RRSP Season, Tax Time, and #MoneyTalk

RRSP season is slowly coming to a close, if we are to believe the advertising campaigns from the banks and mutual funds. RRSP season is actually all year round, however March 1, 2017 is the deadline for contributing to an RRSP for the 2016 tax year. It is bad planning (in my opinion) to buy RRSPs at this stage of the game, but if you find money (and don’t have debt to pay off), it is an OK place to put found money. I have over the years written plenty of articles on RRSPs, and here are a few for you to read:

RRSP Season disliker

Not an RRSP Season Fan?
Image used without permission of JK Rowling or Warner Bros.

If this is RRSP season, remember that it is tax season as well. For folks in Ottawa who work for the Federal Government, there are tax problems. Over 50,000 have had issues with their T4 slips from the new Phoenix pay system. Ironically the CRA (who are also part of the Phoenix Pay system) say that there will be no dispensations for them. The CRA was kind enough to put up an FAQ Page for Tax Questions.

The ultimate concept in the #Fakenews? The status bar and how long it says it will take to install your software (several minutes, my arse!)

RESP Questrade Banner

My Writings for Week Ending February 24th

Given we are in the RRSP Season, I had my own poke at the topic, which I borrowed from a discussion I had with Preet B. and Michael James about how so many folks seem to forget that an RRSP is a Tax Deferral Savings Plan. How many times have you heard someone tell you how much money they have in their RRSP and never mention the taxes they might have to pay on that sum?

A Money Thought

Kerry from Squawkfox is getting tired of being up sold services at the banks by tellers (and ATMs)

[click to continue…]

{ 0 comments }

Tax Deferral Savings Plan ( your RRSP )

I think if the RRSP was named the Tax Deferral Savings Plan it would clarify to folks how it all works. Most folks simply think of it as a Tax Avoidance program, but like death, there is no hiding from taxes.

The government rarely wants you to get something Tax Free (with the exception of the Tax Free Savings Account (TFSA), and a few other programs). When you get a refund for your RRSP deposit, all you are doing is deferring paying tax on your deposit. You will pay tax on the money in your RRSP, when you withdraw it. This is why I am calling it the Tax Deferral Savings Plan. Remember there are tax deferral advantages possible, but you must realize that is what the RRSP does.

Tax Deferral savings plan

The Tax Ramifications of a Tax Deferral Savings Plan

Some of the underlying assumptions for your RRSP are simple. When you withdraw money from your RRSP you will:

  • Be in the same or lower tax bracket, thus your tax deferral is a net positive (if you have kept your refund from when you deposited into your RRSP).
  • You have money saved to pay the taxes on the withdrawal.

This is where folks tend to get tripped up. They look at their RRSP balance and see the entire value ($X) , when in fact the actual value is  ($X – Income Tax). How much income tax? Depends on when you take the money out, and how much you withdraw. Take it all out at once and you pay the most tax on that withdrawal.

Retirement Withdrawal

Assuming you are making less when you are retired you are withdrawing at a lower tax rate (hopefully). If you have a higher tax rate when you are retired, you will pay more in tax than you got as a refund.

Emergency Withdrawal

A dangerous idea is using your RRSP as an emergency fund. While it might work if you are unemployed (and have no income), using it to pay for a large purchase might give you a much bigger tax bill.

What to do with Refund?

If you put money into your RRSP (or tax deferral savings plan) and you receive a refund, what should you do with it?

  • If you spend the refund, you need a plan to recover it in some fashion. You must be able to pay the taxes on your deposit.
  • Keep in mind the actual value of your RRSP deposit
    • $X deposit gives $N refund, thus you will need approximately $N in tax payment money to withdraw all of $X again.
  • Put the refund into the RRSP, problem solved, and you get another refund next year (repeat).
  • Refund into TFSA, let it grow there, thus you have the Tax Money. An added bonus is you are using it to grow you nest egg (tax free).
  • Hope your RRSP investments grow enough to cover $N worth of taxes due on the initial deposit.

Your RRSP Balance is Before Tax Money

Remember this, you must pay tax on your RRSP withdrawal (with a few exceptions), plan accordingly!

{ 0 comments }

Farewell Vinyl Café, Snow, Monopoly and #MoneyTalk

I was saddened to hear of the death of Stuart McLean, host of the Vinyle Café. That radio show was truly a slice of Canadiana , and the good nature and happiness in the stories told will be sorely lost. Now is a time when we could use more of Stuart’s stories, and less of the other things on the radio.

Winter Sucks

Mr. Cardinal Confirms, Winter Sucks

Really not sure whether this Joe Trudeau chap really has the chops to be PM.

For those who have not watched the 5th Estate piece on “Betrayal of Trust” outlining the 220 lawyers disciplined over the past 6 years for misappropriating over $160M from clients, well worth watching. Do you trust the folks you entrust with your money?

So far Ottawa has had snow pretty much every day in February (except one), so we are quite the winter wonderland. As can be seen by the cardinal on my birdfeeder, no one seems that happy about all this snow.

For those lovers of Monopoly out there, note the passing of the Thimble as a piece for a player, it will be dropped in future Monopoly sets. I don’t know many folks who will miss it (my Mum used to like to be the thimble).

RESP Questrade Banner

My Writings for Week Ending February 17th

We did have a Surprising Job Picture in Canada in January, with jobs created when none were expected. The economy continues to create part-time jobs, but maybe that is what the economy needs?

A Money Thought

We need more kids asking for personal finance education at schools!

👇 For more great financial articles from this week click here 👇

{ 0 comments }

Surprising Job Picture in Canada in January

A surprising job picture from the Canadian Economy grew more jobs in January (2017), according to Stats Canada. This was unexpected by most economists, so a pleasant surprise (somewhat).

What Kind of Jobs ?

Surprising Employment Picture

Surprising Employment Story
(From Metropolitan Museum of Art Collection)

The unfortunate part of this story is that the economy is creating more part-time jobs (full-time job numbers are virtually unchanged). Why is this economy creating part-time jobs, or is that what is needed?

There is an argument put forward that as the population ages, maybe part-time jobs are what the older folks want? It can’t be that young folks want to have many jobs, with little or no benefits, can it?

Part-Time Jobs

The telling statement from the article is the following:

Despite little change in January, part-time employment was up on a year-over-year basis (+190,000 or +5.6%). In January, 19.6% of employed persons worked part time, compared with 18.8% the same month a year earlier.

Why a growing part-time work force ? This would be a very interesting report if I could find it somewhere.

Unemployment & Employment Graphs

Surprising job picture

Employment & Unemployment Seasonally Adjusted

{ 0 comments }

RRSP , Tax , TFSA , RESP, and RDSP Time and #MoneyTalk

It is that magical time of the year, when folks are barraged with countless megatons of advice about financial matters. Some say it is RRSP season, others say it is Tax Preparation season, and still others say it is really TFSA season, but I disagree. It is also RESP season and for some of us RDSP season, because if you are doing financial planning and you have kids you had better include your RESP in those discussions as well. Is it RRSP , Tax , TFSA , RESP or RDSP season ?

Ballet

RRSP , Tax , TFSA , RESP , RDSP or Dance Season ?
Image courtesy of Danilo Rizzuti, at FreeDigitalPhotos.net

The decision point for a lot of parents is always confusing but allow me two possible lines of attack for your financial decisions in February:

RRSP Pas De Deux

  • Put an amount of money into your RRSP (assuming you have spare cash, and no debt to pay off, if you have debt, pay off debt)
  • From the Refund that you receive (remember you are only deferring your tax on this money, they should really rename the thing, the Registered Tax Deferal Program)
    • ½ of the money into your TFSA, to build up (tax free) the tax you will need to pay when you take the money out of your RRSP.
    • ½ of the refund into your child’s (or childs’) RESP up to the max for the year. The RESP payment will get you added money from the government too.

RRSP Grand Jete (redux)

  • Put an amount of money into your RRSP (assuming you have spare cash, and no debt to pay off, if you have debt, pay off debt)
  • From the refund (again only deferred tax here), do the following
    • ½ of the refund up to the max for the year to your family member’s RDSP
    • ½ of the refund up to the max put into your kids’ RESP
    • Any remaining moneys put into your TFSA to build up the Tax Payment needed to take your money out of your RRSP.

The funny thing I am seeing on line is that many writers do not take into consideration the fact that many folks have many different registered accounts that “need to be fed”.

RESP Questrade Banner

My Writings for Week Ending February 10th

This week I saw a really good article on the Stats Canada Web site, and that inspired, You are Spending More, where I do some comparison with the numbers in the Stats Canada report and report and contrast them. You can use these numbers to help plan your financial future, if you are not tracking your own numbers.

A Money Thought

As usual the folks at the Fraser Institute pokes at the Public Service with their latest report on the differences between the Public and Private sector employees.

👇 For more great financial articles from this week click here 👇

{ 0 comments }

%d bloggers like this: