2015 RRSP Thread

[Sylvanfan]

Besides, people are victims of their own fear or ignorance. The nation gives them RRSPs, and they use them for house down payments. They get TFSAs, and they turn them into growthless savings accounts. They’re offered half-tax on investments, but they buy GICs. They get a huge gift on dividends, and they want a rental condo. The country drops rates, and they cannot borrow enough.
It’s not about fairness any longer. It’s about taxing stupid.

Perhaps his point is that this country is not doing enough to inform stupid poor people like myself about how I constantly manage to shoot myself in the nuts.

Raising the TFSA limit is going to be of the greatest benefit to wealthy people who have the best means to afford higher taxes. The eventual loss in tax revenue will than be passed onto the less intelligent who don't use it in the form of more taxes, or higher taxes on their meager earnings, while politicians and other wealthy people who have the means to pay more continue to enjoy the greater benefit.

In it's current form the TFSA provides a reasonable means for a working person earning 50k or less a year a way to grow a decent retirement fund. His example of a 30 year old putting away 5500 a year for 30 years essentially building up to be 30k a year in tax free earnings seems to suggest that. They sell it as that. In reality it's just become a way for those who are sharpest with their money to skirt paying taxes.

[Slava]

Originally Posted by Sylvanfan

Besides, people are victims of their own fear or ignorance. The nation gives them RRSPs, and they use them for house down payments. They get TFSAs, and they turn them into growthless savings accounts. They’re offered half-tax on investments, but they buy GICs. They get a huge gift on dividends, and they want a rental condo. The country drops rates, and they cannot borrow enough.
It’s not about fairness any longer. It’s about taxing stupid.

Perhaps his point is that this country is not doing enough to inform stupid poor people like myself about how I constantly manage to shoot myself in the nuts.

Raising the TFSA limit is going to be of the greatest benefit to wealthy people who have the best means to afford higher taxes. The eventual loss in tax revenue will than be passed onto the less intelligent who don't use it in the form of more taxes, or higher taxes on their meager earnings, while politicians and other wealthy people who have the means to pay more continue to enjoy the greater benefit.

In it's current form the TFSA provides a reasonable means for a working person earning 50k or less a year a way to grow a decent retirement fund. His example of a 30 year old putting away 5500 a year for 30 years essentially building up to be 30k a year in tax free earnings seems to suggest that. They sell it as that. In reality it's just become a way for those who are sharpest with their money to skirt paying taxes.

The thing is there is help for people to get advice on how to structure these things and use these accounts to their advantage. I totally understand that not everyone understands how to use a TFSA or RRSPs or the best way to hold their savings or things like that. But those people should either do the research and learn it themselves or go see someone. There are plenty of resources for people who want to figure these things out.

[Ozy_Flame]

Originally Posted by IliketoPuck

Or get a better accountant.

I don't use an accountant. Am I in the minority of people that don't have one? Odd comment.

[IliketoPuck]

Originally Posted by Ozy_Flame

I don't use an accountant. Am I in the minority of people that don't have one? Odd comment.

Mostly a tongue in cheek comment (mostly).

A good accountant can save you thousands.

[Tiger]

Originally Posted by V

Give a little bit of money to charity you tightwad.

usually, payroll department account for the RRSP deductions if they are automatic and take less tax off your paychecks too.

[Ozy_Flame]

Originally Posted by IliketoPuck

Mostly a tongue in cheek comment (mostly).

A good accountant can save you thousands.

Is it really that necessary for basic personal taxes? I have absolutely no complications. One T4 slip and my RRSP contributions. Shouldn't require an accountant to save me thousands . . .

[IliketoPuck]

Originally Posted by Ozy_Flame

Is it really that necessary for basic personal taxes? I have absolutely no complications. One T4 slip and my RRSP contributions. Shouldn't require an accountant to save me thousands . . .

Ours (wife and I) have always been relatively straight forward as well.

We regularly contribute to our RRSP's, daughters RESP, etc, and I can't recall the last year that we haven't received a refund in June.

Using the accountants gives me peace of mind that all of the boxes have been checked, stones looked under, and possible exemptions utilized.

For example, at the start of my career when I was consulting, the accountants were able to get my taxes payable down to ~$200-300, keeping in mind I was paid on a gross basis (no deductions for taxes, CPP/EI, etc.).

[mrkajz44]

An accountant who just lowers your tax bill doesn't necessarily make them a good accountant...

I'm guessing if you were paid personally on a gross basis and only paid $300 in tax at the end of the year (no withholding payments throughout the year), there was some funny business going on.

[Locke]

Originally Posted by mrkajz44

An accountant who just lowers your tax bill doesn't necessarily make them a good accountant...

I'm guessing if you were paid personally on a gross basis and only paid $300 in tax at the end of the year (no withholding payments throughout the year), there was some funny business going on.

Oh yeah, let the accountant bashing begin! I dont go to your work and throw stones at you!

[IliketoPuck]

Originally Posted by Locke

Oh yeah, let the accountant bashing begin! I dont go to your work and throw stones at you!

That's because as an accountant, you throw like Carly Rae Jepsen. True story.

[mrkajz44]

I am a tax accountant!

I guess my point was most people don't understand their personal taxes well enough to determine if their accountant is actually technically good at what they do or not. If the accountant is personable and confident, people tend to like and believe them, regardless if the information is technically strong or correct.

Sort of like a dentist. I have no idea if what he is doing is good or not, but I like his office because he's a nice guy and they seem to have up-to-date equipment.

[Flamenspiel]

i agree with Iliketopuck above, i use an accountant and its mostly RRSPs and RESPs and I like to drop a little money on charities that are important to me. I have thought about TFSA but it does not really fit into my plans right now. Here is an interesting article in MM on RRSPs and specifically pension income splitting, it can significantly reduce tax billable in retirement.

http://www.msn.com/en-ca/money/taxes...25n?ocid=HPDHP

[IliketoPuck]

Originally Posted by mrkajz44

I am a tax accountant!

I use an accounting firm used by my parents company for thirty years. They did excellent work for them, and they have continued to do the same for me personally.

While I am not a professional accountant, I do have a good understanding of accounting and have dealt professionally with good (and bad) firms many times.

I would not continue to use the firm if I thought they were anything less than excellent.

[shermanator]

Wanted to run my own thoughts on why I prefer an RRSP over a TFSA by folks here. My thoughts are that because RRSP is a before tax deduction, I am able to save substantially more each paycheque then I would if I were saving it after tax via a TFSA.

To use my own example, I put around $300 towards my RRSP each pay period. Were I to put 0% towards my RRSP, and rather invest into a TFSA after tax, I'd be putting around $200 each pay period to see the same net amount in my bank account.

Say I start today and save for 30 years at a compound interest rate of 5%, in my scenario I earn ~$100k more in interest by the end of the lifecycle.

Of course, the other reason is that my company is matching the first 4% of my paycheque that I put towards RRSP. So it's essentially getting 4% a year extra in a savings account that I don't ever see. But that's outside of the argument I'm making....

[V]

As was shown a couple pages back, the tax you pay at the end evens out the difference.

[Slava]

Originally Posted by shermanator

Wanted to run my own thoughts on why I prefer an RRSP over a TFSA by folks here. My thoughts are that because RRSP is a before tax deduction, I am able to save substantially more each paycheque then I would if I were saving it after tax via a TFSA.

To use my own example, I put around $300 towards my RRSP each pay period. Were I to put 0% towards my RRSP, and rather invest into a TFSA after tax, I'd be putting around $200 each pay period to see the same net amount in my bank account.

Say I start today and save for 30 years at a compound interest rate of 5%, in my scenario I earn ~$100k more in interest by the end of the lifecycle.

Of course, the other reason is that my company is matching the first 4% of my paycheque that I put towards RRSP. So it's essentially getting 4% a year extra in a savings account that I don't ever see. But that's outside of the argument I'm making....

Originally Posted by V

As was shown a couple pages back, the tax you pay at the end evens out the difference.

The taxes do even out, but frankly if you get a full match from your company you'd be crazy not to do that. Basically you put in $X and get 100% return automatically. Yeah, the taxes are going to make you wish that you had some non-registered savings one day, but I would take advantage of the matching for sure.

[4X4]

What happens if you put too much money into a TFSA? Just asking. Trust me, I don't have this 'problem'.

[Slava]

Originally Posted by 4X4

What happens if you put too much money into a TFSA? Just asking. Trust me, I don't have this 'problem'.

Well now its a 1% per month penalty on the excess. Interesting story though, when the TFSA first came out in 2009, the markets were very low (at the bottom in hindsight) and the penalty was 1% per year IIRC. Some people were sinking in big money, say $100k and reaping the rewards, paying the $1000 penalty or whatever. Unsurprisingly, CRA wasn't quite as fond of this as the investors and changed the penalty to make it more punitive.

[calgarywinning]

I am at a loss that the taxes equal out between a TFSA and RRSP.

a) The whole idea of an RRSP is to contribute the maximum amount without taxation to grow at the maximum rate to be taxed at a later period in time when your tax burden is significantly less than today.
- the compounding of not taxed savings for investing is huge. The government is
basically contributing 1/3 to the investment value as a minimum.
- The contribution lowers your tax bracket for today in many cases.
- in the example of an extra $100 a month or $1200 a year contribution, depending on investment/should turn into an extra $200 a month for every 7-10 years doubling that amount every 7-10 years minimum. You would not have this in a TFSA.

The TFSA is to reward savers by allowing a very small portion of money in comparison to RRSP limits, post tax to grow tax free until it is withdrawn. The amount of increase is taxable at what we hope to be a lower rate. However, your post tax growth potential is severed because the taxes have been submitted. TFSA is great for high net worth earners that continue to save and look for tax shelter.

[firebug]

At some point, I may be motivated enough to transpose the formulas into the forum (from my CFA texts) but the simple matter is:
a) both TFSA's and RRSP's are superior to investing non-sheltered;
b) if you think your future (aka withdrawal) tax-rate will be lower than your current marginal tax-rate then an RRSP is the better choice;
c) if you think your future tax-rate will be higher than your current marginal rate, then a TFSA is the better choice; and,
d) you should talk to an experienced planning professional who can help recognize if you are in a scenario that the simple rules above may not apply (or be optimal).

One common mistake I see in the calculations done previously in this thread is failing to take into account the 'before-tax' nature of RRSP contributions. $1,000 invested into RRSP's is not the same as $1,000 invested into a TFSA (1,000 invested into an RRSP is more equivalent to $750 invested into a TFSA - assuming a 25% marginal rate).

In other words... if you can 'only invest $1,000' then the TFSA is always going to be the better choice (as that is after tax money). The 'rational man's' way of viewing the decision would be to realize that the real option is that you could invest $1,000 into a TFSA or the (before tax) equivalent of $1,333 into an RRSP, what's the better choice?'

That is one reason that an RRSP payroll deduction is often a wise choice as it lets you invest those 'before-tax' dollars directly, rather than using 'after-tax' dollars and then spending (rather than investing) the tax refund that follows later.