However, dividends outside your RRSP may inflate your income to reduce benefits received from OAS (or GIS if your income is low) because of the way the gross up formula works (increasing your gross income, and then giving a credit).

You may want to consult a professional, there are lots of weird little quirky rules that can change your strategy depending on your holdings and your plans. It gets pretty complicated to try to optimize everything when there are piles of tax rules around international

My question is, “How is someone taxed if I never take any money out my RRSP’s but I redirect the dividends to come to me cash rather than re-investing?” I am planning on living on 100% dividends, but a majority of my dividends will be coming from RRSP holdings. While I don’t plan to liquidate any of my RRSP holding until I have to start knawing down on them after 65yrs old, I worry that collecting dividends from an RRSP will have some adverse tax implications. Will this hinder my efforts?

Thanks!

Kevin

I need a large amount of money in my RSP to retire from, in about 30 years. large. L-A-R-G-E. Long term, dividend payers tend to do the best, so that is where my money should sit, regardless of taxable or not taxable. x amount of money is going into my rsp, and once in there, needs to grow a lot to get to my goal. Dividend paying stocks are the best choice.

hope that helps. cheers

A couple more random thoughts/responses:

1. James – I agree with you wholeheartedly regarding DRIPs and dividends outside an RRSP. One note though – tax brackets were not always indexed for inflation, and it is possible (though unlikely) the present policy could revert.

2. The Ontario budget is due out on Thursday – any bets if they will change their dividend tax policy to mirror the federal changes of last November?

Investorial…Tax brackets are tied to the CPI(inflation rate) so they will continue to increase as inflation chugs along. And if you do your homework on the investments you chose the dividends will increase faster than CPI and you will have more cash in 20 years than you might expect. For example Loblaws has grown there dividend by an average of 23% per year over the last ten years, Scotia by 15%, CIBC by 14% and there are plenty of others if you just look. Assuming these numbers slow down considerably over the future years, I still expect they will outpace inflation by a wide margin going forward.

Limiting myself to withdrawal a certain limit when I retire just doesn’t seem very appealing to me. But that’s myself. I personally believe the advice of you should be in the lowest tax bracket ranks right up there with “buy term and invest the difference”, the problem is, people seldom invest the difference.

Similarly, I believe people are in their low tax brackets not by choosing but by necessity, for people who are planning their financial matter prudently at a young age, it shouldn’t be the “out” that they’re looking for. =) Great debate/perspectives from all so far!