Waffling... Selling Stock Options to Finance an RRSP?

[kn]

I have a small RRSP financed by my company. It's a fairly balanced fund between growth and income. Beyond that, I don't have an RRSP mainly due to bad experiences with both my parents who got killed on withdrawal (admittedly, their planning wasn't the greatest). A more logical reason, is that I can't be entirely sure that I'll be in a lower income bracket. If my parents are an indication, I'll likely have benefits clawed back.

That being said, I'm going to pay a ridiculous amount of tax this year thanks to capital gains, interest, and stock options benefit. As such, I'm considering starting a self-directed RRSP.

Since I'm debt-averse and not willing to finance an RRSP through a loan, I do not have the disposable income to buy both my allotment of stock options each year AND make the maximum RRSP contribution.

So I was wondering if it was a stupid idea to finance a maximum RRSP contribution by selling stock options? Since I started working, the stock has gone up $9. While the company has been around a long time, is stable, and not going anywhere, I hate the idea of putting all my eggs in one basket.

Thanks for any insight.

[bomber317]

This it not professional advice, just an opinion. Others may not agree with me, and they could be right.

If I was in a situation like yours, I myself would pay the Tax, put everything I could into my TFSA and leave the RSP contribution alone.

If you're worried about not being diversified, I would sell your options, and purchase another investment in your TFSA.

If you cannot afford the tax, sell your options, pay your tax, diversify into another investment.

Since the introduction of the TFSA, I find it a better investment vehicle that the RSP.
Pay the tax now,
grow your investment,
cash out when you need it Tax Free.

As oppose to the RSP,
where you get your tax credits now,
grow your investment,
wait until you retire,
cash out,
pay the future tax rate at that time.

[Finner]

I assume you mean selling Calls/Puts for the premium?

Would they be covered or uncovered?

Edit: misread, thought you meant you wanted to sell options you didn't own, not sell ones you did.

[Slava]

Depending on your exact situation the decision might already be made. If you plan to start your this by the end of the month you might be too late. Yes, you can open the RRSP and contribute until Wednesday, so no issue there. The problem is you won't be able to sell the stock and get the cash by then. The settlement period would be trade day plus three days, and you would pass the deadline.

As far as the exact advice I would want a better idea of the numbers to give you a good answer. I know it's a public forum, so you probably don't want to post them (I wouldn't either!). Feel free to PM if you want and I can take a look and give you some advice on this though.

I suppose the answer is no, but do you have any capital losses from years past? That would help you out now as well.

[kn]

No, I wasn't rushing to make the contribution deadline. It just happened to get me thinking.

I already max out my TFSA contribution every year. While its intended role was that of an emergency fund, I suppose I could turn that into a retirement vehicle and continue to use my non-registered investments as long-term retirement financing. There were no capital losses this year.

Less work for me actually, since everything is already in place with all that would be required is a change in focus.

Thanks, everyone.

[Slava]

You can carry forward capital losses indefinitely actually, so if have some unused in the past use them and reduce the bill. You can also carry them back three years, so if you suffer losses in the next few years apply them down the line and it can help as well.

[Pizza]

Damn, thought this was a Waffle thread



Carry on!