2015 RRSP Thread

[IliketoPuck]

Originally Posted by 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:
.

Just reviewed that section a few weeks ago, really liking the level 3 curriculum so far.

[troutman]

You can contribute to RRSP until March 2nd this year . . .

[Slava]

Originally Posted by 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.

That point to me is the great equalizer in all of this. I would purely guess, anecdotally that the percentage that actually invests that tax return is below 10%. You're totally right on the matching and that portion. I just think that assuming that people will invest the tax savings from the RRSP and what happens in practice are two different things. So unfortunately it does come down to either $1000 in a TFSA or $1000 in an RRSP.

Originally Posted by IliketoPuck

Just reviewed that section a few weeks ago, really liking the level 3 curriculum so far.

I am not enjoying level two again. Hopefully I clear it this year though and you can give me some pointers for level 3 next year

[IliketoPuck]

Anytime Slava. Keep grinding it out, level 2 is a beast.

The beer tastes so good when you pass, I guarantee it.

[firebug]

Are you or Slava using Arif Irfanullah's videos?

I'm very sure that he is the only reason I was able to pass levels 2 and 3.

Originally Posted by IliketoPuck

Anytime Slava. Keep grinding it out, level 2 is a beast.

The beer tastes so good when you pass, I guarantee it.

[Slava]

Originally Posted by firebug

Are you or Slava using Arif Irfanullah's videos?

I'm very sure that he is the only reason I was able to pass levels 2 and 3.

I've looked at them but not religiously or anything. I hate to ask but did you buy a program from him or just find them on youtube? You can PM if you prefer (since we're a little off topic here!)

[kevman]

firebug pretty much summed it all up but just for fun here's an additional thought:

Our tax rate as a percentage of GDP is the lowest it's been in 40 some odd years. It's not only possible but realistically probable that in the near future both provincial and federal government increase the income tax rates. So with that said, may as well get your money taxed while the taxing is low.

TFSA > RRSP > Non registered

[InglewoodFan]

Wondering what to do with the lump (~25%) of my RRSP funds I have to move from my former employer group plan into my self direct plan. Debating to put it all into growth or just spread it out over my complete profile. I'm still 15+ years out from retirement, so I'm wondering if there are any sectors (ie O&G) which might be a long term bargain at this point.

[MoneyGuy]

Originally Posted by I_H8_Crawford

just curious... Why?

I could go into a lengthy explanation and I write a newspaper financial column and I may write on this, but here is the short version.

Governments can afford the lost tax revenue and doubling the TFSA limits helps higher-income earners, but does virtually nothing for those who most need a tax break - low-income folks.

It's estimated this would cost the federal government close to $16 billion a year. I don't remember if the number I saw is federal only or includes the provinces, which I believe is another $7 billion (thereabouts) on top of the $16 billion.

I understand that people want tax laws that will help them, and believe me I'll use it also if the TFSA contribution room doubles, but we have to look at this more globally.

Over the last few days I've read a couple of reports from tax experts who also feel that doubling the TFSA limits would be a bad move. Their reasons are basically those I'm indicated above.

While I'll continue to max out my and my wife's TFSAs if the opportunity is there, this is not good strategy.

By the way, RRSPs get a lot of flack but they're still a very worthwhile strategy for most higher earners. I max those out also, although I may curtail that as I approach retirement.

[MoneyGuy]

Originally Posted by Ozy_Flame

Is it normal to owe every year? I make just under six digits and I'm contributing 10% of my paycheque to an RRSP every paycheque. Part of my income is variable and I earn it twice a year, and pay full tax on it every paycheque. Why the hell does it seem like I owe every year? This year is no different. Is this normal?

Rather than contributing what you need to contribute to avoid paying more, what about getting back some of the taxes (maybe tens of thousands of dollars) you've already paid throughout the year?

I think you're looking at this wrong. You're not alone as I'm an advisor and I see this all the time. I try to get my clients to think about it differently.

One client recently said he wants to put $5,000 into his RRSP to avoid paying a fairly small amount but in his tax bracket he's already paid about $23,000. Why is that less important?

[darklord700]

Originally Posted by kevman

Our tax rate as a percentage of GDP is the lowest it's been in 40 some odd years. It's not only possible but realistically probable that in the near future both provincial and federal government increase the income tax rates. So with that said, may as well get your money taxed while the taxing is low.

This is a legitimate concern for RRSP investing and we are already seeing rising provincial tax rates in ON. But for most people, they will be in a lower tax bracket when they retire. And they withdrawal should be taxed at a lower rate then their deduction if they do it right.

A higher tax rate just reduces the benefits one would receive but most likely won't completely eliminate them.

[mrkajz44]

I think the solution to this "double the limit" debate is to simply have a lifetime cap. At most, you can contribute $200K to a TFSA (or something like that). That way the yearly limit can be increased for those that can take advantage, but there is not a huge advantage over time because of the lifetime cap.

[Slava]

Originally Posted by mrkajz44

I think the solution to this "double the limit" debate is to simply have a lifetime cap. At most, you can contribute $200K to a TFSA (or something like that). That way the yearly limit can be increased for those that can take advantage, but there is not a huge advantage over time because of the lifetime cap.

Currently though the system accounts for gains, so the limit already has a provision where it can rise. Would you want that eliminated as well? (I wouldn't)

[pseudoreality]

One thing that doesn't get mentioned often enough is that TSFA'S are a great place to park money for short to medium term investments/savings. My wife and I are savers, not spenders. We don't believe in taking out loans for cars, boats, vacations or other toys. Right now we know we are going to have to update our 1999 jeep in the next couple of years and are going to be using our TSFA'S for that.

[Righteous1]

So..#### rrsps/home buyers plan and just get tfsa over any regular savings account?

[Knalus]

Originally Posted by Righteous1

So..#### rrsps/home buyers plan and just get tfsa over any regular savings account?

Screw that - never for me.

I get a variable bonus at the end of the year, and I do not contribute throughout the year. Because the bonus is variable, I'm never sure how much I have to invest. If I do not contribute to RRSPs, I get a small tax return. If I do contribute, I get a large return. I contribute whatever I can at that time, then I take the tax return, and invest that amount into either my house/mortgage, or I invest into my TFSA.

In my case, investing in one will allow me to invest into the other as well. If I put all my money into a TFSA, I would not be able to do that.

[pseudoreality]

Originally Posted by I_H8_Crawford

Garth Turner has a good blog about the TFSA issue, and I tend to agree with him on his position:

http://www.greaterfool.ca/2015/02/24/tax-this-2/

Thanks for posting this blog! I've been binge reading it this weekend. He almost has me convinced to sell my house and live in a rented locker at the bus station.

[CaptainYooh]

I opened a self-directed RRSP account in 1996. With the exception of four odd years, I've been contributing to it religiously since then and investing as best as I could in stocks, bonds and mutual funds using my own research, occasional investment advice, rumours and, sometimes, stupid impulses. This period of time included the dot-com bubble burst of 1997, a slowdown of 2000, one major recession of 2008 and oil price collapse of 2014. Since 1996, my actual (X)IRR to-date is 6%. Neither here nor there, better than CSB and a little worse than S&P500.

There is a lot of smart people here that invest. I am curious how has your RRSP portfolio been performing over the years and how do you manage it (self, bank-managed or specialized investment adviser)?

[darklord700]

Originally Posted by CaptainYooh

This period of time included the dot-com bubble burst of 1997, a slowdown of 2000, one major recession of 2008 and oil price collapse of 2014. Since 1996, my actual (X)IRR to-date is 6%. Neither here nor there, better than CSB and a little worse than S&P500.

Sorry to sidetrack a bit but I have problems figuring out my IRR. Between all the transfers to and from different investment accounts, changing jobs and so on, I lost track of everything.

The only thing I know is my salary histories and that I maxed out on the 18% between employer contribution and my own. How do you keep track of your IRR?

[CaptainYooh]

Originally Posted by darklord700

Sorry to sidetrack a bit but I have problems figuring out my IRR. Between all the transfers to and from different investment accounts, changing jobs and so on, I lost track of everything.

The only thing I know is my salary histories and that I maxed out on the 18% between employer contribution and my own. How do you keep track of your IRR?

There's a little trick. You need to use XIRR function in Excel instead of an IRR function, because XIRR calculates the return AND takes the time value of money into account based on the timing you've made your contributions (investments) and withdrawals. Input your initial investment amount/value and date. Then, input each additional investment/contribution as positive numbers and withdrawals as negative numbers against the dates you've made the investments/withdrawals. I don't bother with actual dates and enter Dec-31 of each year with the total net amount of contribution for the year. So, now you have two columns - one with dates and another with contributions/withdrawals against each date. Important - don't forget to format your date column as "date".

Here's the trick: at the bottom of the contributions column - enter the current market value of your portfolio with a negative sign against today's date. This is to assume that you've sold and cashed your portfolio today. Then use an XIRR function: select the contributions column as your data range and select the corresponding date column as your date range (use your guessed IRR as whatever your guess is or leave the guess field of the formula blank, it doesn't matter). This will calculate and produce your real IRR based on the time value of your investment.