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RRSP`s: good or bad?

DianneDachyshyn

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Oct 21, 2007
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We are investigating ways to maximize our investments, and the topic of RRSP`s has come up again. We are committed to RE investment and are focused on the 17-3 program, etc. and are making great headway. Our properties are paying for themselves and we have begun working with JV partners, so they are contributing the capital and we are managing the properties.

In the meantime, we are looking at our investments in total and making decisions. We are disappointed with the performance of our mutual funds and the fees involved in paying the fund manager, etc. We would like to begin investing in dividend stocks on our own, but we are wondering about the wisdom of using tax-deferred dollars. Most of the financial planning books that we read say that a person would be a fool to ignore this advantage (i.e. the 30% tax-free portion by saving pre-tax dollars); however, others have suggested that RRSP`s are a problem when it comes time to cash them in, since a person cannot control the timing and their income level may be higher at the time, etc. We have decided that we will no longer give the control of our $ to a "financial planner" who is making money by selling us his favorite funds. We want to take control of this area. The main question we have (besides the learning curve of choosing the best companies to invest in) is whether or not to do it through a self-directed RRSP or to use post-tax $.

If any of you have self-directed RRSP`s, could you please tell me how to go about setting that up? We would like to begin making automatic payments into our savings, and we don`t know how to set up this type of RRSP, should we decide to do so.

Thanks in advance for the help!
 

DanielBorkowski

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QUOTE (DianneDachyshyn @ Jul 31 2008, 09:09 AM) others have suggested that RRSP`s are a problem when it comes time to cash them in, since a person cannot control the timing and their income level may be higher at the timeI would think of your exit strategy and work backwards from there. Ask yourself, as a REIN member investing in the best real estate opportunities in the world, do I expect my income to be lower than it is today (or the maximum tax bracket) when I retire? Would I be better off down the road investing in 100% taxable RRSP investments or 50% taxable capital gain investments? Here`s an interesting way of looking at it : The main question we have (besides the learning curve of choosing the best companies to invest in)
Remember real estate is also an option for your RRSPs... through arms-length second mortgages - there`s no leverage, but the LTV (loan to value) ratio can add a great cushion against loss and you can invest in the same market you`re already familiar with at a fixed interest rate...

QUOTE (DianneDachyshyn @ Jul 31 2008, 09:09 AM) is whether or not to do it through a self-directed RRSP or to use post-tax $.
I myself have pondered over this question many times, and found the following information extremely valuable in coming to my own conclusions:

(as found on If any of you have self-directed RRSP`s, could you please tell me how to go about setting that up? We would like to begin making automatic payments into our savings, and we don`t know how to set up this type of RRSP, should we decide to do so.
I use Olympia Trust in Calgary, setup was simple, they`re very friendly, helpful and knowledgeable and all the forms are available on their website. They allow a wide range of (tax-deferred) investments including Arms Length Mortgages
 

Maximillion

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QUOTE (DanielBorkowski @ Jul 31 2008, 01:23 PM) I would think of your exit strategy and work backwards from there. Ask yourself, as a REIN member investing in the best real estate opportunities in the world, do I expect my income to be lower than it is today (or the maximum tax bracket) when I retire? Would I be better off down the road investing in 100% taxable RRSP investments or 50% taxable capital gain investments? Here`s an interesting way of looking at it : Cut the tax on your RRSP withdrawals - There may be a way out of splitting RRSPs equally with the government

Remember real estate is also an option for your RRSPs... through arms-length second mortgages - there`s no leverage, but the LTV (loan to value) ratio can add a great cushion against loss and you can invest in the same market you`re already familiar with at a fixed interest rate...


I myself have pondered over this question many times, and found the following information extremely valuable in coming to my own conclusions:

(as found on taxtips.ca)
Is it better to invest in RRSPs or in a non-registered account?

For the average Canadian taxpayer, it is usually better to invest in RRSPs, because:
  • you will probably be in the same or a lower tax bracket when you retire
  • your investment income grows tax-free inside the RRSP
  • you can invest in stocks, bonds, foreign and other investments without worrying about the tax implications
  • you are less likely to withdraw the money than if you are saving it in an unregistered account, so you will build up a sizeable nest egg by retirementIt may be better to invest non-registered account (outside of RRSPs) if:
    you will be in a higher tax bracket after retirementyou invest all your money in capital gains producing investmentsyou are comfortable not owning any bonds or other interest-producing investmentsyou do not sell any investments until retirement, because the sale would generate taxable capital gains

I use Olympia Trust in Calgary, setup was simple, they`re very friendly, helpful and knowledgeable and all the forms are available on their website. They allow a wide range of (tax-deferred) investments including Arms Length Mortgages



I have been using a strategie with my financial investor for several years. I have a pool of RRSP`s which are then transfered into RRIF`s. I`m not exactly sure how he does it, but what will happen is by the time I retire I will only have to pay 25% of my taxes rather than 50%. You would have to consult a finanial planner about this strategy, but it is becoming more popular

Vivian Clement
 

gwasser

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Boy am I active on the forum lately. And on top of that, I seem to have an opinion on everything. Since I have an RRSP I may have some valid insights (don`t count on it).

Here we go:
My RRSPs are not top performers, but they are great for a diversified portfolio when you try to shield interest and similar incomes from the tax man. Thus, bonds, debentures, etc. This was especially through in the early 1980`s when interest rates were skyhigh. Right now, things are not always clear.

Yes I put appreciating investments (stocks and income trusts) also in my RRSP to offset mediocre performance. But I always seem to put past winners, soon-to-turn-into-loser stocks into my portfolio. So then I lost on them and since my contributions are limited it is impossible to offset those losses. On top of it, you don`t get to claim the capital loss and thus you lose even more.

Hence, I am putting more and more interest bearing investments and less and less appreciating investments in my RRSP.

The taxshielding is great - up to a point. There are 2 issues here
1: your income at retirement is in the top tax bracket and so you pay full tax over your RRSP withdrawals. The only true gain you made is tax deferral - basically an interest free loan from the government until age 70.
2: your RRSP becomes so large that your annual income within the RRSP puts you in the top tax bracket. If you could retrieve that same income from a holding company you could claim it as taxadvantaged dividend. Or if you held it in a non-RRSP account you could enjoy the lower capital gains taxes as well as the dividend tax credits.

So basically, RRSPs are worthwhile investments. However, assuming an annual average return of 10%, a $600,000+ RRSP creates annual income above the top tax income bracket ($60,000 per annum?) and becomes a liability.

Hope this helps.
 

Thomas Beyer

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Aug 30, 2007
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an RRSP is NOT an investment !

It is a legal structure to HOLD eligible investments, get a large tax rebate on contribution and accumulate gains or income tax free until you take it out of the RRSP.

Many instruments can be put into an RRSP: stocks or its more expensive diversified brother, the mutual fund, ETFs, REITs, call options, covered calls, private shares, bonds, mortgages ..

There are a number of REAL ESTATE related investments that can be in an RRSP if this is your choice:

a) mortgages
b) REITs
c) ETFs with focus on real estate
d) publicly traded real estate firms, either holders or builders of real estate
e) private shares of real estate firms
f) bonds (usually paired with a parallel structure for equity upside above the bond yield) - a structure that we use in our firm to make our LP based investments RRSP eligible .. one that is used by many of our competitors as well ..

Many good (and many more bad) choices exists in an RRSP ..

I`d say: maximize your RRSP contributions to minimize taxes and leave it in the RRSP to minimize taxes while holding.

Also invest outside your RRSP. Do both !
 
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