 1/3 ($133.33 pre-tax = $100.00 after-tax). That extra initial investment is still going to make a huge difference compounding over a working-life. ---- There's one thing I'm trying to decide for myself, right now. I'm about to purchase a home. I'm going to be using HBP withdrawals for part of the down payment. What I'm not sure about is where to direct surplus money -- mortgage prepayments or HBP repayments (over and above what's required). My RRSP contributions will already have been maxed, so I won't be able to take a tax deduction for any payments into the RRSP (they'll just come off as HBP repayments and go back to growing tax-free until retirement). So, whether it's mortgage payments or HBP repayments, it'll end up being after-tax money. I would get a better return within the RRSP, but the mortgage savings are guaranteed. I think, unless you expect to be on GIS in retirement, it’s almost always a good idea to invest in an RRSP.

Here in Alberta, the lowest combined Federal/Provincial tax bracket is 25%. Even at that rate, you can boost your investments by 1/3 ($133.33 pre-tax = $100.00 after-tax). That extra initial investment is still going to make a huge difference compounding over a working-life.

—-

There’s one thing I’m trying to decide for myself, right now.

I’m about to purchase a home. I’m going to be using HBP withdrawals for part of the down payment.

What I’m not sure about is where to direct surplus money — mortgage prepayments or HBP repayments (over and above what’s required). My RRSP contributions will already have been maxed, so I won’t be able to take a tax deduction for any payments into the RRSP (they’ll just come off as HBP repayments and go back to growing tax-free until retirement).

So, whether it’s mortgage payments or HBP repayments, it’ll end up being after-tax money. I would get a better return within the RRSP, but the mortgage savings are guaranteed.

]]> By: Andrew http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-89671 Andrew Tue, 30 Jun 2009 15:33:45 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-89671 In the article linked above you say "if you are over 65 the high dividend gross up may negatively affect your OAS payouts". So it sounds like the only "investment" for retirement that really makes much sense for people in the lowest tax bracket is to pay off a home. At least then you have somewhere cheap to live after retirement, and if you have any money left over it should go into a TFSA. However, I have to wonder if there are any guarantees that the rules regarding TFSAs won't change in the next 20 or 30 years. Cheers. In the article linked above you say “if you are over 65 the high dividend gross up may negatively affect your OAS payouts”. So it sounds like the only “investment” for retirement that really makes much sense for people in the lowest tax bracket is to pay off a home. At least then you have somewhere cheap to live after retirement, and if you have any money left over it should go into a TFSA. However, I have to wonder if there are any guarantees that the rules regarding TFSAs won’t change in the next 20 or 30 years.

Cheers.

]]> By: FrugalTrader http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm/comment-page-2#comment-89535 FrugalTrader Tue, 30 Jun 2009 00:09:35 +0000 http://www.milliondollarjourney.com/who-should-contribute-to-an-rrsp.htm#comment-89535 Andrew, you are absolutely right, I should have been more specific in the article. I will make the appropriate changes. Dividend income in a non-reg account gets preferable tax treatment, regardless if it's during retirement or not. Check out my article on how dividend income is taxed: http://www.milliondollarjourney.com/how-investing-taxes-work-part-2-dividends-and-interest.htm Andrew, you are absolutely right, I should have been more specific in the article. I will make the appropriate changes.

Dividend income in a non-reg account gets preferable tax treatment, regardless if it’s during retirement or not. Check out my article on how dividend income is taxed:
http://www.milliondollarjourney.com/how-investing-taxes-work-part-2-dividends-and-interest.htm

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