RRSPs 2013

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

RRSPs 2013

Post by ghariton »

The season is upon us.

Not that all the publicity and advertising seem to do much. Statistics Canada
Total contributions to registered retirement savings plans (RRSPs) amounted to $34.4 billion in 2011, up 1.6% from 2010. Data are based on tax returns filed for 2011.

Just under 6.0 million taxfilers contributed to an RRSP in 2011, virtually unchanged from 2010. Since the number of taxfilers rose slightly during this period, the percentage of taxfilers who contributed to an RRSP slipped from 24.3% in 2010 to 24.0% in 2011.

<snip>

Nationally, the median contribution was $2,830, a 1.4% increase from 2010. The median is the point at which half of the contributors contributed more, and half less.
George
The juice is worth the squeeze
ockham
Veteran Contributor
Veteran Contributor
Posts: 2214
Joined: 04 Apr 2006 21:50
Location: The Prairies

Re: RRSPs 2013

Post by ockham »

A melancholy report, for sure. Missing is information on what actual contributions are relative to the room available, and at what income levels. I suspect the reading would only get gloomier.

J.M. Coetzee starts his Booker Prize novel "Disgrace" with the comment that "the skull, followed by the temperament, are the two hardest parts of the body" in support of the observation that changing one's temperament is near impossible.

I am by temperament a saver, from my poorest student days through to my retirement. If Coetzee is right, it's likely I will continue, unshakeably, to be one in retirement. This makes me, (and likely most on FWF), unlike the vast, vast majority of Canadians, who will, by reason of temperament or otherwise, continue not saving.
User avatar
6miths
Contributor
Contributor
Posts: 186
Joined: 21 Jan 2010 00:07

Re: RRSPs 2013

Post by 6miths »

Yes it's not exactly a stellar performance and I thought the economy was on the uptick.
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: RRSPs 2013

Post by ghariton »

The one ray of hope is that money might be going to TFSAs instead. Of course, those can't be tracked from tax returns. But CRA should have a pretty good idea of how much there is. After all, they send out penalty notices for over-contribution.

As well, I'm seeing an increasing number of articles speculating that income tax rates will rise, in which case even taxable accounts may become an attractive alternative to RRSPs. But I have little hope that taxable accounts are growing significantly.

I guess we'll all have to leave large estates.

George
The juice is worth the squeeze
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: RRSPs 2013

Post by AltaRed »

ghariton wrote:The one ray of hope is that money might be going to TFSAs instead. Of course, those can't be tracked from tax returns. But CRA should have a pretty good idea of how much there is. After all, they send out penalty notices for over-contribution.
TFSA contributions are recorded online in the gov't database (Service Canada), so they do have records of contributions.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
twa2w
Veteran Contributor
Veteran Contributor
Posts: 2054
Joined: 22 Feb 2005 13:08

Re: RRSPs 2013

Post by twa2w »

Anecdotal for sure- I work part time for a financial institution - very few RSP contributions this year - most of the funds we are seeing are flowing into TFSA's.

Many of our clients are already retired so put money into TFSA's. Also self employed people seem to see more flexibility in TFSA's given flucuations in their income year over year.

Other people who could and should contribute to RSPs seem uncertain about the economy and are opting for TFSA's.

Not sure this is indicative of the general population but certainly for the clients have talked to.

Cheers
J
User avatar
Pickles
Veteran Contributor
Veteran Contributor
Posts: 4215
Joined: 27 Sep 2006 09:44
Location: Toronto

Re: RRSPs 2013

Post by Pickles »

[Not even anecdotal -- pure speculation]

I wouldn't be surprised if some of twa2w's clients choosing TFSAs over RRSPs are, in fact, redepositing money that they withdrew from their TFSA last year. I don't see a lot of real saving going on in my neck of the woods.
Regards,
Pickles
Jo Anne
Veteran Contributor
Veteran Contributor
Posts: 3648
Joined: 19 Feb 2005 21:33

Re: RRSPs 2013

Post by Jo Anne »

Pickles wrote:[Not even anecdotal -- pure speculation]

I wouldn't be surprised if some of twa2w's clients choosing TFSAs over RRSPs are, in fact, redepositing money that they withdrew from their TFSA last year. I don't see a lot of real saving going on in my neck of the woods.
Last week, Husband and I each took $5k out of our RRSPs to redeposit into our TFSAs. I plan on repeating this exercise every year for as long as it is tax-favourable or tax-neutral.
User avatar
Peculiar_Investor
Administrator
Administrator
Posts: 13271
Joined: 01 Mar 2005 14:52
Location: Calgary
Contact:

Re: RRSPs 2013

Post by Peculiar_Investor »

Jo Anne wrote:Last week, Husband and I each took $5k out of our RRSPs to redeposit into our TFSAs.
Is there a reason that you didn't take the full 2013 TFSA contribution limit of $5500 out for redeposit?
Imagefiniki, the Canadian financial wiki New editors wanted and welcomed, please help collaborate and improve the wiki.

Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams
Jo Anne
Veteran Contributor
Veteran Contributor
Posts: 3648
Joined: 19 Feb 2005 21:33

Re: RRSPs 2013

Post by Jo Anne »

Peculiar_Investor wrote:
Jo Anne wrote:Last week, Husband and I each took $5k out of our RRSPs to redeposit into our TFSAs.
Is there a reason that you didn't take the full 2013 TFSA contribution limit of $5500 out for redeposit?
More than $5000 means 20% tax withholding instead of 10%. Both of us have close to $0 taxable income, so we'd be waiting until April 2014 to get it back.

So we netted $4500 each from our RRSPs, and I took the other $1000 for each of us out of my non-registered account.
User avatar
Dejavu
Contributor
Contributor
Posts: 566
Joined: 20 Jan 2008 00:09
Location: Winnipeg

Re: RRSPs 2013

Post by Dejavu »

Jo Anne wrote:
Peculiar_Investor wrote:
Jo Anne wrote:Last week, Husband and I each took $5k out of our RRSPs to redeposit into our TFSAs.
Is there a reason that you didn't take the full 2013 TFSA contribution limit of $5500 out for redeposit?
More than $5000 means 20% tax withholding instead of 10%. Both of us have close to $0 taxable income, so we'd be waiting until April 2014 to get it back.

So we netted $4500 each from our RRSPs, and I took the other $1000 for each of us out of my non-registered account.
Joanne, do you expect to have a higher tax rate in the future compared to today? Just toying with the idea that one wouldnt want to trigger a known tax today, when one could defer it to later and pay with inflated dollars. If min.RRIF was in excess of living expenses then it makes sense. Perhaps I am missing somthing here... Dejavu.
Whatever you can do, or believe you can, begin it, for boldness has genius, power and magic in it. - Goethe
Jo Anne
Veteran Contributor
Veteran Contributor
Posts: 3648
Joined: 19 Feb 2005 21:33

Re: RRSPs 2013

Post by Jo Anne »

Dejavu wrote:Joanne, do you expect to have a higher tax rate in the future compared to today? Just toying with the idea that one wouldnt want to trigger a known tax today, when one could defer it to later and pay with inflated dollars. If min.RRIF was in excess of living expenses then it makes sense. Perhaps I am missing somthing here... Dejavu.
Dejavu, I don't expect that either my husband or I will ever be in a higher tax bracket. We don't have enough money for that.

You've only been on this forum for about 5 years, so you probably don't realize that I'm one of the "poor relations" in here.

And we won't be in RRIF territory for another 10 years. We are early retirees living as frugally as possible.
User avatar
Dejavu
Contributor
Contributor
Posts: 566
Joined: 20 Jan 2008 00:09
Location: Winnipeg

Re: RRSPs 2013

Post by Dejavu »

Thx. for your reply Jo Anne. I have a daughter Joanne and so I misspelt your name upthread by habit. I also often feel like a poor cousin in the FWF membership, yet appreciate all the information available here. I was hoping you would address the above issue regarding your decision to "prepay" the RRSP withdrawal tax. I guess, in my mind there is no upside to taking it out, paying the tax on it, only to reinvest the reduced amount in another tax protetcted plan(TFSA). I hope you dont mind my repeating the question, Dejavu.
Whatever you can do, or believe you can, begin it, for boldness has genius, power and magic in it. - Goethe
User avatar
Shakespeare
Veteran Contributor
Veteran Contributor
Posts: 23396
Joined: 15 Feb 2005 23:25
Location: Calgary, AB

Re: RRSPs 2013

Post by Shakespeare »

If she can take it out at a zero tax rate, she may be able to deplete it without eventual estate taxes.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
User avatar
Dejavu
Contributor
Contributor
Posts: 566
Joined: 20 Jan 2008 00:09
Location: Winnipeg

Re: RRSPs 2013

Post by Dejavu »

Shakespeare wrote:If she can take it out at a zero tax rate, she may be able to deplete it without eventual estate taxes.
By depleting, I would assume you mean spending, yet Jo Anne said reinvesting in a TFSA. If she died, wouldnt the estate tax treatment be the same wether inside a TFSA or RRSP?
So I still dont understand the rationale.
This harkens back to a bookkeeper I once used who believed "a tax delayed is a tax unpaid".
Dejavu.
Whatever you can do, or believe you can, begin it, for boldness has genius, power and magic in it. - Goethe
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: RRSPs 2013

Post by AltaRed »

The RRSP is collapsed and tax is due on the balance of investments as of date of death. The TFSA never attracts a tax so to the extent Jo Anne can take $5000 (or $5500) out of the RRSP without attacting tax, and shelter it in a TFSA, this is a win-win.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
StuBee
Veteran Contributor
Veteran Contributor
Posts: 2944
Joined: 21 Sep 2010 11:08
Location: SW Quebec

Re: RRSPs 2013

Post by StuBee »

AltaRed wrote:The RRSP is collapsed and tax is due on the balance of investments as of date of death. The TFSA never attracts a tax so to the extent Jo Anne can take $5000 (or $5500) out of the RRSP without attacting tax, and shelter it in a TFSA, this is a win-win.
That is one very adequate explanation. But, I think that there is another far more practical one: She knows that right now on the withdrawal there is no tax (her current tax rate is zero). How can she be sure that this will always be the case? She can't. However, theoretically (i.e. barring unforeseeable regulatory change), going forward, once the capital is in the TFSA, tax issues disappear.
"The term is over: the holidays have begun. The dream is ended: this is the morning."-C.S.Lewis, The Last Battle
User avatar
Pickles
Veteran Contributor
Veteran Contributor
Posts: 4215
Joined: 27 Sep 2006 09:44
Location: Toronto

Re: RRSPs 2013

Post by Pickles »

Jo Anne wrote:
Pickles wrote:[Not even anecdotal -- pure speculation]

I wouldn't be surprised if some of twa2w's clients choosing TFSAs over RRSPs are, in fact, redepositing money that they withdrew from their TFSA last year. I don't see a lot of real saving going on in my neck of the woods.
Last week, Husband and I each took $5k out of our RRSPs to redeposit into our TFSAs. I plan on repeating this exercise every year for as long as it is tax-favourable or tax-neutral.
Yes, that can be a smart strategy. The redepositing of withdrawn TFSA money, without an accompanying new deposit, is just spinning wheels, though.
Regards,
Pickles
Jo Anne
Veteran Contributor
Veteran Contributor
Posts: 3648
Joined: 19 Feb 2005 21:33

Re: RRSPs 2013

Post by Jo Anne »

Pickles wrote:
Jo Anne wrote:
Pickles wrote:[Not even anecdotal -- pure speculation]

I wouldn't be surprised if some of twa2w's clients choosing TFSAs over RRSPs are, in fact, redepositing money that they withdrew from their TFSA last year. I don't see a lot of real saving going on in my neck of the woods.
Last week, Husband and I each took $5k out of our RRSPs to redeposit into our TFSAs. I plan on repeating this exercise every year for as long as it is tax-favourable or tax-neutral.
Yes, that can be a smart strategy. The redepositing of withdrawn TFSA money, without an accompanying new deposit, is just spinning wheels, though.
Our taxable incomes for 2013 are going to be so low that the $500 tax deducted from the RRSP withdrawal will be mostly refunded next April. We are living off CPP (taken early - total $1200/month) and whatever I withdraw from my non-registered account. We have 10 years to go before we have to RRIF, and as long as the divvies in the non-registered account are tax-free, this allows us to manage quite well and pay little to no tax. I'll have to re-visit this when we turn 65 and start getting OAS.
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: RRSPs 2013

Post by AltaRed »

A very good tax strategy Jo Anne. When the near term future is pretty clear, one can make the moves to minimize tax.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
newguy
Veteran Contributor
Veteran Contributor
Posts: 8088
Joined: 10 May 2009 18:24
Location: Montreal

Re: RRSPs 2013

Post by newguy »

Jo Anne wrote:I'll have to re-visit this when we turn 65 and start getting OAS.
And if you plan on living a long time you can delay OAS for 5 years and keep drawing down the RRSPs and then get a 7.2% OAS boost for every delayed year.

newguy
izzy
Veteran Contributor
Veteran Contributor
Posts: 3019
Joined: 19 Feb 2005 19:06
Location: Winnipeg MB

Re: RRSPs 2013

Post by izzy »

Jo Anne wrote:
Our taxable incomes for 2013 are going to be so low that the $500 tax deducted from the RRSP withdrawal will be mostly refunded next April. We are living off CPP (taken early - total $1200/month) and whatever I withdraw from my non-registered account. We have 10 years to go before we have to RRIF, and as long as the divvies in the non-registered account are tax-free, this allows us to manage quite well and pay little to no tax. I'll have to re-visit this when we turn 65 and start getting OAS.
Bear in mind that there is NO minimum age for setting up an RRIF and there is No witholding on the minimum required withdrawal amount (which ,admittedly may be small at your age).
Waiting until age 65 allows you to split income but that is irrelevant if you're taking money out before that age anyway!
"I disagree strongly with what you say, but I will defend to the death your right to say it."
User avatar
StuBee
Veteran Contributor
Veteran Contributor
Posts: 2944
Joined: 21 Sep 2010 11:08
Location: SW Quebec

Re: RRSPs 2013

Post by StuBee »

izzy wrote: Bear in mind that there is NO minimum age for setting up an RRIF and there is No witholding on the minimum required withdrawal amount (which ,admittedly may be small at your age).
Waiting until age 65 allows you to split income but that is irrelevant if you're taking money out before that age anyway!
My wife (age 54) set up her RRIF 3 years ago. Her MTR is zero. She withdraws annually the minimum amount (which, BTW, happens to be US dividends). The funds are used either for current spending needs, RESP contributions, Spousal RRSP contributions (of which she is the beneficiary) or TFSA contributions. In reality, her withdrawal gets mixed up with a whole lot of other income (RESP withdrawals, Dividends, and a small family allowance) which is spread between the two of us. We consider whatever she gives to me (which I use for registered account contributions) as a reimbursement of a portion of her share of household expenses. (I pay upfront 100% of these expenses and she reimburses me about 20%).

What must not be forgotten is that there are two advantages to an RRSP the first in importance (presuming a sufficiently long period of time) is tax-free compounded growth. The second and generally lesser advantage is the MTR difference between the time of contribution and the time of withdrawal. Though we tend to lay a lot of emphasis on the second advantage, CRA knows that on average this MTR difference is far less than we think. Therefore, when you withdraw from a RRSP/RRIF, it is key that we understand that generally, we are foregoing any future tax-free growth. This is a moot point if the withdrawal is for ongoing expenses (i.e. the funds are needed). The exception is where you are able to transfer these funds to a tax free environment: #1 another RRSP (strictly speaking, this is tax-deferral unless MTR at withdrawal is zero), #2 a TFSA, #3 a RESP and not to be neglected #4 a non-registered account if (and only if) your current MTR is zero (All of these apply in my wife's case).
"The term is over: the holidays have begun. The dream is ended: this is the morning."-C.S.Lewis, The Last Battle
User avatar
newguy
Veteran Contributor
Veteran Contributor
Posts: 8088
Joined: 10 May 2009 18:24
Location: Montreal

Re: RRSPs 2013

Post by newguy »

StuBee wrote:Her MTR is zero.
Well you lose the spousal deduction so the cost isn't zero.

newguy
gsp_
Veteran Contributor
Veteran Contributor
Posts: 2318
Joined: 12 Apr 2011 17:48
Location: Montreal

Re: RRSPs 2013

Post by gsp_ »

newguy wrote:And if you plan on living a long time you can delay OAS for 5 years and keep drawing down the RRSPs and then get a 7.2% OAS boost for every delayed year.
That was news to me, thanks. Had never heard that was possible, probably because it hadn't been announced in '11 when I did research for my dad. Program starts in July '13. Here's the Services Canada link in case anyone else was also unaware.
Post Reply