Comments on: When Does a RRSP Contribution Not Make Sense?

By: Laura

Laura — Mon, 14 Jun 2010 18:44:47 +0000

This is an old post, but I’m hoping someone answers anyway. We have outstanding loans, with our highest interest rate at 29%, my husband is now eligible for his companies RSP plan and the employer will match 50% up to 3%. My husband argues that we should be paying off our loans first and we need the cashflow, however any way I look at it, we would be losing way too much giving up the 50% match. Am I wrong ?

By: iktidar

iktidar — Sat, 10 Apr 2010 06:18:23 +0000

Barb……very interesting and informative post……..do you have some numbers and sample scenarios to support your perspective?

I can’t believe everyone putting money in RRSPs stand to lose, the tax bracket may be high in retirement but not necessarily for both spouses; with spousal RRSPs/income splitting it could make sense for couples where one of the spouses is expected to be in a low tax bracket or maybe not working at all in the retirement years.

Additionally, what other solid options are you referring to in your post?

By: Barb Steele, CFP

Barb Steele, CFP — Tue, 23 Feb 2010 14:25:21 +0000

This is my first response to a blog, and is a topic near and dear to my heart. As a Financial Planner who has been working in the industry for 15 years, I have been giving pretty traditional financial advice without really examining the economics of money and how to improve its efficiencies.

I have serious concerns about who will benefit down the road from RRSP’s. Here’s the thing, RRSP’s do two things – they defer the tax AND they defer the tax calculation. Who in this country with an aging population needing health care and an increasing debt load, believes that tax rates in the future will be lower than they are today?

What I am seeing in my practice is that those people who come to retirement, are in a much higher tax bracket than they were when they made their first contributions to an RRSP – are they spending less the day after retirement than they were up till that point? Everyone believes that will be the case but it isn’t so. The change in lifestyle to accommodate lack of mortgage payments and kids finishing University is so gradual, that people tend to continue to improve their lifestyles, and end up spending the difference to go on trips or give themselves a bit more luxury in their years leading up to retirement.
Now they are in retirement, trying to take a minimum amount so they aren’t over taxed and lose their OAS payments – they also are faced with the possibility that if they don’t spend them all while retired, that their heirs will only receive half of whatever is left – remember, on your death the entire remaining balance of your RRSP will be taxed as though it was taken out all in one year! Truly the winners in the game of RRSP’s is the government. There are solid options to consider.
Does anyone else have a comment about the above?

By: Calculating Retirement Needs- A Step by Step Guide | Financial Highway

Calculating Retirement Needs- A Step by Step Guide | Financial Highway — Mon, 06 Jul 2009 08:33:36 +0000

[...] Canadian Capitalist on When Does a RRSP Contribution Not Make Sense? [...]

By: RG

RG — Sun, 01 Mar 2009 18:26:57 +0000

I’m an entrepreneur with my own incorporated company. I pay myself with dividends. After years of work, company profits are starting to exceed my lifestyle needs (joy!). Hoping for a higher income in the future (and never being in the top tax bracket before), I have deferred making most RRSP contributions. I have minimal savings, a nice house and no debt. My retirement target is 10 years and I believe that mid and high bracket tax rates will be 5% higher then (we’ll be paying for the world’s current passion for deficit spending). Can anyone comment on the considerations of retaining income and investing within the company vs. taking the dividend now and using my accumulated RRSP contribution room?

By: Canadian Capitalist

Canadian Capitalist — Thu, 19 Feb 2009 21:21:52 +0000

GL: You have the option of contributing to a RRSP but not claiming a deduction for the 2008 tax year. As it turns out Million Dollar Journey made a post on this today (I might have written about it in the past; I’m lazy to search the archives):

http://www.milliondollarjourney.com/rrsp-tip-carry-forward-your-rrsp-tax-deduction.htm

By: GL

GL — Thu, 19 Feb 2009 19:35:21 +0000

I know this post has long since past, but I was wondering about a related situation. My wife and I have about 30K in RRSP room available, but she has been on Maternity leave and I am paid entirely through dividends through my own business. As such we are both in the lowest bracket this year. Would it be better to save the RRSP contribution room for a year where it we create more of a tax benefit?

Also we have already maxed the TFSA for us and the RESP for the baby.

By: Phil S

Phil S — Sat, 23 Feb 2008 01:15:05 +0000

Lisa. “Leveraging” just means borrowing money to invest. The “leveraging” that we’re talking about (the tax deductible kind) is borrowing to invest in income-producing investments, outside of an RRSP. The government created this as an incentive for Canadians to invest in themselves, whether you are buying rental property, a small business, or some dividend paying stocks on the stock exchange, our government uses this tax credit to let Canadians take control of their own financial future. So, let’s say if you’re buying some coffee shop for about $100K and you have $20K of your own cash to invest, then you have to borrow, or “leverage” the remaining $80K, which is 4x your own investment. Obviously, you’re paying interest every month, so it’s best to try to pay back your creditor as fast as you can, but in the meantime, the interest on that money is tax deductible!

By: Weekly Dividend Investing Roundup - February 22, 2008 » The Dividend Guy Blog

Fri, 22 Feb 2008 14:39:07 +0000

[...] For those of us in Canada, it is RRSP season and contrary to much of the marketing propaganda available from mutual fund companies and banks, RRSPs are not for everyone. This article by Canadian Capitalist addresses the question, “When Does a RRSP Contribution Not Make Sense?” [...]

By: tracy ho

tracy ho — Fri, 22 Feb 2008 06:51:33 +0000

Great to know that,

Tracy Ho,
wisdomgetingloaded