Quote:
Originally Posted by Shawnski
I stand by what I said. If you want to invest in RRSPs, do it with your taxable dollars, NOT these dollars that are in a "tax haven". Again, not a financial advisor, but from my understanding (and I am NOT a fan of RRSPs in general, if you are an enterpreneur), even Joe Blow wouldn't want to roll over tax sheltered funds into taxable ones. In certain scenarios? Perhaps. But in general I wouldn't do it myself.
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I think we mostly agree, and you have my old FNCE 351/353 brain is coming out of the dark to play here...
I say it comes down to this: Does (A) An RSP with tax deferral now, & future income tax on capital gains later, outweigh (B) A Tax Exempt Savings Account (TESA) without tax deferral, but with tax exempt gains.
I would say it
could be either based on the fact there are two independent variables in play:
Variable 1: How much tax deferral savings is there to be realized (through the difference between your current and future rates of income tax)?
Variable 2: How much of an investment gain are we talking?
Given matching investments: If you turn your $5,000 today into $5,000,000 over your investment horizon then using the TESA wins every time. If you turn your same $5,000 into only $5,001 over the same timeframe, your money was no doubt better off in an RSP, all else equal.
Somewhere in between those two extremes sits the economic indifference point where the NPV of your TESA-held future tax exempt gains would be exactly equal to the NPV of the RSP tax deferral route.
Ultimately, the best plan would be to maximize your contributions to both while keeping the high risk, high return part in the TESA, and the safer, more modest part of your 'well diversified portfolio' in your RSP. Win-win.
Brain going back in the dark again...