# Couch Potato and RRSP



## slacker (Mar 8, 2010)

Hi all,

I have been pondering...

Does it make sense for a couch potato portfolio to utilize the RRSP?

For the fixed income portion, the answer is clearly a YES.

For the Canadian Equity portion, I'm not so sure. The reasoning is as follows:

1. Couch Potato is a buy and hold strategy (assume no selling until retirement)
2. Hence, no taxable capital gains until retirement.
3. In taxable account, capital gains' tax rate is half of withdrawal from RRSP
5. Therefore taxable account is better off than RRSP for holding Canadian Index ETF.

There are problems with the above arguments:
- RRSP is invested with pre-taxed dollars, taxable account is invested with after-tax dollars.
- tax deferred compound dividend in RRSP
- eligible dividend tax credits in taxable account
- differing tax rates during my earning years and withdrawl years
- opportunity cost of locking up funds in a RRSP
- who knows what the tax rates will be like when I withdraw in 35 years?
- what about US and other international ETFs?
- foreign dividends in RRSP vs taxable account is a whole other can of worms.

I intend to actually crunch the numbers in a spreadsheet to figure this out, once I've figured out the applicable tax rates and all.

I'd welcome input to my dilemma here.


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## Cal (Jun 17, 2009)

'RRSP is invested with pre-taxed dollars, taxable account is invested with after-tax dollars.'

I would say that you use after tax dollars to make boith investments.

Edit: My bad, you pay in after tax dollars, but get tax credit for investment, so it is after tax dollars....I blame my initial thinking on the heat. 


'opportunity cost of locking up funds in a RRSP'

You can still buy and sell within an RRSP if you want. Making one investment inside your RRSP doesn't mean that you have to miss out on another.

I would also add that the RRSP is a advantagous way to reduce income taxes payable.


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## andrewf (Mar 1, 2010)

Nope. RRSPs are pre-tax. Otherwise you'd be double taxed upon withdrawal.


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## slacker (Mar 8, 2010)

Yes, I think the pre-tax vs post-tax is the key advantage of RRSP in general. You get more amount of dollars invested earlier, and in theory over the long term, should be an unbeatable advantage compared to taxable.

I'll still crunch through the numbers to find out for sure though.


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## OhGreatGuru (May 24, 2009)

slacker said:


> Hi all,
> 
> I have been pondering...
> 
> ...


This has nothing to do with couch potato. It's a question about whether it is worthwhile holding equity in any form in an RRSP (as opposed to outside of it). There are plenty of threads on this. If you avoid equity, you considerably limit the prospects for ROI (although there are a few fixed income devotees who will argue that point.) But ask yourself; are you better able to pay the taxes on your investments while you are still paying a mortgage, raising the kids, and paying for their education? Or will you be better able to pay the taxes on your investments after the house is paid off, and the kids have move out?

Also, for most people it is not a choice between investing inside or outside their RRSP; it is a choice between investing inside their RRSP or not at all.


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