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RRSP versus Tax Free Savings Account With Sisip Funds

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Post by Nemo Mon 08 Apr 2013, 12:53

Yes, sparrow - always good to share info. My personal opinion is that RRSP's are not a good idea because of the future tax implications. Now the younger generation has TFSA to build their wealth for 30 to 40 years without paying any tax at all. The older generation can use TFSA too but don't have the decades ahead to build a major portion of their retirement funds within a TFSA.

And regardless of where one puts their funds, what does one put them into to generate enough to build the funds or at least keep them pace with inflation? That is a difficult choice cause we know that even so called high interest savings rates are too low to build your money. So put them into the market and experience a market crash and it could take years to get your money back.

I was recently looking at ATB (Alberta Treasury Branch) funds and their bond fund has a fairly good rate of return. But the thing with bond funds is if inflation and thus interest rates rise up, bond funds will fall and then buying these funds will turn into a huge mistake.

Very difficult for most people to find and chose a vehicle that can safeguard their money and earn them a decent rate of return.
Nemo
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Post by Guest Mon 08 Apr 2013, 10:32

nemo, this is the dilemna that I struggle with as well in ref to RRSP's ~ which is why any info we can share is so helpful ~ thanks nemo

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Post by Nemo Mon 08 Apr 2013, 10:16

Personally, I do not like RRSP's. Why? Sure, you get money back when u contribute. But when u pull them, u have to pay tax back. And if RRSP/RRIF withdrawals high enough, the gov will start clawing back certain benefits you may be entitled to.

I prefer to save outside of an RRSP. But that is just my personal opinion.

If you look at having $500,000 in an RRSP - u don't really have that total value because u will owe the taxman when taken out. Whereas if I have 500K outside of an rrsp, i will only pay on any capital gains i make on that amount and I have 500K to spend. I am not withdrawing them from a registered plan and thus paying taxes on them.
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Post by MaggieinNB Mon 08 Apr 2013, 08:37

oops... posted on the other thread before I saw this... should have trusted sparrow would have all the info.. Thanks so much for your dedication to helping other vets sparrow.

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Post by Guest Mon 08 Apr 2013, 00:59

For the purpose of Sisip Settement helpful info ~ some may not apply but always good to know ~

They're both savings vehicles that can help with your tax bill, but which one reigns supreme will depend on your own individual situation.

In ideal circumstances there would be no showdown — Canadians would sock money away into both, experts say.

But circumstances aren't always ideal.

"Maybe it's a quality of life decision or maybe it's truly just there is not the availability of income or assets to contribute to both,'' said John Tracy, senior vice president of retail, savings and investing at TD Canada Trust.

"Both is a great answer when you can do it.''

An RRSP — a registered retirement savings plan — is, as its name suggests, meant for retirement. Funds can be withdrawn sooner, under the Home Buyer's and Lifelong Learning plans, for example, but generally this is money that won't be touched until your golden years.

TFSAs — tax-free savings accounts — are more flexible. They can be used to save for retirement, to be sure. But because that money is easier to access in a TFSA than it would be in an RRSP, it can serve many other purposes.

"It's starting to pick up a lot more popularity with the younger generation who is not quite geared to thinking about the retirement,'' said Cleo Hamel, a senior tax analyst at H&R Block.

"They're more along the lines of thinking of today and what they have planned in their own life — getting married, buying a home.''

You can find out how much you are allowed to contribute to your RRSP on last year's notice of assessment from the Canada Revenue Agency — 18 per cent of that year's income to a maximum of around $23,000. Unused contribution room from previous years gets carried over.

The deadline for making a contribution for the 2012 tax year is March 1, so it's really the only option Canadians have available now to ease last year's tax bill — RRSPs give the immediate benefit of a tax deduction.

Because there's a penalty for withdrawing from an RRSP before retirement, tapping those funds is really a "last resort,'' said Tracy. Another deterrent is that once that money is withdrawn, that contribution room is gone for good most of the time.

"In some cases, it makes more sense to borrow money than access your RRSP because the penalty in tax would be so significant,'' he said.

From a psychological standpoint, the difficulty in withdrawing from an RRSP can be a good thing for those keen on letting their retirement savings grow.

"I think for real retirement savings, feeling like you've locked it in a bit more in RRSPs and leaving it there and letting it compound for a longer period of time can really be quite beneficial,'' said Dennis Tew, chief financial officer at Franklin Templeton Investments Corp.

On the other hand, you can take out money from your TFSA any time without being dinged by the tax collector and that contribution room is restored the following year.

The deadline for contributions is the end of the calendar year, so that ship has sailed when it comes to 2012. For 2013, the limit for contributions has moved up from $5,000 to $5,500 to account for inflation. Like with RRSPs, spare contribution room from previous years is available in the future.

Whether it be an RRSP or TFSA, the money contributed can be invested in mutual funds, stocks, bonds and GICs.

Since RRSP funds are taxed upon withdrawal and TFSA contributions are not, it's also helpful to think about whether or not you foresee yourself being in a higher or lower tax bracket when you use that money than you are today.

Another factor to consider is what effect RRSP funds will have on Old Age Security, the Guaranteed Income Supplement and other government benefits. At times, it might make sense to divert some money into a TFSA.

RRSP or TFSA — whichever one Canadians pick, is that they do something.

"Create a habit of saving. Start small. Don't get overwhelmed,'' he said.

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