Social Icons

Wednesday, February 22, 2012

No more RRSP contribution, NEVER EVER again

I taught I had until the end of March to contribute to my RRSP but I have until February 29th.... the more I think about a RRSP contribution for the 2011 fiscal year, the more I dislike the idea. 

One of my reader is a tax specialist so I bring in my numbers with what I had found as deposit amount in my banking account for the 12 months of 2011 and I found out that my 2011 net income exceed the 40k. I was surprised because it didn't give me the impression that I earn that much in 2011. I wasn't even working 30 hours per week at my main job. but even there, it's true I was also working full-time during the weekend. Anyhow, all that to say that yeah, once again, I pop up the 40k income, with multiple money maker streams. Nice, but ho headache, what about the income tax? I wasn't paying income tax on my part-time job, only the unemployment insurance and a few other mandatory things. Because of that, I could have a couple of hundreds $$$ to pay in taxes.

My mom is getting closer to 65 and at her age, she has to cash out her RRSP for a reason or another. I am really not into RRSP but I know that at a certain age, you need to transfer what you hold in an RRSP account into another type of account. but even there, while doing so, you have to pay taxes on each single withdraw. 

For 2011, I taught of giving 4k on my RRSP contribution.

Now, I am going to tell you why I won't be doing so.

No matter what if I contribute or not to my RRSP, I won't have 4k to pay back on taxes. So can someone could explain to me why should I bother doing a 4k RRSP contribution? 

While being in a RRSP account, I won't be able to take a full advantage to my 4k RRSP contribution.

Yes, I can use my RRSP money on the purchase of a house, or go back to studies (I think) but WAIT, its not as great at it seem, all withdraw made from a RRSP, all amount need to go back in the RRSP withing a certain time frame because I have to pay it back. I mean come on, those type of shitty solutions are really not made for me. I don't want to earn a house (unless I win 649 lotto) and I certainly don't want to enroll in a Canadian university program. You need to be a fool, a complete idiot to pay those extremely expensive tuition fee. If you know me by now, you know that the Dividend Girl is the kind of girl who is extremely smart. Canadian universities? WHAT THE F. They are made for dummies.

Now, another think, a 4k RRSP contribution will remain untouchable and not enjoyable until I retired. But even there, I will have to pay taxes on the withdraw and oh wait, since the money will remain in a RRSP account for like several decades, the initial amount deposit will grow grow grow... and when come time to withdraw, HELLO TAX PROBLEMS. Again.

So I mean, come on now RRSP account is all about bullshit. Its a government fantasy made as set up. There's no real benefit to a RRSP. Better just enjoy the money while being young, but it on the margin, trade, go with a TFSA with Questrade whatever. But a RRSP? NO THANK YOU. NEVER EVER AGAIN.

A RRSP account is for fools.


Anonymous said...

RRSP are only good for people in higher tax brackets. They should only put money in to reduce there taxes owed to zero.

If you take money out early, you pay a withdrawal fee plus the money is taxed at your marginal rate, which is earned income.

Liquid Independence said...

I was thinking the same thing D-Girl. This is why I max out my TFSA every year before putting any money in my RRSP. At least in a TFSA I can take the money out whenever I want, and not pay any taxes. RRSP is more useful for people in the higher tax brackets, making $80K or more. But for everyone else, the TFSA is a much better place to invest. Most of my investments are in non-registered and margin accounts like yourself.

Anonymous said...

I have always maintained a proper tier of, if you can afford to MAX out your TFSA first and others, and you still have extra, then, one can add that benefit of RRSP contributions. Low amounts (and low made income) in an rrsp is manageable to withdrawal when the time comes. Unlike, if you plan to make a ton of money or have lots.
Just remember, its tax differing, not saving ;). And ever since the BoC was born, taxes have gone up.
To use RRSP for the tax deferring credit, for house purchases (with payback timelines) and government controlled time to withdrawal then convert to RIFFs, are all in place for the ordinary person that would not save a dime otherwise. Clearly, you are aware of this.

btw, you should have held RSI.

Anonymous said...

An RRSP is a retirement planning tool. It helps you defer paying tax for when you're older and more likely in a lower tax bracket. It might not be good for some but an excellent tool for others.

What you don't seem to understand is that you're paying taxes right now (each year) on your dividend and also on your gains when you're selling stocks at a profit because it's in an unregistered account. There's no getting around paying taxes, either you pay them now or defer them to later with RRSP's.

One way to look at RRSP is if you invest $4,000, you would get a refund of $1,360 based on your tax bracket. So basically, you're getting an extra $1,360 from the government interest free to invest in the stock market or use it to pay down your debt. The higher your tax bracket, the more you would get. But yes, eventually you will have to pay back that money; just like eventually, you will have to pay back your line of credit.

RRSP money is not untouchable, you can withdraw your money anytime, you just have to pay tax on it when you withdraw. Basically paying back the government that interest free loan that was giving to you when you contributed. And if you made gains on those investments, you will be paying a little more in tax. You say hello tax problem, but that's the reality of our system, the more money you make the more tax you have to pay.

One way around paying tax is investing through your TFSA so you wouldn't pay 1 cents in income tax on dividend earned or on any capital gains. Look up your TD Waterhouse holding and you will notice a book value and a market value. If your market value for a particular stock is higher than your book value, you will have to pay income tax on that gain when you sell. The higher the gain is with time, the more income tax you will have to pay.

Let's say you have a capital gain of 10,000$ on PPL and you sell. You would have to pay 1,700 in tax based on your income tax rate. So income tax is another thing that eats up at your returns. There will be no way around paying this tax, sooner or later you will sell and have to pay the tax, just like you have to pay tax on RRSP withdrawal.

If you have that capital gain on DNI or ECI in your TFSA, you can sell anytime and have no tax to pay. That's why I consider the TFSA the #1 tool for investing and someone that choose non registered and pay tax before using TFSA is not very smart. The government is giving you a way of earning money tax free and you say no thank you, I'll pay tax on my dividend and gains. Earning money on the stock market is one thing, paying the least in tax also requires planning.

I have my TFSA maxed out, my RRSP maxed out and now invest in my non registered account.

The deadline for investing in RRSP has been for the first 60 days of the year which is normally March 1, but because there's 29 days this February, the deadline is February 29

The accountant

Ruth said...

HI Sunny, your mom doesn't have to cash anything out of her RSP'S until she is 72, she can if she likes. it will gain interest tax free until she has to take approx.7% out a year and it increases each year but usually your income is smaller at this time so the tax is not as high.

Sunny said...

The RRSP thing is just pissing me off. There's a real pressure create around the RRSP damn thing. I am tired of dealing with RRSP.

I guess on the way I saw the RRSP before, I think of it as being a tax free shelter. I didn't exactly know that sooner or later, tax need to be paid on the withdraw made from an RRSP, even at a senior age. That is quite insulting actually, knowing all the importance financial people like Gordon Pape are giving to the RRSP.

Like said on here, at a 40k+ salary, RRSP contribution won't be of too much help. A 4k contribution will save me like 1k in taxes fee, BUT I will have a 3k GONE until I ma 65. I am mean, come on now!


F the tax break!


My mom doesn't have much in her RRSP. She's 65 or something like it lol (!!), and to get money from the government, the money need to be out of the RRSP. Something like that. In her case, nevermind the tax, the amount she's dealing with is nothing substantial, but thank you Ruth for commenting on that.

RRSP? NOT FOR ME. I PASS. I am done with that S_H_I_T. F off.


Anonymous said...

You are dumber than a rock!


Sunny said...

Your even more retarded, did you know?

Anonymous said...

The power of compound interest, $4,000 a year into an RSP earning 5% a year for 30 years:


Anonymous said...

If you're ignorant and don't understand how RRSP work, that's not Gordon Pape or anyone else's problem. You should educate yourself before you invest. And RRSP is not the only subject you lack knowledge.

The 3k is not gone until your 65, you can withdraw it anytime you need the money, you just have to pay the tax.

If you need money from your non registered account and sell stocks, you will also have to pay tax on your gains, it's no different.

You act like a spoiled child, and lash out because you don't understand. If you don't want to use the RRSP, don't use it, no one is forcing you. Lots of educated people will use it to their benefit to grow their investments. You prefer to pay interest to TD and pay tax to the government every year, that's your choice.

I am in a high tax bracket and it's beneficial for me to not to have to pay such a high tax rate on my gains. I also get a tax break in a higher tax bracket than I will be when I'm 65.

Usually, a person writing a blog would provide information to other readers. This is the first blog I follow where it's the readers trying to educate you.

The accountant

Sunny said...

That's great, but at the end, there will be full tax to pay on that 200k+ when I hit the seventies right... better to invest in a TFSA where all withdraws are FREE OF TAX. There's no way someone of the middle class can make money on a RRSP account. The TFSA is the single and only solution.

Sunny said...

Its all the fault of Gordon Pape


Anonymous said...

People have been telling you for how long now that you should use your TFSA. You don't want to use it because you prefer to use margin and send money to TD and the government.

TFSA have only existed for 4 years and you can only put 5k a year. Even you invested more in your RRSP last year on a salary of 40k. People earning 50k, 60k, 70k, might want to invest more and that's why RRSP play an important role also. It also enables some to get a tax break when they're in a high tax break and pay tax in a lower bracket when they're old.

A person could invest 15k in an RRSP, receive a 5,100 tax refund and invest that 5k into an TFSA and earn money tax free. There's numerous possibilities with the tools that are available, you just need to know how to use them. If it's not suitable for you, it doesn't mean it's not for someone else.

If you want to be poor in your retirement so you can limit the amount you pay in tax and be eligible for what ever program is still available when you retire, all you have to do is spend all your money now and stop saving.

The accountant

Anonymous said...

Cmon the RRSP is very helpfull. Yes you'll have to pay taxes on the amount of your RRSP when you retired but it's a long time from now and the government gives you money right now to invest.

I've studied in accounting and in every class, we're told than to have money right now and pay taxes later is always a good solution. That's exactly what RRSP does.

Yes the TFSA may be more usefull for you with the amount of money you've made this year but you should really put some in you RRSP.

Also, what's that comment about high tuition fees of Canadian Uniersity ?? You should see those fees in the USA. University's fees in Canada are really low. I've just got of of school whith a BBA and an MBA and it's really not expensive for what you have in return and the work opportunity you can have.

Normally, I enjoy you blog, but you should really learn more about the RRSP and tuition fees in Canada (no disrespect)

Katb said...

i don't know.. I am a middle class kind of person, my full time job pays 57k/yr but I work overtime so i ended up earning 73k for 2011. Then I also have a part time job that pays 24.50/hr i work 26 hours a week in addition to my regular 37.5 hrs per week. So for 2011 I earned 101k.
I owe 8000$ in taxes.
Or I can put 16k into RRSP and pay 1k in taxes.
Better than I at least own the 16k instead of giving up 8k to taxman.

And here is my plan because I have pensions at both jobs.. I think maybe I'll take a year off without pay from the two jobs and use the rrsps that year.. so my tax rate will be based on only what i wthdraw from that rrsp.

Otherwise I don't think it'll benefit me when I'm old.

For now I have to pay a mortgage so I have no money for the TFSA, but I think it's better in the long run than rrsp for sure- but as many poeple said, when you earn alot of money rrsp are required to avoid giving more money away to CRA.

Anonymous said...

I'm no raving fan of RRSP's or TFSA's But at least I know how they work! There's a set of assumptions attached to RRSP investments that may not hold true for every senior or even most middle class seniors with other income. I also suspect that because the govt has tinkered with increasing the penalty for early CCP & now with OAS....RRSP will next by lowering the required age for RIFF. This will enable the gov't to get its hands on deferrd tax sooner at higher future tax rates. Cheers!! Anony-saute-mouton

Anonymous said...

I think your logic with the RRSP is don't lose the money it's still yours but put aside for your old days....and with that comes a great tax refund which you can invest and compound interest / dividend on it.

And you're saying you don't want a home, so i guess no fancy 100k $ car what's worth have a 160K$ portfolio in a non-registred account (except TFSA) and paying taxes on the dividend and CG (btw nice job of pumping that number rapidly).

Only one thing I see for you is with your high leverage, if you have to pay all your debt, then you'll need to get out 80ish k. but aside that, no big payment.


Anonymous said...

this shows that D-girl is totally clueless and not fully informed. she makes rash decision and on impulse. i am willing to bet that she doesn't have a clue what her investment return is, how much risk she's realy exposed to, and all her debt is all over the place and not being tax efficient in that sense. anyway, it's her life and i wish you good luck. you seem to take a lot of advices with a grain of salt. you like always to argue your point of view is the best and blah blah. wtv, wasted time here.

Anonymous said...

I agree with the anonymous who said that d-girl is completely dumb when it comes to the Canadian universities comment. Foreign students will gladly take your place in line paying triple the cost. Look at the facts...d-girl lives with her parents, makes a low to middling income, owes a lot of money, has few physical assets (no home, I recall a cheap small car puchase), lives in the backwaters, no boyfriend/husband/kids. But she is very willing to tell everyone how smart she is. Every blog entry (notice how they ramble even worse) she now tells us how she has everything going on & is so much better than us. Naive, ignorant, arrogant. Cheers!! Anony-enuff-of-it

Sunny said...

I blog about me and what I go with as investment and so on I mean, this blog is all about me.

I am not naive, and I am certainly not arrogant, maybe a a bit ignorant, but at a point, reading about personal finance know-it-blogger, kind of having enough at a point.

My blog is much much better, more down to the investment darling thing than any other. At least, by reading you know what work and what don't work, you have access to all of what I know about finance, all about my experiences and all that for FREE.

I drive a cool little car that is not costy on gaz. When I move from Montreal I came back home, it was a good choice, allow me to save some bucks and whenever I need to move for work, I can.

And yeahhh, I am single AND available guys ok.


Anonymous said...

Oh I think you scare all the guys off with your wisdom.

Anonymous said...

I've been following the lively conversation here about RRSP's and TSFAs. I can only speak for myself. The main reason why we put our hard earned $$$ at risk in equities is that over time, we hope to become 'rich' The word 'rich' is subjective. Looking out 30 years or so I want my income to INCREASE in retirement(because face it who wants to live on your current net employment income), after all can we all live on 40K/yr. Hey wait you say, I want to use my retirement years for travel, start a new expensive hobby, and live my life without having to worry about how the amount of $$$ I earn will affect my lifestyle decisions. So my retirement plan assumes 30 yrs from now when I stop working I will have a higher salary from my investments(dividends,capital gains. interest income) than I do right now.

As for all those RRSPs ads I love them. Fleece the sheep..I'm the shepherd and my bank stocks are going to be rewarding me for years to come because of other people's mistakes..I love it!


Anonymous said...

There is another blogger from the states who makes around 40k a year. His salary is commission. His goal is to retire at 40. He started at 28 I believe in dividend growth stocks. In the states, is investing is down in a taxable account so he can retire early.

Basically, if you want to retire early it wouldn't work if you use RRSP or 401k. Also, wouldn't you want to have MORE money in retirement then now. RRSP and 401K are taxed has earned income on your marginal rate.

If you are going to use these plans then it is best to only put enough money in to bring you taxed to 0.

Anonymous said...

TSFAs are better I believe. Hopefully the government will not get rid of them.

Ruth said...

do you think you really need more money when you retire...would depend on the age of retirement, we don't spend as much as we did when we were paid for and cars paid. it makes a difference if there are two incomes. i travel a couple of times a year on air miles. it really isn't as expensive to live in retirement...( that is unless u have to go to a retirement home ,new ballgame)

Sunny said...

Relying on bankers is a HUGE mistake. You should be doing the stuff all by yourself, don't ever let someone else dealing your money, like never. They are not professionals, they are sellers who lived on commissions and bonus. You need to be aware of the banker pigs reality before thinking that relying on them is a good thing.

Anonymous said...

I made the mistake of going to a Canadian University. Sure Coop helped me pay tuition, but I still had $23K in debt when I graduated. It took me a full year to pay off that debt with my meager $70K salary out of university. Worst decision I ever made. Now, like the rest of the sheep, I foolishly contribute to my RRSP and TFSA accounts at Waterhouse. I wish I had found your blog sooner.

Sunny said...

Going to a Canadian University is not a mistake, especially knowing it drive you to a 70k job. Do I earn 70k annually? The answer is NO.

However, when I say Canadian University is for dummies, well, I think so. I mean these days, student pay more than they work for they diploma. We had all that drama made over Wall Street and so on, but come on, I wouldn't be at 82k net worth if it wouldn't be of the stock market.

People don't focus on the real problems. Having to go into debt to have an education is not ok, but the society accept that.

The real problem is not at Wall Street or Bay Street, its how people manage their individual life, and what they do accept as being normal. Of course, there's major management problems on the Streets, but I mean, are they so important? Just look how well it went for me despite all the risks I took and without having an in deep knowledge of the stock things.

Fact is, we Canadian have the best stock market of the world, but not the best universities and far from having a good work environment. Why? Because here in Canada, values are not at the good place.

You would be surprise of how many immigrants escape from this Canadian hell life. Many immigrants I knew in Montreal all wanted to go someplace else and if not, go back home. Quebec is the worst of all. I went to Ontario, New Brunswick, much better.

Life here in Canada is not easy. We are paying huge taxes, the RRSP is a complete rip off, the work place is horrible.

Canadians are not strong enough to bring this country where it could be.
That's really all. And those who say I am disrespectful are part of that lazy Canadian community so yeah, back off.

Anonymous said...


Would you rather be poorer when you retire? If you use RRSPs your current income doesn't grow. When you cash out an RRSP or switch it to RRIF, you are taxed at your marginal rate.

Dividends are taxed favorably if Canadians investing in Canadian Stocks.I would prefer to raise my standard of living by buying assets that cashflow money into my pocket. Therefore my income goes up every year faster than my expenses. When this type of income coming in is greater than your expenses than you can leave your job and do whatever you want.

There are pros and cons to RRSP. I think TFSA is better than an RRSP.

Sunny said...

From what I read so far and understand, an RRSP is good for people who are making a real big salary, maybe 50k and up. But at 40k+, it doesn't really worth it, especially in my situation, knowing I have debt, margin account etc.

A TFSA is to be maximize, but its hard to do so while being a margin account addict.

In my case, my debt are not playing in my favor, but it was a choice I made and even there, I kind of really don't regret it. It,s fun to have a fix figures portfolio, even if half of it is coming from debt.

Anonymous said...

That post about compound interest is B.S. I see that magic 8% number and how things are compounded. In real life it doesn't happen that way. My diversified portfolio of a mere 30K is worth the same now as it was in 2001 when I invested in in Cdn. equities, U.S. equities, oil/gas, etc. Unless the equities pay a dividend, there's no compounding. The price goes up, the prices comes down. Unless it goes up consistently over many, many years, there is no growth. Many of us are proof positive of this, as we have made very little money from 2000 - 2012, though we have a diversified portfolio in either stocks or mutual funds. That compounding formula does not work these days.

Ruth said...

think it is great to pay off a 23 K debt , have a good education and make 70K a year..sounds darn good to me...i think if a person is going to University , it is what they have a job but psychology or some other courses will not get u that husband is a physics engineer and lots of work anywhere. interesting blogs..thanks Sunny. (we are retired)

Ruth said...

like the accountant letter regarding taxes rsp's and so pretty well put it in a nutshell and makes perfect sense. in my early years , we tried so hard to do the RSP's but never maxed out..surprising how fast retirement comes on the scene. too bad you can't have the money when you are young and your travelling NOW anyways!

Anonymous said...

People are looking for black and white answers, one size fits all and life is rarely black and white.

Sunny, you say RRSP is not good for someone making only 40k, I disagree and I'll prove it.

Let's say you want to take a year off (vacation or because your sick) or you lost your job. In your case, you could withdraw 18,000 from your RRSP also have your yearly $7,500 in dividend along with your interest expenses of $4,000 and only have to pay $369 in tax for the year. That's pretty close to zero tax to pay on an income of $25,500 for the year. So if you contributed that 18k little each year and got a 34% refund as you are eligible for this year, you would have received $6,120 from the government in tax break and wouldn't have to reimburse any of it back it this scenario. That's the easiest $6,120 you would have ever made.

If all your loan would've been paid for and didn't have any interest expenses to deduct, but still had the $7,500 in dividend, you could withdraw $14,000 from your RRSP and only have $369 to pay in tax for the year.

If you would have that 18k in TFSA, you could also withdraw tax free, but you wouldn't have got that extra $6,120 tax break from the government.

Life is long, it might not be today you lose your job or get sick, it could be when your 50 or 60. That's why if the government wants to give you free money today, regardless of the tax bracket your in, you should take advantage of it. I'm not saying all your money should be in RRSP. Like I said, there's different tools available and all serve a purpose.

Also, as you heard, they want to raise the age to 67 for old age. If you want to retire between the age of 60 and 67 and have very little other income besides the CPP, you could withdraw from your RRSP with little tax to pay as shown by the example above.

This is like the 3rd example I am giving you for RRSP and this one is not for rich people. Even if you would be in the lowest tax bracket, you would have received $4,518 in tax break on that 18k RRSP contribution.

I see lots of people shooting down RRSP or TFSA and the reason is because most don't understand how useful they can be.

The accountant

Sunny said...

It's not easy to see a wait out.
Does that 18k need to be refund - like paid back later?

Sunny said...

way out

And yeah... Canadian universities are for dummies ok


Anonymous said...

To the anonymous that says if you want to retire early, RRSP wouldn't work. It would if you uset it right. Only Canadian dividend are taxed favourably outside RRSP. So unless you want a portfolio 100% canadian stocks, you could use RRSP for bonds, GIC's, US stocks and International stocks.

To the anonymous that says he made the mistake of going to University and investing in RRSP and TFSA, I taught you where being sarcastic as you seem to be doing all the right decision to me.

And to Sunny trashing tuition fees,
most professionals are earning decent to excellent wages because they paid tuition fees and got an education (ex. doctors, nurses, engineers, lawyers, pharmacist, accountant, etc.)

As far as people leaving Canada, the number pales in comparison of immigrants entering Canada. If our Canadian government would remove all restrictions for immigrants to enter our country, we would be flooded from people wanting to come to Canada to have a chance to pay to get an education that you so take for granted. Life in Canada is not easy you say. It might not be perfect, but go live in Greece or better yet Iran, Cuba, Haiti, etc. You might just realize how good you have it here.

The accountant

Anonymous said...

No, it doesn't have to be paid back. You withdrew the money claimed it on your taxes and because of the situation you where in had no tax to pay.

Where the government wants you to pay it back or reimburse the tax break is if you took advantage of the home buyers plan to withdraw money to buy a house. That was a way for the government to allow someone like you per say if you changed your mind and really wanted to buy a house but didn't have any money for down payment. You could withdraw from your RRSP and have 15 years to reimburse. This was done to help people get into an home. Doesn't mean you will ever use this program but I found it nice that it's there if you ever needed. I took advantage of that program 15 years ago.

The accountant

Sunny said...

Wow, no need to be paid back? I am facing some trouble at work right now, so its quite good to know I have that possibility. I really didn't know about this.

But what I know for sure, if you use RRSP money to buy a house, you need to pay back the amount withdraw of the RRSP.

There's so many things involved.

Susan Brunner once said something about RRSP money and laid off, I should have listen more carefully to her. But what really piss me off was the fact that tax need to be pay from RRSP in the senior years. Anyway :)

I am watching the Oscar, George Clooney is like SO HOT :)


Anonymous said...

Sunny, why do you always try to find the negative out of everything. Concentrate on the positive.

Final exemple if you would be a single senior (you're well on your way) of 65 or older today. Let's say you received 6,000 from CPP, 6,368 from OAS, 10,000 from RRSP withdrawal and let's say you earned 10,000 in dividend for a total income of $32,368, you would only have to pay $726 in tax for the year. That sounds pretty good to me, again almost no tax to pay on $32k of income. And if you use your TFSA, you can even earn more without having to pay tax.

Again, you are withdrawing 10k in your RRSP (that you received a tax break) along with pension income and barely paying any taxes because you have credit that you can claim when you're 65 and the dividend tax credit also helps.

It's wrong to assume that you automatically will have to pay tax in your senior years.

And to the other anonymous poster, it's also wrong to assume that all your income has to come from dividend and you have to invest 100% in stock to be tax efficient.

The accountant

Anonymous said...

Sunny, you may have a lot of investments, but I don't think you really know that much about investing if you don't know even the basics of RRSPs.

Anonymous said...

to the accountant

borrow to invest for non-registered account vs RRSP contribution, which is better?

Anonymous said...

Everybody wants advise...

The question is borrow to invest in RRSP or non registered account. Basically, you want to know which one is the lesser evil. I don't think there's an black and white answer and I would have to know your whole financial picture to properly answer.

I am not a big believer in borrowing to invest outside your RRSP for most unless it's done properly. You need to be careful to have proper asset allocations and not be invested in stocks only.

I currently use margin for about 10% of the value of my portfolio and that money is invested in large canadian dividend stocks which are tax efficient. The remaining of my portfolio is diversified between countries, stocks and bonds. I pay 3% in interest, get a 38.4% tax deduction on that interest and only pay 14% tax on the dividend, and 19.2% tax on capital gains. So If I pay 3k in interest, make 3k in dividend and say I have capital gain of 3k, I have no tax to pay. If I don't have any gains, the interest is covered by the dividend and the tax credit on dividend helps lower my tax on my remaining income. So I still make some money even if my stocks don't perform well. Also it's worth nothing that I borrowed during the crash in 2008, a little early but still better price than today. I also don't have any RRSP room available.

If you borrow to invest in your RRSP, you get a tax refund that should be applied to the loan and that loan which is not tax deductible should be paid within 2 years. If not, I wouldn't recommend it. And you should keep your proper asset allocation.

The main question you should ask yourself is how would you feel if you borrow money today to invest and the market corrects like it did in 2008. What if you borrow 10k and 3 months later the market crash and your portfolio is only worth 7k as I assume if you invest outside your RRSP, you want have no intention of buying bonds.

I used the same logic to my wife when she asked me how I felt leaving my son alone for a week while we went on vacation, he's 16. I asked her how would she feel if the house burned down at night and he would not get up in time. I welcome any comment on this by the way. I always like to prepare for the worse. That's the accountant in me.

Again, I know nothing about your situation, how much debt you carry, what interest rate your paying, what tax bracket your in, your age, your risk tolerance, etc. I could look at your situation and tell you you shouldn't invest at all and maybe pay down debt.

In conclusion since you do have RRSP room available, if we would arrive at the conclusion that it's ok for you to borrow to invest, I would recommend inside your RRSP for a simple reason. If you borrow 10k and invest, and say you get a 34% tax refund, you get to pay $3,400 on that loan and only owe $6,600. So even though you do lose 30% of your investment if market corrects, you still have a portfolio of $7,000 while only owing $6,600. If it's outside your rrsp in this scenario, you would have a portfolio of $7,000 while owing 10k still on your loan. In that scenario, the dividend can be little comfort.

Something to think about

The accountant

Sunny said...

I am not really into comments and help. You have access to all of my financial history, you have the debt, the dividend income, the salary not too far from the 45k... However, in my current situation, I decided to flush the RRSP for this year at least. I still have one day left to change idea.

Anonymous said...

That was an answer to the anonymous

The accountant

Sunny said...


Too many comments, I am completely lost ;)

Anonymous said...

I taught I saw a puddy cat!!! I did, I did!!!


Thank you

Thank you for visiting!
Blogger Templates