There’s a bunch of people out there, including Gordon Pape, who want retail investors to think that investing in a RRSP account is valuable. You need to read the post I wrote yesterday to better understand why RRSP contribution is of no help when it comes to create financial health. It’s just too bad I wasn’t able to realize that a lot sooner. I am stuck with a 40k value stuck inside a RRSP that isn’t doing nothing for me, expect pushing later the tax payments.
Let’s start with Gordon Pape. Gordon Pape recently came with a RRSP portfolio investment idea. We find in it the very fabulous Firm Capital Mortgage Investment Corporation (FC), a stock that I hold in my non-registered portfolio for a little while now following Gordon Pape recommendation. FC is a superbe wonderful stock, very reliable and the chart is a rocking rocket.
Great. But Gordon Pape has a darker side. Fact is, Gordon Pape is actively promoting RRSP account to screw up retail investors and to make good money by promoting a banking product (RRSP) simply made to make banks and government richer, but not individuals.
RRSP is a real industry. Banks had come with special loans design for the RRSP. Banks actively promoted those products in major marketing campaigns. And for what reason? To make money on the back of the middle class, on the 99%. On a salary of 40k+, if I make a RRSP contribution of 4k, I save about 1k in tax. I save 1k on a 4k investment, which means that it’s costing me a 4k out of my pockets to get back a 1k. The 4k will be put away, untouchable until I hit my seventies. Does it really worth it? Not really.
Fact is, once I hit my golden years, I will have to pay taxes on RRSP withdraws. At that time, with a bit of luck, the 4k invested today will worth much much more in 4 decades from now. And oh surprise, I will have to pay taxes on the 4k AND on all capital gain realized during those 4 decades... On top of that, the money hold in the RRSP will affect what the government will give me on my senior years.
So basically, for someone like me of the middle class, earning close to 45k yearly, it doesn’t worth it to invest in a RRSP for that specific reason. There’s no benefit to invest in a RRSP account.
And by the way, it’s not because you don’t invest in a RRSP account that you are not properly prepared for retirement, especially now that we have the TFSA.
On the other hand, a TFSA is a very powerful tool. I haven’t used all of my TFSA contribution room because I have a margin account on my non-registered account. For very practical reasons, I prefer to invest all cash available in my non-registered account. Why?
1) To increase the value of my margin account so I can use the margin money to pay off more debt of mine at a higher interest.
2) To secure my margin account situation (the more you have, the better).
3) To do numerous of operations without having to deal with the one withdraw TFSA rule that really suck at TD Waterhouse.
I guess those are the main reasons.
Also, while investing in a RRSP, the fact that I cannot access the money freely, whenever I want or feel like, and that suck too.
To celebrate the mediocrity of the RRSP account, I decided to invest a 1 000$ tomorrow in Crescent Point Energy Corp. (CPG) in my non-registered account (gotta bring that margin stronger) and not to contribute ever again to a RRSP. Gordon Pape? An author with sometime good stock picks, a pusher of the RRSP so banks and government can make a huge amount of money on my back. Oh yeah, Gordon Pape.
Gordon Pape.
Posts
48 comments:
If you're earning 10k a year in dividend in your non registered account when you're 65 on top of your canada pension, this will affect the money the government pays you in your retirement years. The more money you earn, the less you will be eligible for certain programs. RRSP or not. Don't forget dividend income is grossed up at a rate of 1.41; so 10k in dividend would be recorded as revenue of 14,100 on your income tax.
Again I repeat, you can access your money anytime out of an RRSP; but why would you need to, you have lots of money available outside your RRSP.
As for banks making money. They do make money selling mutual funds, but if you buy individual stocks like you do, they don't make anymore whether it's in an RRSP or outside an RRSP. If bank making money is a concern to you, you should look at the amount of interest your sending them every month.
As for an example where RRSP can be beneficial; let's say you owe $1,500 in tax this year. Instead of writing a check for $1,500 to the government you can invest in your case $4,400 in an RRSP and have the money grow and not have to pay a cent to the government until you decide to withdraw it. That seems like a no brainer to me, send 1,500 to the government or invest $4,400 in an RRSP and not owe the government nothing.
Yes, eventually, you will have to pay taxes. But the same is with your margin. You use margin to make more money and the more you make, the more you will have to pay in tax and you will also have to repay that margin eventually.
If you don't understand something, you shouldn't give false information to your readers. Did you forget last year, you borrowed money to invest in your RRSP. Remember BMO didn't want to give you the loan, didn't want to make all that money on you. Now that you have a change of mind about RRSP, you should be thanking BMO for not giving you money to invest in RRSP.
As for the readers, proof is here why you shouldn't take any information from Sunny, she flip flops all the time. But really, you didn't know you would have to pay tax on RRSP withdrawals. What world have you been living in?
The accountant
alrite sunny i wanna try this, going to really break it down although i thought the comments in your previous post summed it up quite well
when you contribute money into an rrsp the government gives you taxes back. you contribute these into the rrsp as well
now the government has made an unspoken deal with you,they are now going to allow you to invest your money in this account tax free.
when ever you are done the government is going to take back the money they gave you including any growth it made if invested properly.....their cut.
leaving you with your cut , your after tax money that has been growing TAX free. And the 4 things you can actually control in investing, cost, asset allocation,diversification and how you are taxed.
Where people do lose is by spending the tax refund on big screen tv's or vacations rather than contribute the money into the rrsp, that money is not a gift or a break , the man will take it back.
Or early withdrawals or all of a sudden earning more money in retirement then you did during your entire working career.
This is a very simple explanation, i can add some numbers for examples if anyone wants
And yes i certainly simplified it and theres a little more too it but I'm sure i got the gist of it
Sincerely
rich
been reading comments for months, first time poster!
alrite sunny i wanna try this, going to really break it down although i thought the comments in your previous post summed it up quite well
when you contribute money into an rrsp the government gives you taxes back. you contribute these into the rrsp as well
now the government has made an unspoken deal with you,they are now going to allow you to invest your money in this account tax free.
when ever you are done the government is going to take back the money they gave you including any growth it made if invested properly.....their cut.
leaving you with your cut , your after tax money that has been growing TAX free. And the 4 things you can actually control in investing, cost, asset allocation,diversification and how you are taxed.
Where people do lose is by spending the tax refund on big screen tv's or vacations rather than contribute the money into the rrsp, that money is not a gift or a break , the man will take it back.
Or early withdrawals or all of a sudden earning more money in retirement then you did during your entire working career.
This is a very simple explanation, i can add some numbers for examples if anyone wants
And yes i certainly simplified it and theres a little more too it but I'm sure i got the gist of it
Sincerely
rich
been reading comments for months, first time poster!
Welcome in the readers club, don't be shy. you are going to have a lot of fun here, you'll see :)
my apologies for the double post! still getting used to my mac!
Rich
Be careful, you are on my blog
;0)
Sunny what is your opinion of ETF's ?
is it possible to take an american stock Seadrill that i have and doing great but the dividend is highly taxed...i didnt know that i should have put it into the tax free account and the bank lady sure didnt refer to that til i looked into it later.
also has anyone bought Vivus and do they think it has another run or is it too late to buy on Monday.
@ Ruth ...us withholding tax is applied at source to us divi's in non-sheltered acc,ts to foriegn investors. Obama also wants to increase tax ondiv's. If you don't know the tax implications before investing then maybe you should quit bragging & berating ppl & giving advice. Of couse the bank lady didn't tell you about sheltering it, how much are you payng her for investment account advice..the same amount as anyone reading this blog. What you do for yourself is your folly. Cheers!! Anony-sentori
was just asking for an opinion, i don't recall ever giving anyone advice because i can't. i made a mistake and wondered if i could make it right.
Ruth, the only place you want have to pay US tax is inside an RRSP. There's still tax withheld inside the TFSA.
The accountant
ps...i would never berate ppl as it is my favourite stock....as for my bank lady...i do not pay her a cent.
i read somewhere that all american stock dividends are not taxed(inside tfsa) because of an agreement with Obama and our government . i shall buy all my American stocks inside the tax free accounts but as you know it is only 5 grand a year. i think 15% is high for tax...will see what my husband thinks ,,,he makes out our taxes...
Who wrote this post. Sure wasn't you.
I wrote all of my posts, I am really that good.
I believe American stock dividends are subject to a 15% withholding tax within our outside of your TFSA. I don't see any benefit of putting American stocks inside an RRSP. Either way, this is a tax you are going to have to pay. Its taken from you before you receive the dividend. Nothing you can do. They don't check your account type before they take it, they just take it! It's that simple. Putting them into an RRSP (or additional money into an RRSP) is just a dumb idea.
Here is the link that explains that you still have to pay the 15% tax inside an TFSA, only US dividend on stocks held inside the RRSP is exempt from the tax because of an agreement between Canada and the US. This information is all available on the web, all you need is a little research.
http://www.taxtips.ca/rrsp/investmentsinorout.htm
Ruth, TFSA is only 5k a year, but that's a total of 20k each for you and your husband that you have accumulated since TFSA was created. If you have stocks, bonds or Gic's outside your RRSP, you should definitely transfer some inside your TFSA to earn money tax free.
I do this at the beginning of each year. I have an international ETF inside my TFSA. US and international stocks, bonds and GIC's are held inside my RRSP as their dividend and interest is not taxed favorably in a non registered account. All my Canadian stocks are in my non registered account. I will hold US stocks that don't pay a dividend or pay a small one in my non registered account (EX. BAC)
The accountant
I think everyone is missing the point here about RRSP's/TSFAs/Dividend Income
To keep it simple:
1) Dividends are tazed the least, then capital gains, then interest income, them employment income
2) WHen you make your RRSP withdraws they are taxed as employment income
3) You can withdraw $$$ from your TSFAs without it being counted as income(HOWEVER, BEING A GOV'T SPONSERED VEHICLE expect some kind of new 'rules' surrounding TSFAs(heck the Canadian gov't wants its' cut too)
4) You can 'meltdown' your RRSP anytime. You can also take advantage of it to make a down payment on your house
5) THE BIGGEST EXPENSE OF YOUR WORKING CAREER WILL BE TAXES
My moto is care about your money and it'll take care of you.
Mark
what i really was interested in and by the way , thanks for all the info..can i transfer the seadrill into my tax savings account? i will phone Waterhouse. i have a mixture of stocks in the tax free. my husband lets the BMO banker do his ,,,
What are your thoughts on the stock Vivus, it has done wonders so far...is it too late to jump in? i would like to day trade it!
Could one of you verify this:
If you hold a dividend paying stock in:
RRSP:
US doesn't tax the dividend .
Canada doesn't tax the dividend.
TFSA:
US witholding tax applied by US.
Canada doesn't tax the dividend.
Can't claim foreign tax credit..
Ordinary account:
Us witholding tax applied by US.
Canada taxes the dividednd.
Can claim foreign tax credit to reduce the Canadian taxes.
what i read is , the dividend is not taxed if kept in the tax free savings account...i would think this doesn't apply to Rsp's.
HI Sunny, believe i am wrong on the american stocks being taxed or not in tax free...correct the last letter for me as i looked on the computer and it is the RSP's..sorry for my mistake.
Under the Canada-U.S. tax treaty, interest and dividends received by an RRSP, RRIF, or other pension trust will not be subject to withholding tax by the U.S. However, don’t assume that every country Canada has a treaty with has the same provision!
found this on the web.
I cannot provide info regarding US stocks and tax because I truly don't know, but I can certainly bitch about the system. I do that well at least ;0)
I'm sorry, Sunny...I can't take you too seriously when you make such baseless claims about RRSPs, and you are carrying over $86,000 of consumer debt.
Don't take me seriously than! It won't change anything for me.
You lose all credibility when you insult a time proven ways for Canadians to tax shelter their investment growth. Most of your investments are non-registered. You must either really like to give the government money, or are a bit clueless. I suspect both.
-Leonard
I am living off my investments. I certainly wished that TFSA was available when I was saving.
I am currently paying higher taxes on RRSP withdrawals than when I was putting money into my RRSP. Unless you are currently in the highest tax bracket, RRSP may not be the way to go.
It is true that investment is limited in the TFSA, but it will grow over time.
anoymous in the previous post has a point. you have debt that are non tax deductible. the golden rule is to pay off non tax deductible debt. you are just focussed on the big portfolio figure amount. I can have a 1M portfolio, with 900K of debt. My net worth is only 100K...what's the point to show off that I have 1M worth of a portfolio, but at the same time I have a huge debt??? This is obviously an extreme example. Also, by paying interest on your bad loans, you are essentially making the banks make more money and not for yourself. instead of paying about 5,000 interest yearly, you could put that money towards investing and that 5,000 is like paying yourself... now the 5,000 is going straight to the banks bottom line...just think about it for a second...
Thanks Susan for your comment. That was exactly my point in the post, you pay more in taxes from RRSP withdraws even while being a senior because the money you had invested in there several decades ago had growth. So the taxes just follow. It was released for me because I am getting sick and tired of the RRSP thing. Each year is a headache, where I am going to take the money... No more headache, just margins and hopefully a bit more of TFSA joys... :)
RRSP are good for those who made more than just a small 40k.
And I have figure it out all my myself... Lol
So folks, you no longer have anything against me no more I am the hot one knowing it almost all when it come to finance.
I like the one million made out of 900k debt example, you are giving me some ideas lol....
Fact is, I always a 6 figures portfolio and I had it since 29-30 of age now. Remember: you only live this f life once, just go get what you want and who care if it's barely made sense.
Also, I rely on the power of leverage for a great deal of years so I cross my fingers in the hope that my luck will be there, that overall, the gain and dividend exceed the debt and interest own on the money. Eventually, I will be a millionaire and will get an update change car for my 2002 one ok
The question I have for Susan is why is she paying higher tax? Is it because she's earning other income while retired besides the canada pension, or because she has a large portfolio and making more or just as much money now as she did when she was young?
If you're earning 50k a year, it's only natural that you will have to pay some tax.
The accountant
Sunny, how much interest did you deduct on your income tax last year and how much do you expect to claim this year.
Too good question. I don't exactly know.
@ accountant...Brunner probably paying for ALL of those reasons & maybe a company pension over top of it. It up to her if she wants to clarify all her income sources. Also remember over the long, long, haull tax rates increase, they never fall so any tax deferred investment dollar made today will be subject to an unknown but undoubtedly greater tax in 20 years. Plus, the gov't can change the rules & levels as it seems fit. That's the marathon & the risk. As for Brunner liking TFSA, its still GIGO when selecting investments for this vehicle & made worse by any fee grab charged for the account. Cheers!! Anony-moveslike-jaggermeister
I cannot answer for her, but from my understanding, she had been laid off from her employer in the nineties and following what, she realized she had enough to retire. I don't think she's touching a pension coming from her employer. No no.
She's the kind of investor you'll like to be yourself but your not
(I have to say something, that anonymous is a freak)
People do not seem to grasp..
Say you are in the lowest tax bracket and the marginal rate is 25% for provincial and federal combined.
Therefore if you work at a job, then you are taxed at 25% not including the CPP and EI premiums coming out of your pay. For Canadians, the dividend tax credit allows dividends from Canadian corporations to be taxed favorably. If dividends are foreign they would be taxed at your marginal rate, just like interest and employment income.
Where do you think money from RRSP's fall into...earned income, which is the same type of income as a job. So the growth of your RRSP possibly means you could be in a higher tax bracket when time for withdrawal.
Being a tax-deferred plan, allows the money to grow quicker possibly. I agree if you are in the bottom tax bracket you would get a much small tax deduction than the higher tax bracket would for RRSP contributions.
Maritimer
http://www.richdad.com/Resources/Rich-Dad-Financial-Education-Blog/February-2012/The-Retirement-Money-Myth.aspx
Do a search on youtube for 401K with either Kim Kiyosaki or Robert Kiyosaki. You might come across a video about 401K. The above link is an article about his view of retirement.
The reason I am in a higher tax bracket is that my investments have done well. I did get some pension money, but no full pension as I switched jobs during by working career. I was in some defined pensions, but if you do not work until retirement in the same company, you do not get much from them.
When I was investing it was always put money into RRSP now and get a tax benefit. It was also said by everyone that in retirement you will be in a lower tax bracket. This did not work that way for me. I was in a high tax bracket when I stopped working, but most of the years putting money into my RRSP account I was not.
When I stopped working, half my money was in a Trading Account and half in RRSP accounts. One RRSP account was a locked in one because the money came from Pension money. Split was Trading Accounts with 49.5%, RRSP 37%, Locked in RRSP 13.5.
I initially tried to run down my RRSP account, which I sort of did, as the split between the accounts is currently at 52.5%, 26.5 and 21%. Part of the reason for this is that my investments in my Locked-in Account worked out better than in my RRSP account. Also, I was only taking from my RRSP account initially, but lately I have switched my Locked-in Account to a RIF to take money out of this one also.
My point was that when I am taken money from my RRSP account I am in a higher tax bracket than when I was putting money in. If I know what I know now and they had TFSA, I would have invested in TFSA and Trading Accounts. I would think that you should only put money into an RRSP if you are already in the top tax bracket. Of course, with pension money, you have no choice than put it in a Locked-in Account.
Thanks Susan for sharing details about your financial situation!
Very interesting and it only confirm what I taught about RRSP: it's not a real tool to become rich.
I decided to free my mind of RRSP, at least for this year. I didn't save for my RRSP this year and I keep investing on the non-registered side to feed my margin account. Might not be the best thing on the world, but at least, I am having fun among the way.
I need to get in control and invest inside my TFSA, I have a lot of contribution room.
Sunny, you will never be a millionaire by carrying so much debt. Remember, a millionaire is not just simply having a million dollars but having a million dollars of net work (assets - liabilities). Like the person before said, you can have a million dollars in the bank (poor choice) and have 900K debt, leaving your net worth a mere 100K (probably less as the interest will kill you at that amount). I don't have a 100K portfolio (it's really small, about 50K) but I have a house worth 380K that is almost paid off, no debt, and some RESPs for the kids. You can say you have 168K portfolio and I only have 50K, but with no debt, I am worth over 450K right now but you are only worth 80K because your debt is dragging you down.
@Brunner Thanks for the detailed reply. It exactly makes the point...one size does not fit all, despite what the investment managers espec fund mngrs would have you think. Unless you do it yourself independent credible advice is difficult to get. @Sunny calling ppl freaks is a sure way to get flamed. Ya...I know its all about YOU. Flashlight or mirror? Cheers!! Anony-pamplamous
To Anonymous with the house worth 380k..
You house doesn't count as an asset. It is not your asset, it is the bank's asset. You have mortage payments, insurance, and maintenance every month plus property taxes. Every single month moneys comes out of your pocket related to your house. If you stop working, you still have these costs, so therefore it is a liability.
Robert Kiyosaki said this in 1997 in Rich Dad Poor Dad and was hammered in the press. The subprime fiasco in the states is an indication of principal residences being liabilities. I still think having a house is better than renting.
I agree with what Robert Kiyosaki said about a home not being an asset.
The thing is however, you have to live somewhere. I think that where you live is about lifestyle choices. I happened to live in an apartment. It is downtown and very convenient for a lot of stuff. I can walk to a lot of places I want to go to. I love my neighbor.
I did have a cottage when my son was growing up. I thought this was a great compromise. It is a lot of work to maintain either a house or a cottage. I sold the cottage for more than what I paid for it, but I probably just broke even because of the work I put into it, taxes, upkeep costs etc.
Having a house to sell at retirement can provide some extra money if we are willing to downsize or move to a cheaper place. I know my parents did this. However, I also know that 5 years before they were to retire, the property values came down. In the end they did not get out of it what they had expected, but they did get some extra retirement money.
Owning a house or a cottage is a lot of work as you said for sure, I saw my dad going around.
We don't think about that often, but a cottage is like a house, property taxes apply.
In those time of insecurity, I don't think that buying a property is a good idea, like not at all, unless someone have money to buy it cash. Mortgages were made for banks to make money, a complete rip off, worst than the RRSP loan.
As a retired fellow, I've now learned that, for me, RRSPs were an excellent choice. There were no TFSAs when I started saving. If it were not for my RRSPs, I could not balance my budget. Oh, I pay tax on the money I remove but it is not exorbitant. I understand your position but I do think it may be a little extreme. Cool the rhetoric, dial back the angry claims, and you will even fin some accountants willing to agree with you.
I am not looking to get an approval, having people thinking the opposite way is not something that bother me. Not at all. RRSP is a business, not a way for a middle class and lower to build on for retirement. After what my mom experimented, I am like over-qualified to say that.
If your happy with that the government gave you, good for you, but I am not. And as you read of course, I am taking the liberty to say what I think very loudly very loudly. Enjoy.
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