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    Default Overcontribute to RRSP?

    Is there any benefit to contributing more to RRSP once you have contributed enough to get ALL of your tax back?

    For example, my dad has NEVER contributed to RRSP and has like 200k in alocation that he can contribute into it. He is planning to put large chunks into RRSP over the next couple years, I am assuming there is a point where contributing does not yeild any benefit and he should spead it over more years?

    He basically wants to get as much tax back as possible now.

    Also, what is everyones opinion on using money from HELOC to contribute to RRSP to get a large tax return....Say you contribute 20k and get like 6k back..thats a 30% return, maybe it will take you a year to pay that back, which would cost you like 5% of that 30% in interest on the HELOC, so still get net 25% as a return right?

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    Don't forget to consider the tax that you have to pay when you eventually withdraw from your RSP. You will be taxed less however it is something you need to consider.

    Also how old is your father? How many years is he from retirement when he will need to start making withdrawals?

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    Originally posted by roopi
    Don't forget to consider the tax that you have to pay when you eventually withdraw from your RSP. You will be taxed less however it is something you need to consider.

    Also how old is your father? How many years is he from retirement when he will need to start making withdrawals?
    My dad is like 56 right now, so 9 years or so from retirement. We are well aware that he will have to pay tax when he takes the money out, but they will probably withdraw small amounts so they wouldn't pay all that much in taxes.

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    Another couple of things you should consider:

    1) Where is this 200k currently? Is it invested in securities/MFís already? Or is it coming from the sale of a property or asset? If itís not invested, then getting that money working for you sooner and taking advantage of compound interest is better in the long run than tax savings down the line.

    2) If the money IS currently invested in something, what is it? If it pays interest or distributions or is not part of a DRIP, you get tax-deferred growth on holding within the rrsp. So if you dad has 200k in provincial bonds, transferring them over to your rrsp could be a way to avoid current rapage from taxes on interest and defer them to a time where he would hopefully be in a lower tax bracket.

    As for the HELOC, I'm not sure what your current income level is, but putting in 20k isnít always going to get you 6k back. RRSP contributions donít act as a credit towards taxes paid, but rather as a deduction on your taxable income. For example, if you made 50k a year, you would have to pay $8,149 in federal tax. Now if you put 20k into an rrsp, that lowers your income to 30k, on which you pay 4.5k in federal tax, which would give you $3,649 in tax returns, which equals 18% on your 20k, 13% after the cost of the funds. Not bad, but as soon as interest rates go up, which they will, so does your cost of funds, and you have to be super diligent on paying that money back within your 1 year.

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    Default Re: Overcontribute to RRSP?

    Originally posted by eblend
    Is there any benefit to contributing more to RRSP once you have contributed enough to get ALL of your tax back?

    For example, my dad has NEVER contributed to RRSP and has like 200k in alocation that he can contribute into it. He is planning to put large chunks into RRSP over the next couple years, I am assuming there is a point where contributing does not yeild any benefit and he should spead it over more years?

    Originally posted by 2000_SI
    Another couple of things you should consider:

    1) Where is this 200k currently?.....

    2) If the money IS currently invested in something, what is it? ......
    You misread his post. His dad has $200k of allocation space available to contribute to RRSP (if he wishes). He's not saying he has $200k sitting around to invest in RRSP's.
    J

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    Not my specialty, but here's what I've learned.

    I fill mine every year and then some. Ideally, you want to fill it to get the maximum tax benefit. If you put too much in, you can simply defer the overpayment to carry over to the next year. If you don't carry it over and overcontribute, I believe there are some penalties you have to pay.

    One other thing to be careful of is moving stocks rather then cash into an RRSP (assuming you have a self-directed RRSP). Say you bought a stock outside your RRSP and it's gone up 25%. If you move this stock into your RRSP, it's the equivalent of selling it from a tax perspective (despite the fact that you don't actually sell it). You will have to pay the capital gains on the profit you've made to date which would take away from any tax benefit you recieve.

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    Default Re: Overcontribute to RRSP?

    Originally posted by eblend
    Is there any benefit to contributing more to RRSP once you have contributed enough to get ALL of your tax back?

    I am assuming there is a point where contributing does not yeild any benefit and he should spead it over more years?

    Compound interest is a benefit. $40g /year in the first 5 years, then nothing for 5 years will result in more, than $20g/year over 10 years.

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    does he already invested in some RRSP or does he have NO RRSP at all?

    As he hit 65, he'll be forced to turn RRSP to RRIF and start withdrawing and that may impact his income supplement.

    Now if he got shit load of money and don't care about income supplement, then go load up on RRSP.

    Nobody got the complete picture except you and your dad. Should go talk to an adviser.

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    Not quite at 65.

    OP, go see an advisor.


    http://www.cra-arc.gc.ca/tx/ndvdls/t.../yrwn-eng.html

    In the year you turn 71 you have to choose one of the following options for your RRSPs:

    withdraw them;
    transfer them to a RRIF;
    use them to purchase an annuity for life; or
    use them to purchase an annuity spread over a number of years.
    Originally posted by Xtrema


    As he hit 65, he'll be forced to turn RRSP to RRIF and start withdrawing and that may impact his income supplement.

    Nobody got the complete picture except you and your dad. Should go talk to an adviser.

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    ^ sorry, 65 is when you can start drawing from CPP and have income supplement. You are right for 71 on RRIF.

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    Default Re: Re: Overcontribute to RRSP?

    Originally posted by Tik-Tok


    Compound interest is a benefit. $40g /year in the first 5 years, then nothing for 5 years will result in more, than $20g/year over 10 years.
    That I understand, however, I am talking about instant return, not interest made on the RRSP. Basically my dad just wants to contribute enough to get back a portion of whatever he paid in taxes. Say if he puts in 30k per year it will take him at least 7 years to fill up his current allocation, and for that 30k he will get back an amount (6k maybe? not sure, I put 20k last year and got 5 back)

    He doesn't have any RRSP at ALL right now, simply wants to get back a portion of the taxes that he has paid the government. He doesn't even care at the moment on how much he will make on his RRSP, just wants taxes back now. He wants to do it as a low interest, low risk, saving account type of RRSP.

    Basically, the main question is this, say my dad makes 60k per year, the first $10,320 isn't taxed at all, so the remaining 50k is taxed. Say from that 50k he gets taxed $10k. If he that same year contributed 50k into his RRSP he will get all 10k back, what if he decides to contribute 60k that year, is there any benefit to that? He has already got all the taxes back that he paid that year, will contributing more yeild any benefit (outside of the compound interest on the actual interest paid)

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    edited: wrong info

    yellowsnow:
    The maximum RRSP contribution limit for subsequent years is as follows:
    2007 maximum RRSP contribution limit: $19,000
    2008 maximum RRSP contribution limit: $20,000
    2009 maximum RRSP contribution limit: $21,000
    2010 maximum RRSP contribution limit: $22,000

    Limit for 2009 TAX YEAR is $21,000 which you can still contribute to until March 1st, 2010.

    Here's a calculator that may help in determining how much tax you will save..
    http://www.tax-services.ca/rrsp-calculator.html
    Last edited by djayz; 01-07-2010 at 05:49 PM.

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    The limit is $22,000 this year

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    Originally posted by djayz
    This is a per situation basis so I won't chime in on anything other then there being a limit on how much you can deduct a year.

    Doesn't matter how much income you make the limit is the same all accross and I believe the limit for 2009 is $21000.
    So your dad could contribute 60k but he will only be able to deduct 21k.
    That's what I thought too BUT I can't remember the thread but 'blownz' explained it. You can deduct the $60K and not limited by the yearly cap limit of $21K in your example. Can't remember why or how though but trust me.

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    Originally posted by max_boost


    That's what I thought too BUT I can't remember the thread but 'blownz' explained it. You can deduct the $60K and not limited by the yearly cap limit of $21K in your example. Can't remember why or how though but trust me.
    Yah it just hit me after thinking about it for a bit. Since he hasn't contributed or deducted at all in the previous years that all carrys forward so in reality if he makes 60k a year in income, he can contribute and deduct 60k, although it makes no sense to do this.

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    You are allowed to deducted your RRSP limit stated on your NOA. Most people don't max out, therefore having carry forward RRSP contributions.

    Tax Calculator:

    http://www.ey.com/CA/en/Services/Tax...9-Personal-Tax

    RRSP Savings Calculator:

    http://www.ey.com/CA/en/Services/Tax...9-RRSP-Savings

    Hope that helps, any other questions feel free to PM me.

    But as someone mentioned... the savings is a case by case scenario but if it's really basic (ie. no other investment incomes / deductions etc. then those calculators should be fairly accurate)

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    Default Re: Re: Re: Overcontribute to RRSP?

    Originally posted by eblend
    Basically, the main question is this, say my dad makes 60k per year, the first $10,320 isn't taxed at all, so the remaining 50k is taxed. Say from that 50k he gets taxed $10k. If he that same year contributed 50k into his RRSP he will get all 10k back, what if he decides to contribute 60k that year, is there any benefit to that? He has already got all the taxes back that he paid that year, will contributing more yeild any benefit (outside of the compound interest on the actual interest paid)
    He has no risk of over-contribute. Throw in as much as he can so he doesn't have to pay a dime of tax.

    Again, consider that once money goes in, it stay there. If he pull them out while he's working, he'll get taxed more.

    Also HELOC for RRSP isn't a bad idea but burn all the cash you have first. These cash are collecting interest/dividend that are taxable. And you will never get enough tax return to cover what you borrow.

    And putting more than $50K here won't gain you any more tax return so in effect pointless. Especially you have to borrow that money.
    Last edited by Xtrema; 01-07-2010 at 07:53 PM.

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    Default Re: Re: Re: Re: Overcontribute to RRSP?

    Originally posted by Xtrema


    He has no risk of over-contribute. Throw in as much as he can so he doesn't have to pay a dime of tax.

    Again, consider that once money goes in, it stay there. If he pull them out while he's working, he'll get taxed more.

    Also HELOC for RRSP isn't a bad idea but burn all the cash you have first. These cash are collecting interest/dividend that are taxable. And you will never get enough tax return to cover what you borrow.

    And putting more than $50K here won't gain you any more tax return so in effect pointless. Especially you have to borrow that money.
    Don't listen to this guy, he is full of s h i t! You can only put in 21k for the 2009 tax year, any more than 2k over that limit and there are severe tax implications.

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    Default Re: Re: Re: Re: Re: Overcontribute to RRSP?

    Originally posted by Nigel Mansell


    Don't listen to this guy, he is full of s h i t! You can only put in 21k for the 2009 tax year, any more than 2k over that limit and there are severe tax implications.
    You're a retard. OP already said there is existing contribution room from past years.

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    Default Re: Re: Re: Re: Re: Overcontribute to RRSP?

    Originally posted by Nigel Mansell


    Don't listen to this guy, he is full of s h i t! You can only put in 21k for the 2009 tax year, any more than 2k over that limit and there are severe tax implications.

    haha what are you talking about?

    he said it exactly how it is...

    limit is 21k in a given year for RSP contribution...
    so you make 1,000,000 the most you can put in is 21k...

    now say you dont contribute to your RSP over 3 years...
    and build up contribution room of 60k,
    you can put all 60k in one shot!!!

    stop spreading miss information
    These opinions are entirely my own and do not represent any other person or organization.

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