# my situation...and your thoughts



## bh23 (Apr 16, 2010)

37 years old, paid off house...about 55k in unused rrsp contributions...10k in tfsa and 30k in the bank.

Should I put the 30k in the rrsp or just invest it and use the income/capital gains to put into the rrsp and over time use my unused space? 

I max out the rrsp every year through my employer already and I don't need any income outside the rrsp. But I got to thinking that it would add to my income and thus become a better use of the tax benefit if I used that lump sum to invest outside the rrsp and then put that money in my rrsp every year. Especially since dividends and capital gains are taxed so favourably...then I could take that money and put it in the rrsp at my marginal rate, which should be higher because of this income. Perhaps I'm missing something here? Maybe I should ladder some gic's outside the rrsp which would raise my taxation, and put those proceeds inside the rrsp over time? I'm just looking for a strategy to max out my money  

Is this a viable strategy or should I just throw it all in the rrsp and then put the refund back in the rrsp and so on and so on until I run out of contribution room. 

any thoughts?


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## Four Pillars (Apr 5, 2009)

37 and no mortgage? You should be giving advice to me! 

As for your question - I'm not sure which is better (both sound decent to me).

I would go with the lump sum contribution to your RRSP. It's a LOT less hassle for one thing. Even if the "contribute the dividends" idea works out better on paper, given the relative small amount of dividends you will be dealing with each year - I don't think it's worth the trouble.


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## FrugalTrader (Oct 13, 2008)

As FP mentioned, you could lump sum into your RRSP, however, I would only claim enough to bring you to the top of the lowest tax bracket. If there is any remainiing, I would carry forward to the next year.


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## gwcanuck (Apr 27, 2009)

If you max out your rrsp every year with your employer, why do you have $55k of unused room?

I'd follow Frugal Trader's advice, except I'd put it all into your rrsp now and only claim enough each year as he mentions. That way the tax free growth starts immediately, and you get the full tax break advantage.


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## andrewf (Mar 1, 2010)

Yes dividends are taxed favourably outside of registered account, but keep in mind that you get 20-30 years of compounding tax free inside your RRSP. I suspect that is worth more than spread between dividend tax rate now and your future income.


On the other hand, I think you should be leveraging your home for investing. If you are interested in a non-registered portfolio, I would finance it with a HELOC and put the $30k in RRSPs.


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## OhGreatGuru (May 24, 2009)

_Should I put the 30k in the rrsp or just invest it and use the income/capital gains to put into the rrsp and over time use my unused space?
...

Is this a viable strategy or should I just throw it all in the rrsp and then put the refund back in the rrsp and so on and so on until I run out of contribution room._

I would reverse things. Put the lump sum in the RRSP and invest the tax rebate(s) in a non-registered account. When you have accumulated a comfortable cushion of non-registered savings again, then make more contributions to the RRSP.


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## bh23 (Apr 16, 2010)

Thanks for the inputs...

the house is nothing special...I'm a big believer in living well within my means.

I didn't start maxing out rrsp contributions until I was 28 or 29...thus the 55k of unused space.

I am definitely going to take a mortgage and invest....likely a small amount though. I would do it today if I felt like today was a good time to throw money into stocks...but I don't. I think it's a very shaky time to do so...

You all profess a heloc vs taking say a 1 year or 5 year fixed?


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## Oldroe (Sep 18, 2009)

Your situation and mine are same. At 52 and retired for 2 years I wish for more investements outside my rrsp.

At 37 if you keep maxing your tfsa that should be good. Just coast threw life and enjoy. I did.


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## the-royal-mail (Dec 11, 2009)

bh23 said:


> 37 years old, paid off house...about 55k in unused rrsp contributions...10k in tfsa and 30k in the bank.


Holy crap, that's impressive. WELL DONE!!!!

As four said, I think it's you who needs to be giving us the advice. 

Congratulations.


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## cardhu (May 26, 2009)

Keeping the $30k in non-reg accounts for the specific purpose of increasing your tax bill is a little bizarre ... if that money is earmarked for generating retirement income, then just put it in RRSP and be strategic about how you apply the deductions ... don't sit on them too long waiting to arrive in the next tax bracket up ... there is a limit to how long it makes sense to sit on them.


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## shaune (May 2, 2010)

*37 and no mortgage !!*

Here is my two bits worth.
You need to have enough available cash reserves for three months expenses in case of emergencies. This can be savings account or other quickly cashable investments.
I also don't quite understand how you can have room and still max out your RRSP every year. I believe you are referring to the amount shown on your NOA as 18% of your last year's income. If you did not contribute in earlier years then you can put all this amount in at one time. As previous posters mention, this does not optimize your tax savings. You are better off to put in enough to reduce your tax bracket one level and save the contribution room for when you make more money. In the interim you can invest the money outside your RRSP. You need to talk to a good accountant to see how you best leverage your contribution room.
For RRSP investments look at Mortgage Investment Corporations (MIC's). Returns are +10% and can compound. Check out Axcess Capital in Calgary.
HELOC is definitely the way to go to leverage home equity. Interest rates are lower and are interest only, and the loan is fully open without pre-payment penalties. The interest is deductible when money is used for investments (keep a very good paper trail). If you invest at 10% in an open account, deduct the 3% (approximate) HELOC interest (and pay 40% marginal tax) you have 7% net return before taxes and over 4% after taxes. Not bad for using the banks money.
When getting a HELOC always ask for the maximum amount they will lend you (up to 80% of the appraised value). If you ask in chunks you will pay fees and have to go through the application process each time. Remember, if you don't use the HELOC it costs nothing in interest. With a mortgage you pay immediately.


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## sprocket1200 (Aug 21, 2009)

I love the shock that people show that your house is paid off. a mortgage should not take longer than 10 years to pay off. choose your purchase wisely, live well within your means, and attack it!

on the other hand it is frustrating the people don't understand RRSPs enough. you will always have left over room from an employer matched RRSP program (unless it is an insane one). why is this so hard to understand? your employer and government are not going to fund your retirement...

we have now used our home equity to purchase a business (to generate dividend income and get away from T4 taxes) and are currently negotiating to buy the commercial property it is housed in.

saving is always a lot of work and you can never quit, but the choices and freedom are well worth it!

but my biggest hope is that all those people that think they are getting rich on RE keep driving up the prices and make this bubble pop. scooping a few 'panic houses' would be sweet. and in 2-3 years, we will be more than ready.


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## gwcanuck (Apr 27, 2009)

Sprocket1200 - why will you always have room left over from an employer sponsored RRSP? I have one, and have 0 contribution room.

Of course, I contribute my own money on top of what my employer contributes...


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## dilbert789 (Apr 20, 2010)

gwcanuck said:


> Sprocket1200 - why will you always have room left over from an employer sponsored RRSP? I have one, and have 0 contribution room.
> 
> Of course, I contribute my own money on top of what my employer contributes...


I think that is exactly what he meant. 

Example: 
Employer matches 25% up to $1500. 
Employee puts in $6000 

Total into RRSP = $7500 per year
Contribution room = $10,800 (60k * 18%)
So -> $10,800 - $7500 = $3300 in unused contribution room. 

In that example, maxing out the employer matching, doesn't use all of the contribution room.


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## bh23 (Apr 16, 2010)

my thoughts for investing outside the rrsp were indeed to raise my income..hopefully to the next tax bracket and then just put any income I get into RRSP...over time I will top it up and I would do so by adding to my income and lowering my tax burden.

I'm not sure if it's a strategy, but this is what I will do with this money. It allows me easy access to the funds and it also allows me to make capital gains and offset them by putting the gains in rrsp.


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## the-royal-mail (Dec 11, 2009)

bh23 said:


> my thoughts for investing outside the rrsp were indeed to raise my income..hopefully to the next tax bracket and then just put any income I get into RRSP...over time I will top it up and I would do so by adding to my income and lowering my tax burden.
> 
> I'm not sure if it's a strategy, but this is what I will do with this money. It allows me easy access to the funds and it also allows me to make capital gains and offset them by putting the gains in rrsp.


Well, unless I should be wearing my dunce cap yet again that makes absolutely no sense. The way I see it, you're just moving your money from your left hand to your right hand.

Maybe this will make sense to someone else.


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## bh23 (Apr 16, 2010)

taking dividends...getting taxed on them, and then putting them into my rrsp so as to relieve the tax burden. And relieve it at my marginal rate. It allows me to stay invested outside the rrsp without having the burden of any extra taxation while slowing filling up my unused contribution room.

As others have mentioned...they wished they had kept some investments as non-registered. I think this is something I want to do as well.

Although, I won't be buying much of anything right now anyhow...


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