tag:blogger.com,1999:blog-5465015914589377788.post8698529292439687617..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: How Tax-Free Compounding HelpsMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-5465015914589377788.post-13099475718085234652020-11-11T19:09:51.103-05:002020-11-11T19:09:51.103-05:00The following exchange is reproduced to remove bro...The following exchange is reproduced to remove broken links.<br /><br />----- John Ryan August 27, 2015 at 10:54 AM<br /><br />Great examples to answer the reader's question. It might have been interesting to include a third, TFSA, condition.<br /><br />----- Michael James August 27, 2015 at 11:06 AM<br /><br /> @John: Under the assumptions I made, the TFSA case looks the same as the RRSP case. Things get different if you start looking at changes in marginal tax rates. Another smaller difference comes if you earn U.S. dividends in a TFSA. The most likely scenarios involved a mix of RRSPs and TSFAs.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-70475610681299039502011-02-15T21:57:37.433-05:002011-02-15T21:57:37.433-05:00@Terry: My analysis was based on constant margina...@Terry: My analysis was based on constant marginal tax rates. As I mentioned in the last paragraph, if your marginal tax rate is higher in retirement than it was while working, RRSPs may not be the best idea. The clawback on GIS payments adds a whopping 50% to your marginal tax rate. This is a clear case where RRSPs can work out badly.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-10301605730030936912011-02-15T21:08:57.162-05:002011-02-15T21:08:57.162-05:00Isn’t there one scenario where it is better to sav...Isn’t there one scenario where it is better to save outside an RRSP, namely, if a person’s total expected retirement income is low enough to qualify them for GIS payments?<br /><br />In that case, since RRSP withdrawals are taxable, they count into total income and could cost the individual free government money.<br /><br />The odds are, however, that no one reading your blog is likely to be in that situation, so you may justifiably have decided to ignore that scenario.Terrynoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-25896383477943350522011-02-15T13:08:22.184-05:002011-02-15T13:08:22.184-05:00@Paul: You make a good point about U.S. dividend ...@Paul: You make a good point about U.S. dividend withholding taxes in TFSAs. That is one instance where RRSPs win out over TFSAs even if marginal tax rates remain the same.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-988149925886732942011-02-15T12:50:56.147-05:002011-02-15T12:50:56.147-05:00Very interesting.... I made a similar one for myse...Very interesting.... I made a similar one for myself last week, comparing RRSP, TFSA and unregistered investments, comparing returns, taking into account dividend taxation, withholding tax, etc. It's fascinating how quickly RRSPs turn into the best investment, and canada-only (and non-dividend) investments are fine in TFSA, but everything else suffers from tax leakage somewhere.<br /><br />However, I think it would be logical to place your best assets in a TFSA, since it won't be taxed. (ie, bonds in RRSP and equities in TFSA as far as possible).Paul Gnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-1870077027000000142011-02-15T12:30:27.357-05:002011-02-15T12:30:27.357-05:00@P2Sam: Just about all my arguments come down to ...@P2Sam: Just about all my arguments come down to numbers in one way or another. Glad you liked it.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-72155195285075848192011-02-15T12:22:10.580-05:002011-02-15T12:22:10.580-05:00Fantastic. I love arguments base on data !!Fantastic. I love arguments base on data !!p2samhttps://www.blogger.com/profile/14448397473506862629noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-63794620978493431222011-02-15T09:11:11.939-05:002011-02-15T09:11:11.939-05:00@Robert: "Tax-free compounding" in RRSP...@Robert: "Tax-free compounding" in RRSPs refers to the fact that no taxes are charged from year to year (unless you make a withdrawal). Your investments get to grow for years without paying tax until you retire.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-11771379668141201562011-02-15T09:08:31.374-05:002011-02-15T09:08:31.374-05:00Very nice spreadsheet. Where I had a problem was t...Very nice spreadsheet. Where I had a problem was that I couldn't find "tax-free compounding". What you're saying is that the value is in avoiding tax leakage. And you're right, of course, that avoiding tax leakage becomes very valuable.Roberthttps://www.blogger.com/profile/12961149077824073687noreply@blogger.com