Comments on: How Much Could You Have?

By: admin

admin — Mon, 05 May 2008 20:51:45 +0000

Hey bigasssuperstar! What a handle! Since the over-contribution limit is $2K, you could do just as you say. However, my comment was more along the lines that you could put in the $700 but not claim the deduction until you had a higher marginal tax rate and would get a bigger bang for your buck. g

By: bigasssuperstar

bigasssuperstar — Mon, 05 May 2008 15:56:56 +0000

Ohh, Gail, that’s an interesting idea … and I may be confusing myself a little now. Are you suggesting that I can put *more* money in my RRSP — maybe even more than my “contribution limit” — and have it start growing now … and only claim it down the road?

Say, if I have a $700 “limit” this year, but I put in $2000 … can I put off claiming that $700 for this tax year, and put it on the following year’s taxes? IOW, not really tell revcan that I put anything in this year?

… or am I just totally spinning myself silly now?

By: Marie

Marie — Mon, 05 May 2008 01:18:14 +0000

RRSP during retirement and taxes:
Yes, you are deffering, but it is more complex than that. A portion of the RRSP that you take out might not be taxed (base amount deduction), another portion might be at a lower tax bracket than the one you currently pay (lowest tax bracket) and if you saved enough, the rest goes in higher tax brackets. So ON AVERAGE you might end you paying less tax than you would without your RRSP because you originally pay less tax on your highest tax bracket.
The great thing about investments within RRSP is tax-free growth. This will be true from the new TFSA.

Delaying RRSP contributions until you are in a higher tax bracket:
It is very hard to catch up and to introduce something new to a budget. It will take me a few years to do that (strict budget and extra job) and I missed out on growth. It is possible that the growth would have been greater than the amount of tax difference from going up a ‘bracket’ (5-7% total difference between some tax brackets; so 5-7% of the contribution amount as a tax return).

[again, seek advice from a professional... and read Gail's post!!!]

By: Gail

Gail — Mon, 05 May 2008 00:27:30 +0000

I am a whole-hearted believer in RRSPs, particularly for people under 50. Over 50, it depends. As for the tax implications, just because you make a contribution doesn’t mean you have to take the deduction in the same year. Go ahead and put your money in an RRSP so it can start growing on a tax-deferred basis. Hold the deduction for when you move up into a higher tax bracket. How’s that.

By: Angela

Angela — Sun, 04 May 2008 22:44:06 +0000

@ Fabulously Broke: yes, you are right. That’s just deferring the income earned to a later year, when, presumingly, you are retired thus you’ll be in a lower tax bracket.

I’ve also heard argument about not buying RRSP when one is in a lower tax bracket. I buy into that argument, too. However, I guess not many people are as sensible as you are, who still save while they don’t have an RRSP account.

Gail, any advice on this topic?

By: Fabulously Broke

Fabulously Broke — Sun, 04 May 2008 16:00:31 +0000

But an RRSP .. that’s just deferring the tax you’ll end up paying at retirement right?

I dunno, I’m not sure I buy into the RRSP thing any more, I’d rather pay tax on it now when my income is quite low compared to what I’ll probably earn later, and just put it into investments at 7% interest earnings as liquid cash… no penalties if I withdraw early etc..

By: bigasssuperstar

bigasssuperstar — Sun, 04 May 2008 02:16:40 +0000

Thanks for the answers, gang. I’ve been wondering about this for a while, and you’ve cleared it right up.

By: Christy

Christy — Sat, 03 May 2008 01:15:19 +0000

The $2000 over contribution is a lifetime limit.

By: Christina

Christina — Fri, 02 May 2008 23:31:43 +0000

bigasssuperstar:
You can over-contribute up to a total of $2,000 before penalites apply.

Best investments to hold outside an rsp are those that give rise to capital gains because only half the amount of the gain is taxed.

For those with not much rsp contribution room, look forward to the new tax free savings account.

By: K

Fri, 02 May 2008 23:00:26 +0000

bigasssuperstar: You need to look into the tax concequences of RRSP over-contributions on the CRA website. My hunch is that you have a small window for over-contributions before penalties set in. Probably safer to be investing in non-registered options. Because of this, ensure that you organize your investments so that the ones subject to the most taxes (think interest, at your marginal tax rate) are in your RRSP and those subject to less tax (think dividends with their tax credit formula) are held outside the RRSP for maximum tax savings.