tag:blogger.com,1999:blog-5465015914589377788.post8644501642718088372..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: CRA: Your RRSP Partners Whether You Want Them or NotMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger15125tag:blogger.com,1999:blog-5465015914589377788.post-81064607945684255622014-03-08T17:36:34.352-05:002014-03-08T17:36:34.352-05:00The CRA truly is a partner since it takes a loss i...The CRA truly is a partner since it takes a loss if you happen to mess up and actually lose money. CRA earns the same return as you do.CanadianInvestorhttps://www.blogger.com/profile/05645767559302303541noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-82586829847010393582014-03-08T09:32:22.571-05:002014-03-08T09:32:22.571-05:00Here is a great calculator that is relevant to you...Here is a great calculator that is relevant to your article. <br /><br />http://www.retirementadvisor.ca/retadv/apps/tfsaRrsp/tfsaRrsp_inputs.jsp?toolsSubMenu=preRetAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-83652108891236395012014-03-06T12:13:19.716-05:002014-03-06T12:13:19.716-05:00Thanks Michael.Thanks Michael.Anonymoushttps://www.blogger.com/profile/02683832651419525662noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-89371508137926791462014-03-05T17:03:42.806-05:002014-03-05T17:03:42.806-05:00Good advice. Though I don't mind the short-te...Good advice. Though I don't mind the short-term loan part as I find it helps to eliminate any temptation to spend or otherwise misuse the refund - I create a debt for myself which I'm very eager to pay off. But I see your point about job loss or illness.Juan Refritonoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-61492608928556687162014-03-05T15:19:38.334-05:002014-03-05T15:19:38.334-05:00@Paul: You should decide whether to save in an RRS...@Paul: You should decide whether to save in an RRSP or a TFSA based on your current marginal tax rate and your expected marginal tax rate in retirement. This choice can change from year to year for some people. The part about investing in low-cost index funds is a good idea for almost everyone.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-80871355680878513892014-03-05T14:29:27.750-05:002014-03-05T14:29:27.750-05:00So when I hear blanket statements like, "Maxi...So when I hear blanket statements like, "Maximize your RRSP, then your TSFA, and then invest in Index Funds", I should by wary?Anonymoushttps://www.blogger.com/profile/02683832651419525662noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-45780060528924770152014-03-05T13:13:44.351-05:002014-03-05T13:13:44.351-05:00@Juan: This strategy involves borrowing to contrib...@Juan: This strategy involves borrowing to contribute to an RRSP, which can work well for some people, but can lead to a debt slide for others. The article's example has you holding $3000 to contribute to your RRSP, and you borrow $2000 to be paid off when you get the $2000 tax refund (40% marginal tax rate assumed). I prefer a safer solution. Contribute the $3000 now. This generates a $1200 tax refund. Contribute that $1200 when you get it. Then contribute another $3000 next year (or whatever you're able to save). Your next tax refund is up to 40% of $4200, which is $1680. Contribute that amount when you get it. Over time you'll get to almost the same point as the borrowing strategy without the risk of getting caught with debt if you lose your job or get sick, etc.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-48333611247637671162014-03-05T12:58:02.117-05:002014-03-05T12:58:02.117-05:00For those with significant contribution room, this...For those with significant contribution room, this also highlights the benefits of using the "gross up" strategy to make sure you're maximizing the tax benefits of your refund. Useful recent article on that subject here:<br /><br />http://www.thestar.com/business/personal_finance/2014/02/19/how_to_supercharge_your_rrsp.html<br />Juan Refritonoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-80149892912464473982014-03-05T12:46:16.071-05:002014-03-05T12:46:16.071-05:00@Gene: Agreed. This deal would look more attractiv...@Gene: Agreed. This deal would look more attractive if I could simply change the rules to get more money for myself when I feel like it.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-10400059433294211052014-03-05T12:42:22.810-05:002014-03-05T12:42:22.810-05:00I think overall the government is a very patient p...I think overall the government is a very patient partner indeed in the case of RSPs. If we invert the partnership a little: would I be willing to pay someone 40% up front for a 30-70% portion of earnings that I had to wait 35 years to collect? Probably not, especially when I suspect my partner is likely going to buy high-expense mutual finds or low-yielding GICs. In short, my partner is probably a bad investor, and I'm going to have to wait a long time. Bad deal.genehttps://www.blogger.com/profile/05608927986297939720noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-26465440028172201012014-03-05T12:19:39.977-05:002014-03-05T12:19:39.977-05:00The following comment from an anonymous poster see...The following comment from an anonymous poster seemed to get lost:<br /><br />"great post! i never thought about rrsp's this way but it sure makes more sense. i wonder if there are any benefits being partnered with the government --haha."<br /><br />@Anonymous: Thanks. I'm reminded of the joke "just be thankful you don't get all the government you pay for." On the other hand, our government does a lot for us. We haven't been invaded lately, and my house hasn't been broken into by roving bands of starving people. Government deserves some bashing for extreme inefficiency, but the services they perform are mostly vital.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-92003741964971834092014-03-05T10:19:55.095-05:002014-03-05T10:19:55.095-05:00@Bet Crooks: Thanks for the smile. I've had o...@Bet Crooks: Thanks for the smile. I've had occasion to talk to quite a few CRA employees over the years, many of them well inside the usual call center layer. I'd have to say that overall, they are quite helpful and sympathetic. However, like most large organizations and businesses, employees take much of their direction from computers. Once CRA computers decide that you owe money, watch out.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-33688280494925221532014-03-05T10:02:19.425-05:002014-03-05T10:02:19.425-05:00Aha, another possible explanation for the name Can...Aha, another possible explanation for the name Canada Revenue Agency.<br /><br />Sandi Martin (Spring Finance) was wondering why they aren't called Revenue Canada. I thought it was perhaps so the acronym for Canada Revenue Agency paperwork would be appropriate.<br /><br />Apparently, based on your thoughtful insight, the accurate acronym is Canada Revenue Agency Partner. Makes sense!<br /><br />Either way, the acronym fits perfectly.<br /><br />I do like the silent partner analogy. Especially if we imagine that partner as weighing about 280 lbs and dragging his knuckles when he lurches....Bet Crookshttp://financialcrooks.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-6891072194606547032014-03-05T09:34:34.768-05:002014-03-05T09:34:34.768-05:00@AnatoliN: The term "clawback" is usuall...@AnatoliN: The term "clawback" is usually used in connection with taxing back Old Age Security (15% additional reduction) for those making more than roughly $71,000. I'm talking about reductions in the Guaranteed Income Supplement (GIS) which go to very low income retirees. In a certain range of income, GIS is reduced by 50% for each dollar of income. There are many other income-tested benefits that increase the effective tax rate even more.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-56723440122382015252014-03-05T08:44:11.555-05:002014-03-05T08:44:11.555-05:00I did not realise the effect of "effective&qu...I did not realise the effect of "effective" tax rate in low income retirement. I suppose you refer to claw back effect. I knew the parts of the puzzle, but never cared to put them together and calculate the effective tax rate. Thank you for bringing my attention to this. I believe many would benefit from an example on that. AnatoliNhttps://www.blogger.com/profile/07937984526970646627noreply@blogger.com