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-- Today is the last day to throw $$ into your RRSP for 2011 taxation year

Today is the last day to throw $$ into your RRSP for 2011 taxation year

Adapted from Link: Be aware of myths during RRSP season

RRSP season is in full swing and that means all-out war for the mutual fund companies vying to get your contribution before the March 1 deadline. And like the saying goes, the first casualty of war is the truth. That's not to say all those slick advertising campaigns are lies -- it's what isn't said that could set you on the wrong path. Before making that final decision here are 10 popular RRSP myths:

1. Registered retirement savings plans are a tax exemption.

That's wrong. RRSPs are tax deferrals and there's a huge difference, according to Mintz & Partners tax partner Lorn Kutner.

"An exemption is forever. A deferral means you will have to pay tax at some point in the future," he says. An RRSP is a temporary tax shelter that allows the plan holder to delay paying taxes on contributions until the money is withdrawn. RRSPs are popular because they allow savings to grow tax free until the plan holder is in a lower tax bracket -- normally retirement.

2. You should contribute the maximum allowable amount.

Not always. You can contribute to your RRSP until Dec. 31 of the year you turn 69. At that time the plan must be converted to a registered retirement income fund (RRIF) and the plan holder must withdraw a minimum amount each year.

If that amount is too high, the government could claw back your Old Age Security benefits. Claw-backs can be avoided by income splitting where taxable income is split with a lower-income spouse.

In many cases investors would be best off contributing as much as they can and using the rest to pay off debt -- from a credit card balance to a mortgage.

This time of year banks push RRSP loans. They work out well for the banks because they get your business on the bank side as well as their investment arm, but for many it's just another debt trap.

There's also a strong argument for young investors to delay making RRSP contributions until they are in their higher income years and the tax savings are bigger. The trade off would be less time to allow savings to grow tax-free.

3. You must take advantage of your maximum allowable contribution the year it is issued.

Wrong. The difference between the allowable amount and what you contribute can be used in later years. "You can carry forward any amount you want," Mr. Kutner says.

4. You can only hold mutual funds offered by the financial institution that administers your RRSP.

There are two popular misconceptions in that statement.

First, banks often offer prepackaged portfolios containing their own funds. But most banks also have an investment arm that offers self-directed RRSPs that provide a wide range of securities from several financial institutions.

Second, just about any security is RRSP eligible -- stocks, bonds, exchange-traded funds, guaranteed investment certificates, T-bills, mutual funds and even bullion or good old cash.

5. There are limits on how many foreign securities are allowed in an RRSP.

Not any more. Two years ago Ottawa lifted foreign content limits, yet Canadians remain heavily weighted toward Canadian equities -- most likely because the vast majority of Canadian equities are bank and energy stocks and they have been performing well lately.

"It's just too concentrated" says Adrian Mastracci, president of Vancouver-based KCM Wealth Management. "If energy does well, you do well. If it does poorly -- as it has -- you do poorly." To properly diversify a portfolio and lower overall risk, Mr. Mastracci suggests a portfolio weighting of 20 to 30 per cent Canadian securities.

6. You cannot make a withdrawal from your RRSP until you retire.

Not true. Money from an RRSP is available to the plan holder at any time, but it's important to know it will be taxed at the going rate. The government allows exemptions such as the Home Buyer's Plan, where the plan holder and spouse can each borrow up to $25,000 provided the funds have been on deposit at least 90 days. Repayment must begin no more than two years later, with at least 1/15 of the funds paid back each year. The offer is only available to first-time home buyers. The Lifelong Learning Plan also allows investors to withdraw up to $20,000 tax free for full-time training or post-secondary education. The full amount must be paid back within 10 years.

7. An RRSP can be used to back up a loan.

Wrong. Lending institutions do not consider an RRSP collateral for borrowed money.

8. Interest on RRSP loans is tax deductible.

Sorry -- only interest on non-RRSP investment loans is tax deductible.

9. Any contribution over the maximum allowable amount does not qualify for a tax rebate.

There is a lifetime allowance of $2,000 for overcontributions if you contribute too much in one year. The extra amount must be used before any new contributions are applied.

10. If a plan holder dies, the proceeds of an RRSP are subject to taxation.

Not if the beneficiary is the surviving spouse and the funds are transferred into his or her RRSP or RRIF. If there is no surviving spouse -- in most cases -- RRSP holdings are taxed on the deceased's final tax return and distributed to whoever is named as the beneficiary or to the holder's estate.

Lower your taxes now, but pay through the nose later.

I honestly wonder who else has an RRSP account. I think out of all my friends, I am the only one with a RRSP

Re: Today is the last day to throw $$ into your RRSP for 2011 taxation year

quote:

Originally posted by Swamper

Captain Fiscal Responsibility: nice post!!

Re: Re: Today is the last day to throw $$ into your RRSP for 2011 taxation year

quote:

Originally posted by itikia Captain Fiscal Responsibility: nice post!!

obligatory annual post by itikia!

RRSPs are good if you are saving up for a (first time) downpayment, like me!

quote:

Originally posted by jester Lower your taxes now, but pay through the nose later. I honestly wonder who else has an RRSP account. I think out of all my friends, I am the only one with a RRSP

i have my rrsp pretty much maxed out.. Its a great place to invest in income yeilding funds.

the idea is that you take the money out at a lower taxable rate when you're older.

Also did the 25k first time homebuyer and paying it back now at the minimum requred amount per year.


It's good if you know how to use it. Personally the TFSA is better but they should up the contribution room per year.

quote:

Originally posted by Nrg2Nfinit Personally the TFSA is better but they should up the contribution room per year.

^this
I have both the TFSA GIC account & a savings account, and I too wish for a higher contribution room

RRSP & HBP

I got a question about RRSP and the HBP (Home Buyers Plan)
This year I took out money from my RRSP for a down-payment on a house. Now, I know that I do not have to start repaying that amount until next tax year, but I thought that maybe I could get a head start on paying it back. What struck me as odd, is when I entered in a HBP repayment in my tax software, my total refund dropped! For example, if I entered $600 my return dropped a whopping $200!
Why does this happen? I thought that it would have no affect on my taxes since the HBP withdrawal is said to be tax free...

Re: RRSP & HBP

quote:

Originally posted by Mee-how I got a question about RRSP and the HBP (Home Buyers Plan) This year I took out money from my RRSP for a down-payment on a house. Now, I know that I do not have to start repaying that amount until next tax year, but I thought that maybe I could get a head start on paying it back. What struck me as odd, is when I entered in a HBP repayment in my tax software, my total refund dropped! For example, if I entered $600 my return dropped a whopping $200! Why does this happen? I thought that it would have no affect on my taxes since the HBP withdrawal is said to be tax free...

When doing a HBP repayment, that is taken from your RRSP investment for that year.

So lets say you contributed $6000 in RRSP this year, and then allocate $1000 for HBP repayment, you effectively made a $5000 contribution for the year.

My advice is to start doing the repayment only when needed, and "repay" the minimum amount

Here's a question I've been dying to ask someone for a long time:

I took out $25000 using the HBP to buy a pre-construction condo. The closing date is July 2013.

The HBP requires you to intend to occupy the qualifying home as your principal place of residence no later than one year after buying or building it.

The condo is too small for me and my gf. I want to rent it out, so I don't intend on occupying it.

Is there any way I can declare it as my principal place of residence and rent it out for the first year?

Not sure if my question is completely on topic but..

My new job doesn't tax me for each paycheque. Should I deduct 13% every time and add it to a savings/separate account? Is there a better way to make sure I don't get screwed next year?

quote:

Originally posted by Cribby Not sure if my question is completely on topic but.. My new job doesn't tax me for each paycheque. Should I deduct 13% every time and add it to a savings/separate account? Is there a better way to make sure I don't get screwed next year?

you should find out the "clean" amount you make (possibly with an accountant) and deposit the whole sum/paycheck to one account and transfer "clean" sum to your other account so the remainder stays for tax purposes..

is it a contract position?

quote:

Originally posted by Cribby Not sure if my question is completely on topic but.. My new job doesn't tax me for each paycheque. Should I deduct 13% every time and add it to a savings/separate account? Is there a better way to make sure I don't get screwed next year?

that sounds a bit odd. shouldn't you be able to talk to finance department at your job so that they can adjust your paycheque to ensure that taxes get taken off?

quote:

Originally posted by Yohan that sounds a bit odd. shouldn't you be able to talk to finance department at your job so that they can adjust your paycheque to ensure that taxes get taken off?

if it's a contract position you don't get taxed. You basically turn into a small business and get hired as a contractor. But you also don't get any benefits at work and don't have any job security (meaning you can get fired any time for any reason).

what Gera said

you end up owing a lot of tax at the end of the year, so make sure that's all accounted for Cribs! So you dont get the shock of your life and stuff

Cribs, 13% is the sales tax LOL not income tax
you need to find out what tax bracket you are in with you monthly income

quote:

Originally posted by geroin you should find out the "clean" amount you make (possibly with an accountant) and deposit the whole sum/paycheck to one account and transfer "clean" sum to your other account so the remainder stays for tax purposes.. is it a contract position?

non-contract freelance position for the first 6 months.

quote:

Originally posted by FunkyCrew Cribs, 13% is the sales tax LOL not income tax you need to find out what tax bracket you are in with you monthly income

bwahaha, shows how knowledgeable I am on the subject.

Such a pain. I think I figured it out. Thanks guys!

�15% on the first $42,707 of taxable income, +

�22% on the next $42,707 of taxable income (on the portion of taxable income over $42,707 up to $85,414), +

�26% on the next $46,992 of taxable income (on the portion of taxable income over $85,414 up to $132,406), +

�29% of taxable income over $132,406.

So Cribby, you should deposit the taxes into an account so at year end you can put it into RRSPs. The RRSPs will lower your income and then you can use that as a way to pay less tax/defer taxes.

http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html

quote:

Originally posted by Big Boss �15% on the first $42,707 of taxable income, + �22% on the next $42,707 of taxable income (on the portion of taxable income over $42,707 up to $85,414), + �26% on the next $46,992 of taxable income (on the portion of taxable income over $85,414 up to $132,406), + �29% of taxable income over $132,406. So Cribby, you should deposit the taxes into an account so at year end you can put it into RRSPs. The RRSPs will lower your income and then you can use that as a way to pay less tax/defer taxes.

Figured it out yesterday but thanks. Need to add provincial tax to it too. Geez.. never realized how much the gov takes! So much.

quote:

Originally posted by FunkyCrew http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html

Saw that yesterday. Very helpful.

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