RRSPs

[billy36]

Hi Guys,


I've some questions concerning RRSPs:


1- Would u borrow @8.5% to make ur RRSP contribution?

2- Is the interest you pay on your borrowings to contribute to ur RRSP tax deductable?

3- Where would u put the money u borrowed @ 8.5% to yeild more return than that rate / What is the best investment u can do with these borrowings ?



All info concerning RRSPs will be a certain help.



Thanks all.

[PeterGTiR]

1. 8.5% is definitely below your tax rate if you were paying the federal government taxes, so if the money you were saving is worth the hassle, then go for it. I would do it, if I were rich....

2. When I went to invest in mutual funds, the lady did say something about the interest that would be incurred on borrowing to invest in "non registered" funds would be tax deductible, but I'm not sure about RRSPs. I remember the borrowing rate was quite high - probably more than 8.5% and I'm not that keen of an investor that I would be comfortable making a return greater than 8.5%.

3. Everybody is going to give you a different answer. It depends on the risk that you're comfortable with.

[Whitetiger]

Think I can answer #1 and #2

1. Depends on the kind of "investments" or activities you're planning to do with that borrowed money. The oblvious answer is, if you KNOW you can get returns higher than 8.5% then yes do it... If not, then think twice.
---Also, calculate the fact that even borrowing @ 8.5%, if you're maxing out your RRSP, this equals to tax savings and sometimes equal to tax REFUND; and once you get your refund, pay back some of that borrowed $$$.

2. As far as I know, any costs incurred on monies borrowed for investment purposes can be tax deducted. (i.e. commission on buying/selling stocks)

3. Don't really know nowadays, refer to the thread where everyone is making 60-100% returns on their investments last year.

[max_boost]

1. I would borrow if I'm confident my returns are significantly greater than the % which I'm borrowing at.

Why is it at 8.5%? Some credit card companies will send you balance transfer cheques and they are good for 6 months to a year and their rates are only 3-5%. I was at RBC last year with my uncle and they lent him $5k and interest was at prime.

2. No the interest is not tax deductible on a RRSP, wouldn't that be nice though?

3. Open up a self direct RRSP and you can play around with it. For example, RBC CAnadian Dividend has averaged over 14% since inception, you can buy those funds and just have it sit there. Or you can just go to http://forums.beyond.ca/showthread.p...threadid=27592 and see what 89coupe, benyl, z_fan, djayz and Altezza are picking.

For my RRSP portfolio, 85% are mutual funds which are good for 10-20% returns and the other 15% are high risk stocks which I'm hoping to cash on. I'm banking on the Beyond members to be accurate with their picks haha

[lint]

you cannot deduct the interest when borrowing for an RRSP. That is the one investment that breaks the rule, since the investment is tax sheltered until withdrawl. Also, when borrowing for an RRSP, you should be able to get prime or below.

[canadian_hustla]

Originally posted by lint
you cannot deduct the interest when borrowing for an RRSP. That is the one investment that breaks the rule, since the investment is tax sheltered until withdrawl. Also, when borrowing for an RRSP, you should be able to get prime or below.

correct, ATB and other FI's are offering prime minus for RRSP max-it loans (1 year to pay it back however)

[billy36]

Originally posted by max_boost
Why is it at 8.5%? Some credit card companies will send you balance transfer cheques and they are good for 6 months to a year and their rates are only 3-5%. I was at RBC last year with my uncle and they lent him $5k and interest was at prime.

Originally posted by canadian_hustla

correct, ATB and other FI's are offering prime minus for RRSP max-it loans (1 year to pay it back however)

The reason I'm saying 8.5% is coz this is the interest rate on my line of credit, but thanks to u guys, I will now contact ATB and other FIs and hopefully can get a better rate. This will make things work I guess.

[Altezza]

You'll come across a small issue if you do this. You'll borrow at 8.5% and pay 8.5% using AFTER tax dollars. Since you're not allowed a deduction, you'll have to generate higher returns just to break even on tax. As many have mentioned, there are RRSP loans at low rates. I've never used one, so I can't really comment.

Here's are a couple tricks if you invest outside of your RRSP as well. They may or may not be worth your trouble depending on what your situation is.

Say you want to borrow, $10k (or whatever) to top up your RRSP. If you have the money available, just dump it to your RRSP and borrow $10k to invest outside your RRSP. You may not get as good a rate, but you are able to deduct the interest.

Alternatively, if you invest outside your RRSP, you could also sell $10k worth of stock and contribute the proceeds to your RRSP, borrow $10k, and repurchase stock (be careful of taxable gains and superficial loss rules though). You'll be able to deduct the interest.

[billy36]

Diabolic


Keep your ideas coming guys & if any one has personal experience with high yeild mutual funds, plz share the info. Thanks everyone

[pinoyhero]

Originally posted by max_boost
1. I would borrow if I'm confident my returns are significantly greater than the % which I'm borrowing at.

Why is it at 8.5%? Some credit card companies will send you balance transfer cheques and they are good for 6 months to a year and their rates are only 3-5%. I was at RBC last year with my uncle and they lent him $5k and interest was at prime.

2. No the interest is not tax deductible on a RRSP, wouldn't that be nice though?

3. Open up a self direct RRSP and you can play around with it. For example, RBC CAnadian Dividend has averaged over 14% since reception, you can buy those funds and just have it sit there. Or you can just go to http://forums.beyond.ca/showthread.p...threadid=27592 and see what 89coupe, benyl, z_fan, djayz and Altezza are picking.

For my RRSP portfolio, 85% are mutual funds which are good for 10-20% returns and the other 15% are high risk stocks which I'm hoping to cash on. I'm banking on the Beyond members to be accurate with their picks haha

Max couldn't say it better, careful about some of the other answers ... they are just WRONG. People this guy is asking about his financial future here, if you dont know what's right or wrong then refrain from posting.

[Xtrema]

Your tax refund should be able to pay back the 1/3-1/2 of the loan depending on how much money you make. 8.5% is high so I would look at RRSP loan options as suggested.