I've never fully understood how an RRSP works and the details about contributions and deductions. As someone who's been contributing to RRSP for going on 20 years, this is the clearest explanation on how they work.
I am french I arrive in Canada 2years ago. I just became permanent resident, your videos are just heaven for me! I can finnaly understand the canadian banking system. TY!
Another clear and concise video, Ben. This misunderstanding that dividend income and capital gains in an RRSP are converted to ordinary income for taxation purpose is very widespread. I think another helpful way of looking at it is that when you contribute to your RRSP, you actually end up with 3 accounts. 2 of them are inside your RRSP - one you own and the other the government owns. Then you have a third account outside your RRSP (you tax deduction), which people quickly forget about. Both accounts within your RRSP grow at the same rate tax free. When you take money out, you get to keep all off your account (the deposits plus growth, so exactly like your TFSA) and the government gets to keep all it's account (assuming the same tax rate when money goes in and comes out). So it feels like you are paying tax when you take money out of the RRSP, put really you are only paying back to the government the tax you initially deferred plus the growth on it. A little long winded perhaps, but I didn't really get it myself until someone explained it to me that way.
This video is a masterclass on concise and clear mythbusting. The confusion about RRSPs and taxation has generated many a pub debate in my circles recently. All of the misconceptions over beer were neatly covered in this video, including and especially the fact that you can't compare a dollar in an RRSP with a dollar in a TFSA without accounting for the fact that one of them you've already paid taxes on. I now have a new video to point people to. Thanks Ben!
@@BenFelixCSI Thank you Felix. I was specifically looking for that comparison and your video is the only one that mentioned it out of 5-6 that I found.
WOW, this video cleared a critical misinformation I'd obtained. I'd heard that I might face penalties if I don't report my RRSP contributions in the same year, so I've been withholding contributions to RRSP until the next tax bracket.. Thank you, Ben!
I'd still report it, you just don't have to deduct it. It will show up on your CRA account as an unused contribution available to deduct in a future year.
My inability to follow a great deal of what you are saying doesn't diminish my enjoyment of listening to you. When I can understand some of the points being made, I'm really pleased with myself. Thanks.
Pro tip: When you get your tax refund from contributing to the RRSP, use it to reinvest back into the RRSP instead of spending it on something frivolous like a big screen TV or a new phone or whatever. Too many people think of this check from the government as 'free money'. It is not free money, it was YOUR money that the government deducted throughout the year.
Great summary, very clear and concise. I'm 35 now and had only started building my financial education a couple years ago. The Canadian specific content is very helpful, there is much information and many directions to sort out in the financial realm . As a working tradesman with potentially another 30 years ahead of me before retirement, I'm finally realizing how important this truly is.
@@BenFelixCSI The solution seems simple to me: max out your contributions to both! I'm going to need more study to figure out the asset allocation stuff though.
I wouldn't get hung up on asset location (which asset in which account type). There are no guarantees that optimizing for that will add value. Asset allocation (how much stocks vs bonds, how much small caps etc.) is more important and easier to get your head around.
There are quite a few other smaller benefits to contributing to an RRSP: -If you know you are going to contribute to your RRSP, you can ask the CRA to give permission to your employer to reduce source deductions, leading to a bigger pay cheque during the year -RRSP contributions can increase your CARE Tax credit (in Ontario) and the Canadian Child Benefit -RRSP contributions reduces your marginal tax rate. Withdraws are taxed at your average tax rate -US dividends are not subject to withholding tax in an RRSP -Spousal RRSPs can offer income split opportunities -If you have a rental property, net rental income adds to your RRSP contribution room. When you sell your rental property, hopefully at a gain, the 50% capital gain inclusion can be further deferred by contributing proceeds to your RRSP, a rare double dip of tax advantages. -The tax bracket you contribute at will be lower than the tax bracket you withdraw in the future. Leading to more withdraws at a lower tax rate in the future.
You briefly touched on this - What are your thoughts on holding VOO over long term in RRSP using Norbert Gambit before purchasing VOO every time? I've been looking into this recently and this seems like the better route if you want to hold the S&P500 vs holding the equivalent fund listed on the TSX (hedged or unhedged).
A lot of it depends on the amount and frequency of your contributions, and your brokerage's trading commissions. Long-term, you will definitely save on unrecoverable withholding tax by doing what you have described. We should find something to collab on.
@@BenFelixCSI would love to collab sometime! Shoot me an email when you get a chance and we can discuss further (positiveinvestingofficial at gmail.com)
Hi Ben! @12:25 you speak to paying withholding tax x2 on an index like VEE.t. 1. Have i understood correctly. 2. If yes, how would an investor seeking emerging market exposure go about it this without succumbing to this double withholding tax, or preferably none at all. Thanks in advance
At 12:20. What are some examples of a Canadian listed ETF that owns a US listed ETF of international or emerging markets stocks? I dont want to make this mistake.
Are you required to contribute yearly to rrsp? Or can you do so only depending on your tax bracket for the year. Assuming you bracket goes up and down constantly.
Excellent video @Ben Felix. One question - at 12:21, why would you avoid holding a Canadian listed ETF that owns a US listed ETF in your RRSP? Wouldn't you avoid paying the witholding tax if you did? Also, I'm assuming that it's best to hold all your US investments in the RRSP?
I would be interested in more if a discussion on investment for those with defined benefit plans. Should one treat that as bond like within an asset allocation? Great video!
You’d lose about 20 bps of withholding tax with VGRO or XGRO in an RRSP. The only way to do a bit better would be buying the underlying ETFs individually, holding US listed ETFs for US, International, and EM stocks. Both VGRO and XGRO have two levels of withholding tax on the EM exposure but in both cases it’s only about 4% of the portfolio. For what you get (simplicity, auto rebalancing, no need to convert currency) I think the overall costs including withholding tax are worth it for a lot of people.
Again you're losing the opportunity to eliminate US withholding tax by holding a US listed ETF of US stocks, but that might be a reasonable tradeoff for simplicity and auto rebalancing.
@Dr. M B You're losing about 20 bps to withholding tax by holding VGRO in an RRSP. I'm not sure what a CCPC efficient version of VGRO would look like. It would probably look like HBAL.
@Dr. M B I don't think you need to complicate things with GICs. As of right now, I estimate the tax drag from the premium bonds in the Vanguard asset allocation ETFs to be around 15-20 bps. But the thing is, that will change quickly as interest rates rise. Next year the tax drag may be 0. It's not a permanent problem. We are also talking about 15-20 bps on only a portion of the portfolio (20% VGRO or 40% VBAL) so the over all effect is small.
I have a RRSP and TFSA self directed investment account at Questrade. I get paid weekly and taxed accordingly, I then once a month put a lump sum of money into my RRSP or TFSA as I choose. By depositing funds this way into my RRSP after I’ve already been paid and taxed am I missing out on the tax benefit of not getting taxed initially
No, you're fine. You will get the taxes back as a refund when you file your taxes. It all comes out the same in the end, you just get the tax savings a little later on.
Very Helpful thanks Ben! Question for you or anyone else who feels like answering: I accidentally contributed 10k to my Wife's RRSP instead of mine. I want to take that out and put it into mine as she has significantly less income than me. I did not want to as there was that 20% withholding tax. But that tax will get recalculated come tax time and should be returned as she has a low tax rate. Is that correct?
Hi Felix. As a newcomer to the country, I find great value in your content. I've been trying to figure out the actual benefit of the RRSP for some time now, and I feel I'm very close :) Say I contributed 10K into an RRSP account this year, and in ten years' time, the ETFs or stocks I bought miraculously did a whopping 10x and became 100k (for the sake of clarity, let's assume I never added more funds into the account the following 9 years). Are you telling me that when I withdraw the 100K I would be taxed only on the initial 10K I invested and not on the 90K?
Glad it's helpful! Welcome to Canada. Your understanding of the RRSP is *not* correct. You put in $14,285 - this is pre-income-tax money, say your tax rate is 30% If you had paid taxes on this money you would have only had $10,000 You now have $14,285 in your RRSP (pre-tax contribution) The $14,285 turns into $100,000 over 10 years (21% per year on average, nice) When you withdraw, the full $100,000 is taxable at your tax rate at that time Say your tax rate is 30% still. You have $70,000 after-tax Alternative: Use the TFSA You put in $10,000 of after-tax money You earn 21% per year for 10 years It turns into $70,000, free of tax RRSP = TFSA if beginning tax rate = ending tax rate
You open an RRSP account at an institution. Maybe Questrade is you want to buy your own index funds. Maybe Nest Wealth or Wealthsimple if you want to have someone manage the index funds for you. Fees will depend on where you open the account and what you buy.
Ben, is there any limitation as to what kind of investments can be held in a RRSP account? I know that at one point in time there was a foreign content limit of 30%, but I just looked it up and that was removed in 2005.
Yes, they have to be qualified investments. Source www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-10-registered-plans-individuals/income-tax-folio-s3-f10-c1-qualified-investments-rrsps-resps-rrifs-rdsps-tfsas.html: money, GICs and other deposits most securities listed on a designated stock exchange, such as shares of corporations, warrants and options, and units of exchange-traded funds and real estate investment trusts mutual funds and segregated funds Canada Savings Bonds and provincial savings bonds debt obligations of a corporation listed on a designated stock exchange debt obligations that have an investment grade rating insured mortgages or hypothecs
Curious if you have maxed out your TFSA investment room and you are in the lowest tax bracket (and for the foreseeable future) is it beneficial to use up RRSP room over simply using margin account? I expect to be in the same tax bracket in retirement. In this case which would you recommend?
I heard if you have capital gains, you are taxed only on 50% of those gains. My question is when you have these capital gains in an RRSP, when you withdraw it, are you gonna be taxed on everything or is it gonna take only 50% on capital gains?
I know there are other factors to consider between investing in an RRSP vs TFSA, such as current income and future income, but while it is true the original contribution into an RRSP is $1.00 and only $0.70 for the TFSA, that is only true if people take the refund they get from the RRSP contribution and invest it also. I find the reality is people will contribute $0.70 to the RRSP and $0.70 to the TFSA, making the TFSA a greater value in the end. Not the fault of the RRSP account, but our behaviour in what we do with the refund.
Hey Kaleb, I agree, sort of. It depends how you want to think about it. Whether or not you spend or reinvest the tax refund from the RRSP, you still made a contribution with pre-tax dollars. It is not a requirement that the refund gets reinvested in the RRSP for this to be true.
Ben Felix My thoughts related to which account will provide you with a larger value after x years. If you strictly look at the math, as you pointed out, assuming the same tax rates at contribution and withdrawal, the amounts would be equal. My point was more on the behaviour side. If someone says to me I have $1,000 in my chequing account (after tax dollars) and I want to put it in an RRSP or TFSA today, where should I put it? My argument is that they will likely have more (assuming same tax rates at contribution and withdrawal) if they contributed to the TFSA, because while RRSP contributions are pre-tax dollars, at the time of contribution, it can often be after tax dollars with a refund coming on the next tax return. I guess said another way, if someone puts $1,000 into an RRSP today or $1,000 into a TFSA, the TFSA will come out ahead because it’s already had the tax paid on it. I really appreciate this video - I think it’s one of the best talking through the RRSP. Looking forward to the TFSA video and others.
@@KaPi57 Thanks Kaleb! I agree that practically the RRSP tax savings often get spent. Then in the future people grumble about the tax that they have to pay.
Thanks for the informative video! Would you recommend that we hold CA-listed ETFs holding US equities (ex:VUN) and CA-listed ETFs holding US ETFs which hold US equities (ex: XSP) in the RRSP or TFSA to maximize tax efficiency? Is it true that we don’t pay additional withholding tax for these ETFs since it’s already paid for by the fund manager which is included in the MER cost for the ETF?
My work matches my RRSP contributions. My biggest concern is that my RRSP balance will be too high when I retire, I’ll be in the same or maybe higher tax bracket when I withdraw. Should I hold off on contributions?
Hi Ben thank you for the financial education so let's say I invest 5000 dollars in my RSP so basically I pay less income tax my question is if I keep the 5000 in the RSP is that gonna lower my income tax for all the years that the account is going stay open and then I pay the 30 per cent on the 5000 when I withdraw the money eventually ?
Hi Ben, my (good) problem is that I've maxed our my RRSP contribution room this year. However, to fully deduct the contribution would take me to the lowest tax bracket in Ontario. How can I calculate the optimal deduction this year and what amount to defer? Is there a chart that shows at each tax bracket, how much investment income it will take to forego the deferral of RRSP deductions?
Hi Ben. When you withdraw from your RRSP for the first time home buyers plan, and repay it within the 15 years, do you still lose out on the compounded interest rate that you would have gained in your RRSP if you wouldn't have withdrawn?
Yes. You are taking the money out for that time period so it is no longer growing. You have to repay 1/15th per year starting 2 years after withdrawing. You could also pay it back sooner if you have the cash.
@@BenFelixCSI Hi Ben - thanks for these videos. They are fantastic! One quick question with respect to the home buyers repayment plan. Is it better to repay as fast as possible, or spread the repayment over the full 15 years? That is make the minimum repayment but claim the additional rrsp contribution each year as a deduction. This is assuming your rrsp contributions are over the minimum you have to pay back each year. I hope my question is clear.
Hi Ben, another great video i feel like you basically said my name when you said people with pensions dont think they should contribute to a RRSP LOL. Question though. so i was talking to my parents who are about 5 years from retirement, they have a mixed bag of pension money from variois jobs they have had over their lives but they have about 500k in their RRSP, not sure about those details but basically they have always has a finacial planner who has always had them in various mutual funds. since we had that mini crash last quarter my mom was saying how they were down over 8% and she was worried, looking at the Canadian couch potatoe conservative ETF portfolio they wouldent have been down nearly as much i said alot of it is probably due to fees they were paying. She said she was interested in looking elsewhere, what would be a good place for me to point them to get better professional help if the decided to switch, i know its late for them but i think they could make/save depending on what happens alot of money into retirement and i just want to help them succeed and I dont feel comfortable giving them advice as I may have a decent about of investing experience but Im by no means quailified to answer some of the questions they have.
Hi Justin, there are a lot of great options out there now. They could look at something like Nest Wealth which offers extremely low fixed fees for portfolio implementation and rebalancing. If they need financial planning advice they could hire a fee-only planner like Robb Engen to help them make financial decisions. There are also firms like PWL Capital (my firm) that offer financial planning and advice alongside portfolio management.
Hi Ben, So if I understood correctly, an ETF like VTI should be bought under RRSP and not under the TFSA ?? Thank you for the amazingg video! Loved it!
I understand that within an RRSP your investments can grow and compound. However, when you actually withdraw your "profits" that have compounded, you then pay income tax on that profit. So, in a sense, it is not "tax free", correct?
Thank you for what you are doing Ben Felix, your videos are amazing! There is only one part that I don't understand: the part where you say I should be using my RRSP to hold US stocks and US ETF instead of TFSA. If I'm holding the SPY, BIV, BLV, in my TFSA, will I receive less dividends then if they were hold in an RRSP? I'm from Quebec and my first language is french so when you talk about the 15% withholding tax that the US do, I just think it's 15% less dividend for me at the end of the year. Am I wrong? Thank you for your time and keep doing the good work!
Any time that you receive a dividend from a US security in your TFSA, 15% of the dividend is being taken from you before it ever arrives in your account. That withholding tax is gone forever. In your RRSP, the Canada-US tax treaty allows for no taxes to be withheld by the US on dividend paid, specifically, to the RRSP account.
If you have all of your bonds in your RRSP and stocks in your taxable account, your portfolio has a more aggressive after-tax vs. pre-tax asset allocation because you only own the after-tax portion of your bonds. If you have the same mix of stocks and bonds in your RRSP and taxable account then the RRSP assets are all reduced proportionally by taxes, so the pre and after tax asset allocations are the same.
I did not know about that 2000 dollars of "overcontribution". If you have excess savings, you might as well use this tool for more tax free growth. If you haven't used the "overcontribution" room for two straight years, does that mean you can contribute 6000 dollars in the third year?
Ben, I had to subscribe to your channel after watching a few videos. Love the Canadian content. I see you made an TFSA along with this RRSP video. Always learning something new on your channel. I'm interested in hearing more about RDSPs. Would you be able to make an RDSP video? Our son has a disability and will need financial assistance once he becomes an adult. Would love to hear your thoughts on the topic. I find there's not much information about RDSPs.
Thank you! I am not sure if I will cover the RDSP in a video just because it is a very niche topic. It is a fantastic tool. I wrote a brief article about it in 2014 www.pwlcapital.com/the-rdsp-after-age-19/ This site is quite helpful www.rdsp.com/
Hey Ben I admit to say this is one of the best videos of yours! I have max mine and I hold VGRO.TO in all my investments. TFSA & RRSP, in TAXABLE ( VCN & VXC = 40/60). Simple way but I know I losing some to FWT. By the way I like Rational Reminder Podcast too!
Ben Felix I’m transitioning to VGRO but now I’m 1% down in VCN and 3% on vxc, so I can’t sell but new money ( about 5% of taxable account) goes to VGRO which I’m up by 4%!
hey Ben what do you think of the new Vanguard Asset Allocation 100% Equity (VEQT) ? Now we are entering into dangerous zone because there re too many ETFs to select from and it’s kinda adding confusion
Ben Felix Oh that’s cool! But why you went with that fund which to my understanding would charge more than regular ETFs like XAW & VCN/ ZCN? I checked it’s like .44%
@Ben Felix: based on current income and the tax brackets, we know how to calculate the tax that we have to pay now. My question is that will it be the same at retirement? i.e. our income plus withdrawal amount from RRSP and applying it to tax brackets at that time? because assuming we manage to get financially better over time, at retirement we will be earning more money and then paying even more taxes upon withdrawal. is this correct?
If I manage to learn proper investment, buy a few properties and rent them out and have other incomes, dividends, etc. I will be earning even more money in the future. In this case I will be giving more tax! The only way I think I can benefit in this scenario is to put back my tax savings to RRSP without using them and the compound interest on those tax savings grow bigger than the increased tax rate down the line?
No that’s not how it works. If your tax rate will be higher in the future the RRSP might not be a good choice. There is no compounding to you on the deferred taxes. All of the compounding on deferred taxes belongs to the government. On another note, you should watch my video on investing in real estate :)
Thanks for your reply, I will definitely watch your real estate vide! :) just a question here... what do you mean the compounding belongs to the government? Let's say I contribute to RRSP and get back 1000 in return, then I put this into my RRSP as well and invest it in a stock or sth, leave it there until my retirement. This amount will go to government?!
Awesome video as usual Ben. Question: would a discount broker (ex Questrade) also withold the 30% on a withdrawal or does that only apply to the big banks?
Ben, through your CSI videos you helped Canadians elevate their financial literacy. Thanks! One aspect of financial planning that you haven't covered yet is RRIF drawdown optimisation. I'd love to hear your take on it to help my retired mom save on tax during her life and at death. 😥 Would you be able to cover this on your next video? 🙏 I saw videos involving advanced techniques (i.e. using debt, since interests are tax deductible), and although interesting, it smells sketchy.
Let's say I have a 25 yo frirend with a full TFSA, a lot of money in a margin account and nothing in a RRSP. He doesn't plan on buying a home or going back to university (although futur in uncertain) but he'd like to start a buisness soon. Should he move everything in his margin to his RRSP considering he might withdraw a lot in 5 years and loose his RRSP contribution room?
Bit of a trick question. You do not pay tax in Canada. The US withholds 15% on all dividends paid. In a taxable account in Canada you would get a credit for those foreign taxes paid, reducing your Canadian tax bill, so you effectively get the US withholding tax back. In a TFSA you do not get a credit, so the withholding tax is lost.
Thank you, Ben! Your videos are always evidence based while at the same time you are so much illustrative! So, I am wondering, if I decide to permanently move out of Canada (which means that I will not have to do taxes for CRA anymore), can I continue using the RRSP account and taking advantage of its benefits?
Hi Ben, let's say i had no RRSP room as of the end of 2017. Let's say my income for 2018 was was X. Can I contribute X*18% right now, or do I have to wait until after filing my taxes/income for 2018, and then the room becomes available?
You can contribute right now. You will record the contribution on your 2018 tax return, but carry the deduction forward to next year as you don't have any deduction room available.
I am considering cashing out my RRSP entirely early this year since I am moving to a tax free jurisdiction. If I leave the RRSP, the CRA might use it as an excuse to deem me as a tax resident.
What benefit does the contribution room confer when you can withdraw from the rrsp at the lowest tax bracket many years before retiring? The money that's withdrawn can then be put into a TFSA or just invested in an unregistered account (assuming the person does not need money). Furthermore, assuming the person is a fulltime student with no income, they can withdraw almost $12k without paying any federal tax.
@@Mike-li9vw if you do that you are giving up on x number of years of tax free growth in the RRSP. Eventually your RRSP and TFSA will both be maxed, and you will wish you hadn't made the withdrawals. Withdrawing at a low tax rate is only one benefit of the RRSP. Tax free growth is the other.
Scenario: withdrawing $12k taxfree and putting into unregistered account VS leaving $12k in rrsp for 20 years. Assuming 5% annual growth. Both ends up with $31.8k. In an unregistered account, the capital gains tax would only be $9920, whereas in the RRSP the taxable income is all of 31.8k.
If all we ever earned in taxable accounts were deferred capital gains the RRSP and TFSA would not be all that useful. Try a scenario where the annual 5% return is 2% income, 1% realized capital gains and 2% unrealized capital gains.
@@BenFelixCSI Would it be beneficial for a university student with not much yearly income to defer their deduction until they (ideally) move into a higher tax bracket after school?
If I am working full time right now and plan on going back to school in 5 years time, during which I will not be earning any income, does it make sense to contribute to and withdraw from RRSP? I will basically be withdrawing from the RRSP tax free at the expense of losing 5 years worth of contribution room at a 24% average tax rate.
I’d be careful. You will permanently lose the contribution room if you withdraw. You can use the Life Long Learning Plan to take money out in a similar manner to the Home Buyer’s Plan.
This is what is taken that get taken from my paystubs. If i direct my employer to contribute a portion of wages directly into rrsp or tsfa, will i pay less of these taxes? Canada Pension Plan (CPP) Employment Insurance - EI Federal Income Tax (FIT) Province Income Tax (PIT) - ON Ex. 1000$ gross but 200$ is put in rrsp or tfsa, will they just apply these taxes or withdrawals on the 800?
Can you provide information on investments with distributions that include part or all return of capital. Specifically, can you comment on what happens to these types of investment within an RRSP and what happens when converting from a RRSP to a RRIF, especially in regards to the adjusted cost base and capital gains.
Great vid!! Sadly i work shift job in US (half of the year), and for some reason banks dont allow to get me registered saving accounts (tfsa and rrsp). :(
Hey I was in the same situation in 2015- 2016, Bank won't open account but as long as you are still a Canadian residence for tax porposes and in the US just for work You can open with Questrade and have your accounts RRSP and TFSA with them. Forget the banks. I even called the CRA to clarify that but the bank still wouldn't open my account. I'm happy with Questrade for 2 years now.
@@ojjunior4579 Sweet! I will try that. So if I open up RRSP, I should be able to defer my tax this way too right?? same as I would open up RRSP in Canadian banks?
Dan yes any Canadian financial financial or investment institution can have registered accounts and the qualifications is the same regardless of which one you choose. RRSP is the same in wether it’s with RBC, or Edward John’s or Questrade or TD. Just make sure you have an RRSP room to contribute or you don’t exceed your limit ( if you have one)for the year that’s all.
Contractor with an income of $100,000, vs fulltime $80,000. How much RRSP limits are they? 18% of each? If so, then it seems that contractor can benifit more from RRSP?
If you don't have a company pension, or don't expect to be able to save alot of money, then the Guaranteed Income Supplement makes saving in the TFSA way better than the RRSP. If your income in retirement is low enough to qualify for GIS, then a $1000 withdrawal from the RRSP means $500 less GIS income. Tax still has to be paid on the $1000. This left a lot of angry retirees on coffee row. If one was already nearing 65, there could be benefit to just cashing out the small rrsp in one year, eating the bad tax rate and then not having GIS affected by RRSP withdrawals.
Hi, if i had 50000 in my RRSP HOme buyer account and if I withdraw 35000 for downpayment, then the tax free growth is for the remaining amount (15000) or entire 50000 as i hv to pay back it.
Taxes should only be increasing tho, especially in Canada. As population growths, our government is going to need to collect more taxes. Also debt repayment is only getting a bigger chuck of our budget every year
Hi Ben, In the video you mention that RRSP allows us to "defer income tax". My interpretation of "defer" is I pay what I owe now, at a later date and as a result reap the benefits of time value of money - i.e. get to compound interest on the money and then pay off original amount and keep the interest. I held this "deferral benefit" view of the refund for a long time. However this view was shattered recently by this article www.retailinvestor.org/RRSPmodel.html#deferral. With this view the refund is a loan the government gave you to invest on their behalf. You had a similar analysis in your video of RRSP vs TFSA with same tax bracket, so I think you will agree with the math. What's your view on use/misuse of the term "defer"? Not sure if you were using "defer" in context of the refunded money, or the tax free growth.
I do not think that it is incorrect to say that you defer income tax with the RRSP. You do not pay income tax now, you pay it later. That seems like a deferral to me. I agree in full that the deferral itself does not give you any benefit unless your future tax rate ends up being lower than your tax rate at the time that you use the deduction.
So here is the question, if I invest $1000 in my RRSP and that $1000 grows to $10000 and I make a withdrawal on the entire amount. am I likely to pay 30% on $1000 or $10000?
The tax would apply on the total amount that you decide to withdraw (so the $10k), as it would count as taxable income. The RRSP contribution is tax-deferred, but also its growth.
I was hoping to hear about the fact that it is never beneficial to defer your tax deduction and that it might be best to not contribute certain years if you are expecting a large increase in income the following year
It all comes down to paying tax on money you have earned legitimately. Does that make sense to anyone? Thanks for this info regardless of the rules the government imposes. We should be able to access this money without all these rules. That would be too easy for all concerned.
How the RRSP Works 1:27
Most Common Misconceptions 5:31
How to Think About the RRSP 10:33
Ben Felix is the best at explaining investing/finance in Canada, thanks for all your videos!
Thank you!
I've never fully understood how an RRSP works and the details about contributions and deductions. As someone who's been contributing to RRSP for going on 20 years, this is the clearest explanation on how they work.
That’s great!
Let's all appreciate the fact that we have access to this quality of content for free.
I am french I arrive in Canada 2years ago.
I just became permanent resident, your videos are just heaven for me!
I can finnaly understand the canadian banking system. TY!
Another clear and concise video, Ben. This misunderstanding that dividend income and capital gains in an RRSP are converted to ordinary income for taxation purpose is very widespread. I think another helpful way of looking at it is that when you contribute to your RRSP, you actually end up with 3 accounts. 2 of them are inside your RRSP - one you own and the other the government owns. Then you have a third account outside your RRSP (you tax deduction), which people quickly forget about. Both accounts within your RRSP grow at the same rate tax free. When you take money out, you get to keep all off your account (the deposits plus growth, so exactly like your TFSA) and the government gets to keep all it's account (assuming the same tax rate when money goes in and comes out). So it feels like you are paying tax when you take money out of the RRSP, put really you are only paying back to the government the tax you initially deferred plus the growth on it. A little long winded perhaps, but I didn't really get it myself until someone explained it to me that way.
I agree Grant - that is a great way to think about it.
This video is a masterclass on concise and clear mythbusting.
The confusion about RRSPs and taxation has generated many a pub debate in my circles recently. All of the misconceptions over beer were neatly covered in this video, including and especially the fact that you can't compare a dollar in an RRSP with a dollar in a TFSA without accounting for the fact that one of them you've already paid taxes on.
I now have a new video to point people to. Thanks Ben!
I'm glad it was useful! Thanks as always for the kind words.
@@BenFelixCSI Thank you Felix. I was specifically looking for that comparison and your video is the only one that mentioned it out of 5-6 that I found.
My man you're a beast! Your channel is going to skyrocket soon. Cheers from Vancouver
Thank you!!
Ben you are seriously doing the world a favour by posting these videos. Keep it up.
Wow. This is the best RRSP video I’ve ever seen. I used to be one of those people who thought contributing to my RRSP was all I had to do lol.
That's great! I'm glad it was helpful.
WOW, this video cleared a critical misinformation I'd obtained. I'd heard that I might face penalties if I don't report my RRSP contributions in the same year, so I've been withholding contributions to RRSP until the next tax bracket.. Thank you, Ben!
I'd still report it, you just don't have to deduct it. It will show up on your CRA account as an unused contribution available to deduct in a future year.
Your videos are fantastic! I think the fact that I am watching this video without ever having lived in Canada really proves this.
That's funny. This is one of my most Canadian videos.
Thank you for clearing my misconceptions, I thought the withholding tax for drawing early was a penalty. Now I am considering opening one :D
Great! I'm glad it was helpful.
My inability to follow a great deal of what you are saying doesn't diminish my enjoyment of listening to you. When I can understand some of the points being made, I'm really pleased with myself. Thanks.
Pro tip: When you get your tax refund from contributing to the RRSP, use it to reinvest back into the RRSP instead of spending it on something frivolous like a big screen TV or a new phone or whatever. Too many people think of this check from the government as 'free money'. It is not free money, it was YOUR money that the government deducted throughout the year.
Great summary, very clear and concise. I'm 35 now and had only started building my financial education a couple years ago. The Canadian specific content is very helpful, there is much information and many directions to sort out in the financial realm . As a working tradesman with potentially another 30 years ahead of me before retirement, I'm finally realizing how important this truly is.
Well done for building your knowledge!
Everyone needs to take advantage of the rrsp (after you've maxed your tfsa)!
Agree.
@@BenFelixCSI The solution seems simple to me: max out your contributions to both! I'm going to need more study to figure out the asset allocation stuff though.
I wouldn't get hung up on asset location (which asset in which account type). There are no guarantees that optimizing for that will add value. Asset allocation (how much stocks vs bonds, how much small caps etc.) is more important and easier to get your head around.
Everybody that is investing, or thinking about investing, need to watch your videos! Clear common sense information. Thanks again!
Thanks Robin!
There are quite a few other smaller benefits to contributing to an RRSP:
-If you know you are going to contribute to your RRSP, you can ask the CRA to give permission to your employer to reduce source deductions, leading to a bigger pay cheque during the year
-RRSP contributions can increase your CARE Tax credit (in Ontario) and the Canadian Child Benefit
-RRSP contributions reduces your marginal tax rate. Withdraws are taxed at your average tax rate
-US dividends are not subject to withholding tax in an RRSP
-Spousal RRSPs can offer income split opportunities
-If you have a rental property, net rental income adds to your RRSP contribution room. When you sell your rental property, hopefully at a gain, the 50% capital gain inclusion can be further deferred by contributing proceeds to your RRSP, a rare double dip of tax advantages.
-The tax bracket you contribute at will be lower than the tax bracket you withdraw in the future. Leading to more withdraws at a lower tax rate in the future.
You briefly touched on this - What are your thoughts on holding VOO over long term in RRSP using Norbert Gambit before purchasing VOO every time? I've been looking into this recently and this seems like the better route if you want to hold the S&P500 vs holding the equivalent fund listed on the TSX (hedged or unhedged).
A lot of it depends on the amount and frequency of your contributions, and your brokerage's trading commissions. Long-term, you will definitely save on unrecoverable withholding tax by doing what you have described.
We should find something to collab on.
@@BenFelixCSI would love to collab sometime! Shoot me an email when you get a chance and we can discuss further (positiveinvestingofficial at gmail.com)
Hi Ben! @12:25 you speak to paying withholding tax x2 on an index like VEE.t. 1. Have i understood correctly. 2. If yes, how would an investor seeking emerging market exposure go about it this without succumbing to this double withholding tax, or preferably none at all. Thanks in advance
I wish I learn finance from Mr. Felix when I was 18 years old. My life would be so different.
Wait, so I need to have a RRSP that trades in USD instead of CAD to hold the US ETFs?
At 12:20. What are some examples of a Canadian listed ETF that owns a US listed ETF of international or emerging markets stocks? I dont want to make this mistake.
Are you required to contribute yearly to rrsp? Or can you do so only depending on your tax bracket for the year. Assuming you bracket goes up and down constantly.
You are not required to.
Ben Felix
, no one says it like you do, thanks bro
Exactly what I was looking for. I'll have to watch it several times to assimilate the info :-)
Excellent video @Ben Felix. One question - at 12:21, why would you avoid holding a Canadian listed ETF that owns a US listed ETF in your RRSP? Wouldn't you avoid paying the witholding tax if you did? Also, I'm assuming that it's best to hold all your US investments in the RRSP?
Canadian listed ETF that owns a US listed ETF does not exempt you from withholding tax in the RRSP. It has to be a US listed ETF of US stocks.
Awesome video, clearcut! thanks Ben
I would be interested in more if a discussion on investment for those with defined benefit plans. Should one treat that as bond like within an asset allocation? Great video!
Had to share this with friends. Great content
How tax efficient is VGRO or XGRO in an RRSP? You mentioned 2 levels of withholding tax. Does it apply here?
You’d lose about 20 bps of withholding tax with VGRO or XGRO in an RRSP. The only way to do a bit better would be buying the underlying ETFs individually, holding US listed ETFs for US, International, and EM stocks. Both VGRO and XGRO have two levels of withholding tax on the EM exposure but in both cases it’s only about 4% of the portfolio.
For what you get (simplicity, auto rebalancing, no need to convert currency) I think the overall costs including withholding tax are worth it for a lot of people.
Again you're losing the opportunity to eliminate US withholding tax by holding a US listed ETF of US stocks, but that might be a reasonable tradeoff for simplicity and auto rebalancing.
@Dr. M B You're losing about 20 bps to withholding tax by holding VGRO in an RRSP. I'm not sure what a CCPC efficient version of VGRO would look like. It would probably look like HBAL.
@Dr. M B what purpose do the GICs serve alongside VGRO? By the way, XGRO is also worth looking at.
@Dr. M B I don't think you need to complicate things with GICs. As of right now, I estimate the tax drag from the premium bonds in the Vanguard asset allocation ETFs to be around 15-20 bps. But the thing is, that will change quickly as interest rates rise. Next year the tax drag may be 0. It's not a permanent problem. We are also talking about 15-20 bps on only a portion of the portfolio (20% VGRO or 40% VBAL) so the over all effect is small.
I have a RRSP and TFSA self directed investment account at Questrade. I get paid weekly and taxed accordingly, I then once a month put a lump sum of money into my RRSP or TFSA as I choose. By depositing funds this way into my RRSP after I’ve already been paid and taxed am I missing out on the tax benefit of not getting taxed initially
No, you're fine. You will get the taxes back as a refund when you file your taxes. It all comes out the same in the end, you just get the tax savings a little later on.
@@BenFelixCSI Awesome, Thanks! Great videos Ben.
So because of the withholding tax thing, are the ETFs like VGRO not recommended for TFSA and RRSP? This is confusing.
So I should do an in-kind contribution from my non-registered investments into the RRSP? I have capital gains, no losses.
Who was the one person who disliked this video? It’s excellent!
Ha! Thank you.
Very Helpful thanks Ben! Question for you or anyone else who feels like answering: I accidentally contributed 10k to my Wife's RRSP instead of mine. I want to take that out and put it into mine as she has significantly less income than me. I did not want to as there was that 20% withholding tax. But that tax will get recalculated come tax time and should be returned as she has a low tax rate. Is that correct?
Hi Felix. As a newcomer to the country, I find great value in your content. I've been trying to figure out the actual benefit of the RRSP for some time now, and I feel I'm very close :) Say I contributed 10K into an RRSP account this year, and in ten years' time, the ETFs or stocks I bought miraculously did a whopping 10x and became 100k (for the sake of clarity, let's assume I never added more funds into the account the following 9 years). Are you telling me that when I withdraw the 100K I would be taxed only on the initial 10K I invested and not on the 90K?
Glad it's helpful! Welcome to Canada.
Your understanding of the RRSP is *not* correct.
You put in $14,285 - this is pre-income-tax money, say your tax rate is 30%
If you had paid taxes on this money you would have only had $10,000
You now have $14,285 in your RRSP (pre-tax contribution)
The $14,285 turns into $100,000 over 10 years (21% per year on average, nice)
When you withdraw, the full $100,000 is taxable at your tax rate at that time
Say your tax rate is 30% still. You have $70,000 after-tax
Alternative: Use the TFSA
You put in $10,000 of after-tax money
You earn 21% per year for 10 years
It turns into $70,000, free of tax
RRSP = TFSA if beginning tax rate = ending tax rate
@ Ben Felix So, how can you invest in index funds through the RRSP account? Do I pay some extra fees for that, for the account management.
You open an RRSP account at an institution. Maybe Questrade is you want to buy your own index funds. Maybe Nest Wealth or Wealthsimple if you want to have someone manage the index funds for you. Fees will depend on where you open the account and what you buy.
Ben, is there any limitation as to what kind of investments can be held in a RRSP account? I know that at one point in time there was a foreign content limit of 30%, but I just looked it up and that was removed in 2005.
Yes, they have to be qualified investments. Source www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-10-registered-plans-individuals/income-tax-folio-s3-f10-c1-qualified-investments-rrsps-resps-rrifs-rdsps-tfsas.html:
money, GICs and other deposits
most securities listed on a designated stock exchange, such as shares of corporations, warrants and options, and units of exchange-traded funds and real estate investment trusts
mutual funds and segregated funds
Canada Savings Bonds and provincial savings bonds
debt obligations of a corporation listed on a designated stock exchange
debt obligations that have an investment grade rating
insured mortgages or hypothecs
Curious if you have maxed out your TFSA investment room and you are in the lowest tax bracket (and for the foreseeable future) is it beneficial to use up RRSP room over simply using margin account?
I expect to be in the same tax bracket in retirement.
In this case which would you recommend?
I heard if you have capital gains, you are taxed only on 50% of those gains. My question is when you have these capital gains in an RRSP, when you withdraw it, are you gonna be taxed on everything or is it gonna take only 50% on capital gains?
I know there are other factors to consider between investing in an RRSP vs TFSA, such as current income and future income, but while it is true the original contribution into an RRSP is $1.00 and only $0.70 for the TFSA, that is only true if people take the refund they get from the RRSP contribution and invest it also. I find the reality is people will contribute $0.70 to the RRSP and $0.70 to the TFSA, making the TFSA a greater value in the end. Not the fault of the RRSP account, but our behaviour in what we do with the refund.
Hey Kaleb, I agree, sort of. It depends how you want to think about it. Whether or not you spend or reinvest the tax refund from the RRSP, you still made a contribution with pre-tax dollars. It is not a requirement that the refund gets reinvested in the RRSP for this to be true.
Ben Felix My thoughts related to which account will provide you with a larger value after x years. If you strictly look at the math, as you pointed out, assuming the same tax rates at contribution and withdrawal, the amounts would be equal. My point was more on the behaviour side. If someone says to me I have $1,000 in my chequing account (after tax dollars) and I want to put it in an RRSP or TFSA today, where should I put it? My argument is that they will likely have more (assuming same tax rates at contribution and withdrawal) if they contributed to the TFSA, because while RRSP contributions are pre-tax dollars, at the time of contribution, it can often be after tax dollars with a refund coming on the next tax return. I guess said another way, if someone puts $1,000 into an RRSP today or $1,000 into a TFSA, the TFSA will come out ahead because it’s already had the tax paid on it. I really appreciate this video - I think it’s one of the best talking through the RRSP. Looking forward to the TFSA video and others.
@@KaPi57 Thanks Kaleb! I agree that practically the RRSP tax savings often get spent. Then in the future people grumble about the tax that they have to pay.
Thanks for the informative video! Would you recommend that we hold CA-listed ETFs holding US equities (ex:VUN) and CA-listed ETFs holding US ETFs which hold US equities (ex: XSP) in the RRSP or TFSA to maximize tax efficiency? Is it true that we don’t pay additional withholding tax for these ETFs since it’s already paid for by the fund manager which is included in the MER cost for the ETF?
My work matches my RRSP contributions. My biggest concern is that my RRSP balance will be too high when I retire, I’ll be in the same or maybe higher tax bracket when I withdraw. Should I hold off on contributions?
The answer is in here rationalreminder.ca/podcast/70
Another excellent video Ben! Thank you!
Thank you!
Hi Ben thank you for the financial education so let's say I invest 5000 dollars in my RSP so basically I pay less income tax my question is if I keep the 5000 in the RSP is that gonna lower my income tax for all the years that the account is going stay open and then I pay the 30 per cent on the 5000 when I withdraw the money eventually ?
5K subscribers: congrats!
Thanks!
Hi Ben, my (good) problem is that I've maxed our my RRSP contribution room this year. However, to fully deduct the contribution would take me to the lowest tax bracket in Ontario. How can I calculate the optimal deduction this year and what amount to defer? Is there a chart that shows at each tax bracket, how much investment income it will take to forego the deferral of RRSP deductions?
Hi ben , could you make a video about what to do when you maxed your TFSA and RRSP ?
Thanks again, Ben! Amazing job!
Hi Ben. When you withdraw from your RRSP for the first time home buyers plan, and repay it within the 15 years, do you still lose out on the compounded interest rate that you would have gained in your RRSP if you wouldn't have withdrawn?
Yes. You are taking the money out for that time period so it is no longer growing. You have to repay 1/15th per year starting 2 years after withdrawing. You could also pay it back sooner if you have the cash.
@@BenFelixCSI Hi Ben - thanks for these videos. They are fantastic! One quick question with respect to the home buyers repayment plan. Is it better to repay as fast as possible, or spread the repayment over the full 15 years? That is make the minimum repayment but claim the additional rrsp contribution each year as a deduction. This is assuming your rrsp contributions are over the minimum you have to pay back each year. I hope my question is clear.
Hi Ben, another great video i feel like you basically said my name when you said people with pensions dont think they should contribute to a RRSP LOL. Question though. so i was talking to my parents who are about 5 years from retirement, they have a mixed bag of pension money from variois jobs they have had over their lives but they have about 500k in their RRSP, not sure about those details but basically they have always has a finacial planner who has always had them in various mutual funds. since we had that mini crash last quarter my mom was saying how they were down over 8% and she was worried, looking at the Canadian couch potatoe conservative ETF portfolio they wouldent have been down nearly as much i said alot of it is probably due to fees they were paying. She said she was interested in looking elsewhere, what would be a good place for me to point them to get better professional help if the decided to switch, i know its late for them but i think they could make/save depending on what happens alot of money into retirement and i just want to help them succeed and I dont feel comfortable giving them advice as I may have a decent about of investing experience but Im by no means quailified to answer some of the questions they have.
Hi Justin, there are a lot of great options out there now. They could look at something like Nest Wealth which offers extremely low fixed fees for portfolio implementation and rebalancing. If they need financial planning advice they could hire a fee-only planner like Robb Engen to help them make financial decisions.
There are also firms like PWL Capital (my firm) that offer financial planning and advice alongside portfolio management.
@@BenFelixCSI ill send them your firms information! do you have locations other than Toronto we are in the Brantford area
Hi Ben,
So if I understood correctly, an ETF like VTI should be bought under RRSP and not under the TFSA ??
Thank you for the amazingg video! Loved it!
You are correct.
I understand that within an RRSP your investments can grow and compound. However, when you actually withdraw your "profits" that have compounded, you then pay income tax on that profit. So, in a sense, it is not "tax free", correct?
Correct. Its actually tax deffered. Hopefully you are in a lower tax bracket when you retire so you can reap the benefits
The investment earnings inside of the account are tax free. The income tax on dollars added to the account is deferred.
Thank you for what you are doing Ben Felix, your videos are amazing! There is only one part that I don't understand: the part where you say I should be using my RRSP to hold US stocks and US ETF instead of TFSA. If I'm holding the SPY, BIV, BLV, in my TFSA, will I receive less dividends then if they were hold in an RRSP? I'm from Quebec and my first language is french so when you talk about the 15% withholding tax that the US do, I just think it's 15% less dividend for me at the end of the year. Am I wrong? Thank you for your time and keep doing the good work!
Any time that you receive a dividend from a US security in your TFSA, 15% of the dividend is being taken from you before it ever arrives in your account. That withholding tax is gone forever. In your RRSP, the Canada-US tax treaty allows for no taxes to be withheld by the US on dividend paid, specifically, to the RRSP account.
@@BenFelixCSI I found this response helpful, I was very confused too. All makes sense now. Thank you!!
Can you explain the part about VGRO or XGRO ? I don't understand how pre and after-tax asset allocation is the same.
If you have all of your bonds in your RRSP and stocks in your taxable account, your portfolio has a more aggressive after-tax vs. pre-tax asset allocation because you only own the after-tax portion of your bonds. If you have the same mix of stocks and bonds in your RRSP and taxable account then the RRSP assets are all reduced proportionally by taxes, so the pre and after tax asset allocations are the same.
@@BenFelixCSI makes sense. Thanks for a great explanation, Ben.
I did not know about that 2000 dollars of "overcontribution". If you have excess savings, you might as well use this tool for more tax free growth. If you haven't used the "overcontribution" room for two straight years, does that mean you can contribute 6000 dollars in the third year?
It’s a lifetime overcontribution limit so it’s not additive. At any given time you can have $2,000 more than your limit in the account.
Ben, I had to subscribe to your channel after watching a few videos. Love the Canadian content. I see you made an TFSA along with this RRSP video. Always learning something new on your channel. I'm interested in hearing more about RDSPs. Would you be able to make an RDSP video? Our son has a disability and will need financial assistance once he becomes an adult. Would love to hear your thoughts on the topic. I find there's not much information about RDSPs.
Thank you! I am not sure if I will cover the RDSP in a video just because it is a very niche topic. It is a fantastic tool. I wrote a brief article about it in 2014 www.pwlcapital.com/the-rdsp-after-age-19/
This site is quite helpful www.rdsp.com/
lmfao 7:37.
That reminds me of the valentines day card my wife made me this year: imgur.com/gallery/rHAJ1Nl.
😂
You explain well, and make easy to understand. Thanks
Hey Ben I admit to say this is one of the best videos of yours! I have max mine and I hold VGRO.TO in all my investments. TFSA & RRSP, in TAXABLE ( VCN & VXC = 40/60). Simple way but I know I losing some to FWT. By the way I like Rational Reminder Podcast too!
Thanks!! Why not VGRO in taxable too?
I’m glad you’re enjoying the podcast!
Ben Felix I’m transitioning to VGRO but now I’m 1% down in VCN and 3% on vxc, so I can’t sell but new money ( about 5% of taxable account) goes to VGRO which I’m up by 4%!
hey Ben what do you think of the new Vanguard Asset Allocation 100% Equity (VEQT) ? Now we are entering into dangerous zone because there re too many ETFs to select from and it’s kinda adding confusion
Personally, I'm 100% equity. If I didn't have access to DFA607 I would buy VEQT.
Ben Felix Oh that’s cool! But why you went with that fund which to my understanding would charge more than regular ETFs like XAW & VCN/ ZCN? I checked it’s like .44%
I hold VEA
and VWO in my RRSP and XEF and XEC in my TFSA, is that ok or are foreign withholding taxes getting me? Great video!
There are some unrecoverable foreign withholding taxes there, but they are not avoidable.
Let me get this right,so if i manage to invest and get a 30% from my stock in my RRSP i basically end up having enough profit to cover taxes?
@Ben Felix: based on current income and the tax brackets, we know how to calculate the tax that we have to pay now. My question is that will it be the same at retirement? i.e. our income plus withdrawal amount from RRSP and applying it to tax brackets at that time? because assuming we manage to get financially better over time, at retirement we will be earning more money and then paying even more taxes upon withdrawal. is this correct?
At retirement you will be earning no employment income so your taxable income should be lower at that time than it is while you're working.
If I manage to learn proper investment, buy a few properties and rent them out and have other incomes, dividends, etc. I will be earning even more money in the future. In this case I will be giving more tax! The only way I think I can benefit in this scenario is to put back my tax savings to RRSP without using them and the compound interest on those tax savings grow bigger than the increased tax rate down the line?
No that’s not how it works. If your tax rate will be higher in the future the RRSP might not be a good choice. There is no compounding to you on the deferred taxes. All of the compounding on deferred taxes belongs to the government.
On another note, you should watch my video on investing in real estate :)
Thanks for your reply, I will definitely watch your real estate vide! :)
just a question here... what do you mean the compounding belongs to the government? Let's say I contribute to RRSP and get back 1000 in return, then I put this into my RRSP as well and invest it in a stock or sth, leave it there until my retirement. This amount will go to government?!
Awesome video as usual Ben.
Question: would a discount broker (ex Questrade) also withold the 30% on a withdrawal or does that only apply to the big banks?
Any financial institution would be required to withhold tax on RRSP withdrawals.
Ben, through your CSI videos you helped Canadians elevate their financial literacy. Thanks! One aspect of financial planning that you haven't covered yet is RRIF drawdown optimisation. I'd love to hear your take on it to help my retired mom save on tax during her life and at death. 😥 Would you be able to cover this on your next video? 🙏 I saw videos involving advanced techniques (i.e. using debt, since interests are tax deductible), and although interesting, it smells sketchy.
Let's say I have a 25 yo frirend with a full TFSA, a lot of money in a margin account and nothing in a RRSP. He doesn't plan on buying a home or going back to university (although futur in uncertain) but he'd like to start a buisness soon. Should he move everything in his margin to his RRSP considering he might withdraw a lot in 5 years and loose his RRSP contribution room?
If I own vfv.to in a tfsa account its not fully non taxable ?
Bit of a trick question. You do not pay tax in Canada. The US withholds 15% on all dividends paid. In a taxable account in Canada you would get a credit for those foreign taxes paid, reducing your Canadian tax bill, so you effectively get the US withholding tax back. In a TFSA you do not get a credit, so the withholding tax is lost.
Thanks make sense to me now
Thank you, Ben! Your videos are always evidence based while at the same time you are so much illustrative! So, I am wondering, if I decide to permanently move out of Canada (which means that I will not have to do taxes for CRA anymore), can I continue using the RRSP account and taking advantage of its benefits?
I appreciate your video. Best information on this subject. More please! I am your newest subscriber.
Thanks Glenn! I will keep it coming!
Hi Ben, let's say i had no RRSP room as of the end of 2017. Let's say my income for 2018 was was X. Can I contribute X*18% right now, or do I have to wait until after filing my taxes/income for 2018, and then the room becomes available?
You can contribute right now. You will record the contribution on your 2018 tax return, but carry the deduction forward to next year as you don't have any deduction room available.
I am considering cashing out my RRSP entirely early this year since I am moving to a tax free jurisdiction. If I leave the RRSP, the CRA might use it as an excuse to deem me as a tax resident.
Hi Ben, for people that become fulltime students with no income then its better to withdraw from rrsp than applying for lifelong education plan.
I disagree. LLP you get the room back. Withdrawal the room is gone.
What benefit does the contribution room confer when you can withdraw from the rrsp at the lowest tax bracket many years before retiring? The money that's withdrawn can then be put into a TFSA or just invested in an unregistered account (assuming the person does not need money). Furthermore, assuming the person is a fulltime student with no income, they can withdraw almost $12k without paying any federal tax.
@@Mike-li9vw if you do that you are giving up on x number of years of tax free growth in the RRSP. Eventually your RRSP and TFSA will both be maxed, and you will wish you hadn't made the withdrawals. Withdrawing at a low tax rate is only one benefit of the RRSP. Tax free growth is the other.
Scenario: withdrawing $12k taxfree and putting into unregistered account VS leaving $12k in rrsp for 20 years. Assuming 5% annual growth. Both ends up with $31.8k. In an unregistered account, the capital gains tax would only be $9920, whereas in the RRSP the taxable income is all of 31.8k.
If all we ever earned in taxable accounts were deferred capital gains the RRSP and TFSA would not be all that useful. Try a scenario where the annual 5% return is 2% income, 1% realized capital gains and 2% unrealized capital gains.
Is there any limit to how many years an unclaimed RRSP deduction can be carried forward?
There is no limit, but each year that you do not claim it your are incurring the opportunity cost of not investing the tax savings.
@@BenFelixCSI Would it be beneficial for a university student with not much yearly income to defer their deduction until they (ideally) move into a higher tax bracket after school?
such awesome clear video.
If I am working full time right now and plan on going back to school in 5 years time, during which I will not be earning any income, does it make sense to contribute to and withdraw from RRSP? I will basically be withdrawing from the RRSP tax free at the expense of losing 5 years worth of contribution room at a 24% average tax rate.
I’d be careful. You will permanently lose the contribution room if you withdraw. You can use the Life Long Learning Plan to take money out in a similar manner to the Home Buyer’s Plan.
This is what is taken that get taken from my paystubs. If i direct my employer to contribute a portion of wages directly into rrsp or tsfa, will i pay less of these taxes?
Canada Pension Plan (CPP)
Employment Insurance - EI
Federal Income Tax (FIT)
Province Income Tax (PIT) - ON
Ex. 1000$ gross but 200$ is put in rrsp or tfsa, will they just apply these taxes or withdrawals on the 800?
Can you provide information on investments with distributions that include part or all return of capital. Specifically, can you comment on what happens to these types of investment within an RRSP and what happens when converting from a RRSP to a RRIF, especially in regards to the adjusted cost base and capital gains.
Super well made video. Thank you very much.
Hey Ben, can you do a video on RDSP, thank you.
You said it's not a good idea to risk puttiing stocks in your RRSP but you didn't say what would be better... ETFs?
Great vid!! Sadly i work shift job in US (half of the year), and for some reason banks dont allow to get me registered saving accounts (tfsa and rrsp). :(
Interesting.
Hey I was in the same situation in 2015- 2016, Bank won't open account but as long as you are still a Canadian residence for tax porposes and in the US just for work You can open with Questrade and have your accounts RRSP and TFSA with them. Forget the banks. I even called the CRA to clarify that but the bank still wouldn't open my account. I'm happy with Questrade for 2 years now.
@@ojjunior4579 Sweet! I will try that. So if I open up RRSP, I should be able to defer my tax this way too right?? same as I would open up RRSP in Canadian banks?
Dan yes any Canadian financial financial or investment institution can have registered accounts and the qualifications is the same regardless of which one you choose. RRSP is the same in wether it’s with RBC, or Edward John’s or Questrade or TD. Just make sure you have an RRSP room to contribute or you don’t exceed your limit ( if you have one)for the year that’s all.
Ben is the best, thank you for this insightful content!
Thanks for making such great and informational videos Ben! Much appreciated!
Contractor with an income of $100,000, vs fulltime $80,000. How much RRSP limits are they? 18% of each? If so, then it seems that contractor can benifit more from RRSP?
If you don't have a company pension, or don't expect to be able to save alot of money, then the Guaranteed Income Supplement makes saving in the TFSA way better than the RRSP. If your income in retirement is low enough to qualify for GIS, then a $1000 withdrawal from the RRSP means $500 less GIS income. Tax still has to be paid on the $1000. This left a lot of angry retirees on coffee row. If one was already nearing 65, there could be benefit to just cashing out the small rrsp in one year, eating the bad tax rate and then not having GIS affected by RRSP withdrawals.
Good points.
Please do a video on fhsa
Can I just stuff money in my mattress? Is there a video of what happens to my RRSP when I'm retired?
Hi, if i had 50000 in my RRSP HOme buyer account and if I withdraw 35000 for downpayment, then the tax free growth is for the remaining amount (15000) or entire 50000 as i hv to pay back it.
Taxes should only be increasing tho, especially in Canada. As population growths, our government is going to need to collect more taxes. Also debt repayment is only getting a bigger chuck of our budget every year
Excellent video, cleared up some questions I had. Thanks Ben!
Thanks Chris!
Hi Ben, In the video you mention that RRSP allows us to "defer income tax". My interpretation of "defer" is I pay what I owe now, at a later date and as a result reap the benefits of time value of money - i.e. get to compound interest on the money and then pay off original amount and keep the interest. I held this "deferral benefit" view of the refund for a long time. However this view was shattered recently by this article www.retailinvestor.org/RRSPmodel.html#deferral. With this view the refund is a loan the government gave you to invest on their behalf.
You had a similar analysis in your video of RRSP vs TFSA with same tax bracket, so I think you will agree with the math. What's your view on use/misuse of the term "defer"? Not sure if you were using "defer" in context of the refunded money, or the tax free growth.
I do not think that it is incorrect to say that you defer income tax with the RRSP. You do not pay income tax now, you pay it later. That seems like a deferral to me. I agree in full that the deferral itself does not give you any benefit unless your future tax rate ends up being lower than your tax rate at the time that you use the deduction.
So here is the question, if I invest $1000 in my RRSP and that $1000 grows to $10000 and I make a withdrawal on the entire amount. am I likely to pay 30% on $1000 or $10000?
The tax would apply on the total amount that you decide to withdraw (so the $10k), as it would count as taxable income. The RRSP contribution is tax-deferred, but also its growth.
Thanks Ben you opened my eyes:)
Thanks, this could not have been explained better! lol
I was hoping to hear about the fact that it is never beneficial to defer your tax deduction and that it might be best to not contribute certain years if you are expecting a large increase in income the following year
Great! 👍☺️
It all comes down to paying tax on money you have earned legitimately. Does that make sense to anyone? Thanks for this info regardless of the rules the government imposes. We should be able to access this money without all these rules. That would be too easy for all concerned.
so no matter how old I am or how much money I make I have to pay 30 percent minimum on my RRSP when taking it out
It depends how much you withdraw. And that’s not the tax you owe. It’s just the tax that’s withheld. You might owe more or get a refund when you file.