Comments on: RRSP First Principles

By: Interest-Bearing

Interest-Bearing — Wed, 10 Oct 2007 12:42:33 +0000

Glad to see someone is staying on top of things.

By: Jake

Jake — Mon, 15 May 2006 19:18:11 +0000

I would simply like to say thanks for the posting of this blog! I’m 24 years old and have found myself in a position where I no longer have the excuse “I don’t make enough to invest in the future”, and also have been frustrated about hearing how others have ultilized the RRSP tax system to reap excellent returns, whereas I have not. I found this to be an excellent high level overview above everything I’ve read to date around this topic put in a way that easy to read and retain (and even somewhat entertaining) with an appropriate length as I can take this and investigate specifcs from it furthur.

By: Administrator

Administrator — Thu, 23 Mar 2006 00:32:48 +0000

Ephraim – you’re right that the withholding can be thought of just like an employer’s front end tax and it is a mis-statement to imply that there are additional fiscal penalties charged. There is, however, an additional downside to making early withdrawals in that you don’t get the contribution room back after doing so. A lot of people who make this move are in relatively dire straits too, and should be aware that when their RRSP balance says $10k, that doesn’t mean they can have $10k tomorrow if they cash out. As you say though – as a deliberate and thoughtful supplement to a low income year the “penalties” are no more than you should rightly expect them to be in terms of tax on income.

By: Ephraim

Ephraim — Wed, 22 Mar 2006 21:04:45 +0000

I’m curious about the “penalty” that you refer to about withdrawing money from an RRSP before age 69. I can’t seem to find any documentation on this. Taxes on the income, yes. Penalty, no.

I have found that the government will “withhold” a certain amount of tax on RRSP withdrawals, the amount depending on the amount withdrawn (see http://www.theglobeandmail.com/series/rrsp/2005/neat.html for details). But that’s just them doing the same as any employer, grabbing the government’s tax cut early. You then end up having to pay the balance of the taxes.

So, in a lean year, if you’re not making any money, you can take money out of your RRSP at will, but you’ll have to pay taxes on it when you withdraw. If you’ve got evidence to the contrary, I’d love to read it!

By: Administrator

Administrator — Sun, 19 Feb 2006 20:33:17 +0000

Indeed – your money is working sooner and the balance looks like it’s going up faster too. I always struggle when I write articles like this, because there’s all sorts of good information to get out there, but I already write longer than most blog posts and the greater risk I think is people getting tired before they reach the bottom. I hope that if there are readers out there who decide to get cracking on their RRSPs as a result of articles like this, that they might stumble onto these little optimizations on the way, but short of breaking out a separate “21 interesting RRSP factoids” article, which might indeed be a good one to write, my attempt to keep the word count down won out over mentioning items like this.

Which is why I am grateful to have you mention them in the comments, where others might read them and not blame me.

By: Axiom_1

Axiom_1 — Sun, 19 Feb 2006 18:53:22 +0000

You know that if you plan your RRSP contributions in advance, there’s a little form you can give to your employer that says “I’m going to deposit X into my RRSP, so you just go ahead and take Y amount less off my paycheck as tax, thank-you-very-much. That way, rather than paying tax and then getting it back, you can just not pay it in the first place. That way, instead of investing $2600 in year 1, you can invest the $800 tax return you would have made on that, plus the $200 tax return you would have made on that, the $50 you would have made on that, etc., up to say $3500, and still only take home a total of $2600 less on your paychecks.