2015 RRSP Poll

[Xtrema]

Originally posted by GQBalla
okay let me re word. It's not scammy but stupid in my opinion. We already get taxed so much yet we have to pay more? You put money away for "retirement" is that what CPP is for? So we get taxed working. Then taxed again when we withdraw. Stupid IMO. I retract the word Scammy

Where do you ever pay more with RRSP?

You pay into RRSP and you get a tax refund. You grow it tax free for 20-30 years. And you take it out when you no longer works which means you will be in the lowest bracket possible.

How is that bad? I just don't get it.

When you withdraw from RRSP or RRIF, you would be in the lowest 2 tax brackets. If you are not, you are no worse off because your money would have been taxed at 40% anyway but instead has grown tax free for 20-30 years in a shelter.

It's money you would have been TAXED on anyway. Instead you didn't get taxed and DEFERRED to a time when you are no longer working.

Like I said, you should stop putting into RRSP when you know you have so much money in it that you are at a disadvantage when it converts to RRIF. Until then, it's the best vehicle to defer tax.

Originally posted by GQBalla
But you get taxed for the money that you worked for to put into the RRSP.

No you don't. You get a refund.

If you still think you get taxed twice with RRSP, I hope you can find a financial planner to explain it to you.

We only have 4 brackets in Alberta:

25%: 0-$44K
32%: $44K-$90K
36%: $90-$138K
39%: $138K+

So at a minimum, RRSP will save you 25% in taxes when you contribute going in. You only lose if you get taxed at 39% coming out. But don't forget the compound growth over the 20-30 years that you pay 0 income tax on.

Here's what RRSP is for:

If you are poor when you retire, this is your life blood, you will get taxed at a minimum rate anyway.

If you are middle income when you retire, you want to start withdrawing way before you hit 71 when you are force with withdraw.

If you are rich, get RRSP out ASAP before you hit 71 in as structure way as possible. And if you don't work and still clear $150K a year, what's a few bucks on taxes.

[pheoxs]

I contribute up to the amount my employer matches and then that is it. Other options are better in the long run but free money from employer can't be beat lol.

[GQBalla]

Sorry I mean your normal pay cheque. Taxed off that correct? Just like normal people

I'm just not being clear on my posts. I know you only get taxed when you pull out of RRSP. I'm just saying the money you put in. How'd you get that money. Unless it's cash jobs. You're getting taxed on your pay cheque

I do see everyone's point and I understand it.

[dezmarez]

Originally posted by GQBalla
But you get taxed for the money that you worked for to put into the RRSP.

But at the time you put the money into your RSP you did not pay tax on that money.

You are taxed on INCOME in Canada, be it Employment Income, Interest Income, Capital Gains Income, Dividend Income, CPP Income, Pension Income etc.

So yes, at retirement you will be taxed. In the example provided above the person with $100,000 in savings. It is true, the return of capital on the savings account wouldn't be taxed, however if that savings account produced interest. It would count as income, and be subject to tax, and clawback of GIS.

How you invest your money should also factor in if you contribute to RSP's or not. If you are a low risk investor (GIC's/Fixed Income) you would benefit having an RSP over someone who was purely an equity investor. (Given they are in the same marginal tax rate)

Again, the theory is that you will defer your taxes until retirement, and in theory, pay less taxes than when you were working.


The true beneift would be to invest the taxes you have saved outside of the RSP to truly optomize the program.

For example, somone in the higest tax bracket in Alberta will receive $390 for every $1,000 they put in. (Given the contributions into RSP don't drop them below that threshold)

So, an individual would than have $1,000 to invest inside their RSP, as well as $390 to invest outside of their RSP. (say a TFSA)

Where if they hadn't put the $1,000 into RSP, they would have only had $1,000 to invest outside of their RSP.

Anyway, point is, it isn't a simple answer of they are good or bad. It is really dependant on the individual.

I could ramble off a number of scenarios where RSP's are the most tax efficient solution.

[GQBalla]

Yes. That makes sense. Well it's a good thing I still max out every year.

[Xtrema]

Originally posted by GQBalla
I'm just not being clear on my posts. I know you only get taxed when you pull out of RRSP. I'm just saying the money you put in. How'd you get that money. Unless it's cash jobs. You're getting taxed on your pay cheque

If you have cash flow issues, it's tough to contribute on RRSP. But the best way as an employee is payroll deduction. If you put in $200 monthly, you basically contribute $120 and the other $80 would be come off your income tax.

This is by far the best way possible because waiting for refund means you just give the government 0% loan for 1 year.

The other is doing RRSP loan (or from LOC or HELOC). Borrow before deadline and put in RRSP and pay most of the loan back with your tax refund and try to pay it off over the next few months.

Originally posted by GQBalla
Yes. That makes sense. Well it's a good thing I still max out every year.

Then all you have to watch for is over-contribution. As your career and income winds down (as employees) when you are close to 60, you should review how much money on RRSP and how much equity outside of RRSP and how much liability you still have at that point.

It can buy you freedom earlier and go for a earlier retirement and enjoy life.

There is no point having too much $ when you are old.

[ga16i]

Originally posted by dezmarez

But at the time you put the money into your RSP you did not pay tax on that money.

Yes, he did if we're going with GQBalla's normal pay cheque for normal people scenario. In that case, the tax on that income was already deducted by the employer when he puts money from his pay cheque towards his RSP.

But since he contributed to his RSP, he is able to deduct that amount from his taxable income and get a refund on the tax already paid on it.

TLDR version: Over the course of a tax year if you deduct your RSP contributions from your income and get a refund, then you haven't paid tax yet on the RSP contribution amount.

[dezmarez]

Originally posted by ga16i


Yes, he did if we're going with GQBalla's normal pay cheque for normal people scenario. In that case, the tax on that income was already deducted by the employer when he puts money from his pay cheque towards his RSP.

But since he contributed to his RSP, he is able to deduct that amount from his taxable income and get a refund on the tax already paid on it.

TLDR version: Over the course of a tax year if you deduct your RSP contributions from your income and get a refund, then you haven't paid tax yet on the RSP contribution amount.

Sorry, I was strictly speaking about the theory, not the practical application.

If you put money into your RSP you are putting pre tax dollars into it.

[Cos]

.

[eblend]

Originally posted by mazdavirgin
Hell look into the tax consequences that happen when you die and the whole RRSP/RRIF gets taxed as income before going to your kids or whatnot.

Yah, thanks for reminding me, this is another reason I am not a big fan of RRSP. To elaborate on this, if a parents dies and their principal residence is left as inheritance, you don't pay any taxes on it. The only time you would pay taxes on a principal residence would be if you decided to rent it out or sell it, in which case you pay the capital gain from the time of their death, to the time you sell. So if you got the house and it was assessed at $500,000 at the time of death, and then sold it a year later for $550,000, you would be taxed on half of the capital gain, so $25,000, and then your tax bracket, lets say 40%, so on a 50k gain you would be taxed $10,000. If a parents passes away without blowing through their funds and leave you $500,000 in cash....it would count as full RRSP withdrawal at the time of death, and thus the $500,000 becomes only $300,000, and the government takes the rest. I just learned all this not too long ago, but that's how I understand it, please correct me if i am wrong. If the house was not a principal residence then the rules are different, if I remember correctly it's the capital gain from the time THEY bought the house to the time YOU sold it.

I think the whole end of life finance management is pretty important stuff and one should definitely learn and manage it.

[Sasuke_Kensai]

Originally posted by eblend


If a parents passes away without blowing through their funds and leave you $500,000 in cash....it would count as full RRSP withdrawal at the time of death, and thus the $500,000 becomes only $300,000, and the government takes the rest.

Does that apply to *any* cash or just RRSP's?

[eblend]

Originally posted by Sasuke_Kensai


Does that apply to *any* cash or just RRSP's?

Not sure, if I had to guess, RRSP for sure, since RRSP is deffered tax, so tax needs to be paid out, any other cash, say from a savings account, would have already been taxed. Since there is no inheritance tax in Canada from what I gather, I think you just get the money.

[Xtrema]

Originally posted by eblend
I think the whole end of life finance management is pretty important stuff and one should definitely learn and manage it.

Yep. You should have a plan by 50. Most old folks don't like it.

[know1edge]

nvm guess not

[Cos]

.

[r3ccOs]

I max my RRSPs and have no contribution room left.. maxing out the max of 18% of my income
Then I do my best to max out my TFSAs where it makes sense, as you do not get penalized on capital gains, but cannot write off capital loss, so its really only useful for buying blue chips

tertiary option is contributing into a whole or universal life policy as another investment vehicle.

otehrwise, if you are an entreprener with an incorporation, I'd suggest to purcahse divestified mutual funds or whatever securities you're comfortable with and pay yourself later down the road in POC dividands, and then widthdraw your securitieis later

[suntan]

God this RRSP thread is so different than the CP RRSP thread, where they're still trying to figure out what the fuck "saving money" and "investing" is.

[Strider]

Sorry, I don't mean to pick on you... but I have a hard time understanding people who don't believe in RRSPs (unless they're very poor or very rich). It sounds like GQBalla's misconception has already been cleared up...

Originally posted by eblend
2. If you have lots of funds in RRSP, you won't be able to maximize your pension, as in, you won't be able to get the Guaranteed Income Supplement.

Originally posted by eblend
But if you have nothing in the RRSP, and have no other income other then CPP and its cronies, is it not true you could get GIS regardless of how much wealth you have saved up elsewhere, because taking money out of own savings account would not constitute income, as money in the savings account would already be after-tax.

Like G mentioned, GIS if for people who really need it. The maximum income to qualify is roughly $20k. Unless you intentionally plan on being poor in retirement, the returns from your savings (registered or not) will likely exceed this amount anyways.

Originally posted by eblend
Yah, thanks for reminding me, this is another reason I am not a big fan of RRSP. To elaborate on this, if a parents dies and their principal residence is left as inheritance, you don't pay any taxes on it. The only time you would pay taxes on a principal residence would be if you decided to rent it out or sell it, in which case you pay the capital gain from the time of their death, to the time you sell. So if you got the house and it was assessed at $500,000 at the time of death, and then sold it a year later for $550,000, you would be taxed on half of the capital gain, so $25,000, and then your tax bracket, lets say 40%, so on a 50k gain you would be taxed $10,000. If a parents passes away without blowing through their funds and leave you $500,000 in cash....it would count as full RRSP withdrawal at the time of death, and thus the $500,000 becomes only $300,000, and the government takes the rest. I just learned all this not too long ago, but that's how I understand it, please correct me if i am wrong. If the house was not a principal residence then the rules are different, if I remember correctly it's the capital gain from the time THEY bought the house to the time YOU sold it.

I think the whole end of life finance management is pretty important stuff and one should definitely learn and manage it.

Incorrect. Will attempt an explanation... But, it really does sound like you plan on being poor in retirement. Paid off house and spend everything else?

What if you have savings other than the house? Would you have it under the mattress generating 0 returns? Or invest it and hope for minimal returns so that the GIS claw back is minimal?

Now... for taxation of the RRSP of the deceased. It can be taxed as income in the hands of the deceased in the year that they passed (not smart as a large portion will be taxed at the maximum tax rate), or it can be taxed as income of a qualifying beneficiary (a spouse or financially dependent child/grandchild under 18) who can in turn contribute it to their own RRSP and claim a deduction), or split between the deceased and the beneficiary.

So assume Mary had an income of $15k in the year of her passing, and $300k in RRSPs. Bob, her surviving husband (and beneficiary) decides he wants to take out $25k of the money now to help him get over his wife's passing, and contribute the rest to his RRSP. The $25k can be declared on Mary's income and taxed at the lowest tax rate (below $44,701), and the remaining $275k is declared as income for Bob. Bob then contributes the $275k to his RRSP and claims a deduction in that amount.

Disclaimer: I'm not a tax accountant, just a lowly engineer... I may be missing some details in the RRSP beneficiary scenario, but this is my understanding.

[quick_scar]

Only contribute what is needed to max the company match. They only match up to a certain % of salary, so I contribute what I need to get the free money from them and nothing more. Will contribute more when I am in a higher tax bracket later in life.... maybe

[suntan]

I think eblend is getting OAS and GIS confused... GIS is meant for poor ugly old people, OAS's clawback starts at $71K/year income per person.