# How late is too late to start an RRSP



## newfoundlander61 (Feb 6, 2011)

Strange question maybe but here goes, I am 55 years old, my wife is 67 and we own our own home with no debt. Our current total monthly income from pensions net is $2,200. I also work and take home $1,500 per month, giving us a total current monthly net income of $3,700. We have one TFSA that I opened and is maxed out each year. Neither of us have never really used an RRSP as we are pretty sure our pensions will be sufficient in our retirement for daily living. My pension is indexed at age 60 and will likely go up by about $300 more per month, this amount is only a guess as my current pension is a DBPP from the army and the indexing is based on a number of factors. If I decide to draw CPP early that will likely be around $650 based on working full time since age 18. That would give us monthly pension income of around $3,150 a monthly with is $550 less than we take in now with me working. We have no money issues at all getting by currenlty with normally having a 8-10K in the bank year round I our chequing account. We pay everything with cash, never use debut unless we do the odd credit card purchase but it is always paid off monthly with no interest charges. As a side note we don't pay any banking fees either. House would sell in the range of $300K when that time comes. We may sell our home in the next 2 years and start renting for various reasons: do some travelling etc may as well do it when our health is good. Is it too late for me at age 55 to start putting money from the house sale into RRSP. My take is if I do that, then down the road I basically loose about 40% when we convert to an RRIF at age 71, maybe there is not enough time for it to grow to make it worth while doing. If I put the money into a unreg investment account then alot of my investment earned will likely be taxable to some degree. My wife is 67 so no point in her doing it. Is there enough time from now to age 71 to make it worth while. Currently my RRSP room is $90K room plus available from not using one over the years. Could I put the full $90K in this year or next in one shot or are their limits on the yearly amount based on your income. I do plan on keeping my TFSA maxed out yearly. Any info or opinions on this are welcome.


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## Spudd (Oct 11, 2011)

To answer the easiest question first - yes, you can put the whole 90k in at one shot.

So right now you make $1500/mo plus let's say $1100/mo from pension (assuming yours is half of the household pensions). That's 31k/year. Once you retire, your income will be $1100/mo (same pension) + $1000/mo ($500 less than you make now), so $25k/year. That's not a big difference in tax brackets. 

The big advantage of the RRSP is you can contribute when you're in a high tax bracket, then draw it out later at a lower tax bracket. This saves you money because you're not taxed on the RRSP contributions in your high-income years, instead you pay tax on them in your low-income years. For you, it doesn't seem like this difference in tax brackets will be very big.

You should look at it for yourself with your real numbers and decide. You can also play with various scenarios on taxtips.ca, they have a nice calculator that lets you see the effect of changing various things.


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## Beaver101 (Nov 14, 2011)

^ +1 ... but would be somewhat of a waste to put the $90K in one shot though when you don't need to simply.


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## newfoundlander61 (Feb 6, 2011)

I will try out the taxtips.ca for sure, good information on the tax bracket explanation appreciate that.


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## newfoundlander61 (Feb 6, 2011)

Good point, I guess each year when I see my tax return this RRSP unused number reminds me maybe or maybe not


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## 319905 (Mar 7, 2016)

^ Not sure what you mean by losing 40% when you convert to a RRIF.
Fwiw ... I've transferred an RRSP at QTrade to a Tangerine RRSP at 2.4% until 31 August 2017. I'll convert to a RIF this year (71 in October) at 1.3% 1 year GIC until 2018 when I have to start withdrawing. I'll withdraw for 2018, then go for another GIC ... tbd. The thing with Tangerine is no fees ... that's the main reason I left QTrade, plus I'm not longer interested in investing. Again, fwiw ... you may do something like contribute whatever amount per year to minimize your tax, put those refunded $$s to work for you, and earn some sheltered/compounded interest ... but yep, you gotta pay eventually.

And ... if you end up at 65 with an RSP, the RSP can be converted to a RIF. Since RIF withdrawals are considered pension, you could split withdrawals with your wife saving some tax $$s there ... wait a minute, your wife is 67. If the RIF is in her name, pension splitting can be done now since she's 65+ .. my understanding. Just saying, there could be some tax savings through pension splitting.


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## mordko (Jan 23, 2016)

Like Spudd says, you need to look carefully at the impact on your tax and guaranteed income when you retire. In later years some people actually melt down or freeze RRSP they already have. Depending on how comfortable you are with running various scenarios, it might be worth seeking a professional advice to make sure you maximize your net income.


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## humble_pie (Jun 7, 2009)

newfoundlander61 said:


> I am 55 years old, my wife is 67 and we own our own home with no debt ...
> We have one TFSA that I opened and is maxed out each year ...
> Neither of us have never really used an RRSP as we are pretty sure our pensions will be sufficient in our retirement for daily living ...
> 
> ...



you can find people to run numbers for you 16 years hence for several scenarios, but i believe the results cannot be precise. No one can predict what seniors' taxation might be 16 years from now, or what seniors' government assistance might be available, or even what size your own TFSA will be 16 years from now.

on a practical note, why not start up a TFSA for your wife instantly if not sooner? all spare funds can go into this vehicle. As much of the house proceeds as possible can go into this vehicle, whenever the house shall be sold (hey, it's a double tax-free, principal residence plus TFSA, who could resist?)

left-over house proceeds could then - at that future point in time - go into a non-registered investment account, after first making sure to max your own TFSA. By then, you might have a better retirement picture from the number-crunchers.

you could always divide left-over proceeds of the house sale. Max both TFSAs first, then place perhaps half the remainder in your own RRSP & the other half in a shiny, brand-new non-registered investment account.

last but not least, i am assuming that the 40% loss you are referring to when an RRSP is converted to a RRIF is the anticipated loss because mandatory RRIF withdrawals will be taxed at the highest income tax rate? other than the onset of income taxation for a RRIF, there is no loss when converting from RRSP to RRIF.

.


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## newfoundlander61 (Feb 6, 2011)

When I mentioned the 40% I was assuming that this would be approx the amount that would be taxable when you start taking it out. (with holding taxes) but I realize know after reading the posts this is way high and is much lower which is a good thing.


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## Mortgage u/w (Feb 6, 2014)

I don't see the need to contribute at this stage. You don't need the tax break and when you convert to a RRIF, you will probably be in an even higher tax bracket because you will be forced to withdraw your investment.

My suggestion is you maximize both your TFSAs. If you have grand-kids, open them up an RESP (if they don't have one already) and shelter your money even further.


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## carverman (Nov 8, 2010)

Beaver101 said:


> ^ +1 ... but would be somewhat of a waste to put the $90K in one shot though when you don't need to simply.


agree. he has to calculate what this years return will net him in additional tax breaks (read refund),
there is a point of DIMINISHING RETURNS on lump sum RRSP contribution and when he take it out again in a RRIF, it all will be TAXABLE...so why?

here's a good tax calculator to check on how much that lump sum will net you in a refund for the taxation year.
Plug in your expected incomes and then add the deductions and run some modelling on the RRSP contributions to see
which is the best amount for the maximum return possible. 

I did this and it worked for me. I only put in the amount that would bring me some tax relief rather than the whole amount. 
http://www.taxtips.ca/calculators/canadian-tax/canadian-tax-calculator.htm


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## newfoundlander61 (Feb 6, 2011)

Good information carverman on your post, I will plug in the numbers and check it out.


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## newfoundlander61 (Feb 6, 2011)

Good advice Mortgage u/w, I will max out the TFSA's for sure. My wife doesn't currently have a TFSA so this may be a good thing to do and top it up to the max.


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## carverman (Nov 8, 2010)

newfoundlander61 said:


> Good advice Mortgage u/w, I will max out the TFSA's for sure. My wife doesn't currently have a TFSA so this may be a good thing to do and top it up to the max.


There is also another way of topping up your TFSA to take advantage of any increase in interest. Some banks offer temporary promotions up to 2.5% for x months. I take advantage of this whenever. you can always take out x thousand out of your TFSA and park it in a low interest savings account, or better still
open up a spousal TFSA and put up to $52K (and then put that money back in January of the following year..IF the TFSA is paying the same interest rate as the savings. 

Contribution room
Years	TFSA Annual Limit	Cumulative Total
2009-2012	$5,000	$20,000
2013-2014	$5,500	$31,000
2015	$10,000	$41,000
2016-2017	$5,500	$52,000


That way they see you as withdrawing funds from your TFSA for 2017 even if you transfer that money to the wife's new TFSA. 
With the current $5500 you can contribute per year, it's not going to be as good for building up a sizeable retirement fund, unless you do these kinds of withdrawals.


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## Eclectic12 (Oct 20, 2010)

newfoundlander61 said:


> Good information carverman on your post, I will plug in the numbers and check it out.


As I typically know what the income/investment income is, I find the "Combined Federal & Newfoundland & Labrador Tax Brackets and Tax Rates" tables to be of more use (I picked NF due to the user name but the Ontario one includes surtaxes).
http://www.taxtips.ca/taxrates/nl.htm

There's one for each tax jurisdiction.




carverman said:


> There is also another way of topping up your TFSA to take advantage of any increase in interest. Some banks offer temporary promotions up to 2.5% for x months. I take advantage of this whenever. you can always take out x thousand out of your TFSA and park it in a low interest savings account, or better still
> open up a spousal TFSA and put up to $52K (and then put that money back in January of the following year..IF the TFSA is paying the same interest rate as the savings.



If there's a current offer or rate that is liked, where there's a big pot of cash from a house sale - I am not sure it's worth the withdrawal from one's own TFSA. A lot will depend on the rates / timing of offers.

I have used the "withdraw cash from one TFSA in Dec, contribute to the promotional rate TFSA in Jan" before for my personal TFSA.


However - this has been the cash allocation for my TFSA as the equity portion has typically done much better. So don't forget that a TFSA does not restrict one to only savings type investments.


Cheers


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## ian (Jun 18, 2016)

RSPs can be very good tax shelters if the marginal tax rate of the money coming out is less than the marginal tax rate of the money going in.

You can shelter income so that it can grow tax free. But be cautious...the bank folks will try to put you into funds that have a 3 percent management fee. It is quite possible that they will make more money on your money than you will depending upon the investment.

One benefit of an RSP is that after age 65 you can turn it into a RIF, registered income fund. Why do this? Unlike RSP withdrawals, income (withdrawals) from an RIF can be split with your spouse. The downside if you convert your RSP to a RIF at age 65 is that you have to start drawing down on it. Four percent a year I believe. This could serve to reduce you marginal tax rate, decrease any OAS clawback etc.


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## 319905 (Mar 7, 2016)

newfoundlander61 said:


> When I mentioned the 40% I was assuming that this would be approx the amount that would be taxable when you start taking it out. (with holding taxes) but I realize know after reading the posts this is way high and is much lower which is a good thing.


Right ... and fwiw pension spitting (RIF withdrawals can be split, RSPs not) may or may not be useful for you. My wife retired in 2016 ... with splitting of pensions and RIF withdrawals our calculated tax savings will be ~ $4K vs not splitting ... and ... my reduced taxable income will increase my OAS  My RSP investment account worked out well for me, could do the same for you if you go that way ... and the RIF withdrawals will work out just fine for us too but mainly due to pension splitting. RSPs aren't always bad 

And: and if you were to go with a $90K RSP investment account, you don't have to claim the $90K contribution for that one tax year ... if there are tax advantages to declare say $10K/year one year, $5K the next, you could go that way. Lots of possibilities ... as others have said, these things depend on our individual situations ... all the best going forward :encouragement:


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## twa2w (Mar 5, 2016)

I think we need more info to give you a more informed opinion.
What is your income from penions and your income from work. What is your spouses income and the source? Is she getting both cpp and OAS.?

I do agree with the topping up of tfsa regardless but the rsp will depend on the breakdown of income. You can split your pension with your spouse, even though you are under 65 if it meets the guidelines. 
Re the rsp. You could contribute the full amount of your unused rsp room of 90,000 to a spousal rsp for your wife. She could then convert to a RIF and take out the minimum payment for the first couple of years. There is no attribution as long as she does not exceed the minimum withdrawal in the first calender years after the year you open the spousal rsp. This income will be taxed in her name.
You now have a 90,000 deduction. This does not have to be used in one year so you could take a 9,0000 deduction for 10 years or 4500 for 20 years.
Depending on your mix of income between yourself and spouse, you could keep taxes quite low.
Remember there is no minimum pymt on a rif in the year it is opened so that has to be accounted for in sequence of events.


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## carverman (Nov 8, 2010)

rikk2 said:


> And: and if you were to go with a $90K RSP investment account,* you don't have to claim the $90K contribution for that one tax year *... if there are tax advantages to declare say $10K/year one year, $5K the next, you could go that way. Lots of possibilities ... as others have said, these things depend on our individual situations ... all the best going forward :encouragement:


 how does that work? Each taxpayer has a RRSP contribution limit and if you exceed the CRA contribution limit, you will be penalized
for any excess over $2000.



> *What happens if you go over your RRSP/PRPP deduction limit?*
> If you (or your employer for pooled registered pension plan (PRPP) purposes) contribute more to your RRSP, PRPP or SPP, or your spouse's or common-law partner's RRSP or SPP than your RRSP/PRPP deduction limit allows, *you will have an excess contribution.
> *
> Generally, you have to pay a tax of 1 % per month on excess contributions that exceed your RRSP/PRPP deduction limit by more than $2,000 unless you:
> ...


http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/cntrbtng/xcss-eng.html


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## Eclectic12 (Oct 20, 2010)

carverman said:


> how does that work?
> Each taxpayer has a RRSP contribution limit and if you exceed the CRA contribution limit, you will be penalized for any excess over $2000.


True ... the OP however says *there is $90K of RRSP contribution room available*. Making a $90K RRSP contribution in 2017 means the $90K of RRSP contribution room will be used up, with no issue about a penalty.


What rikk2 is talking about is delaying the RRSP deduction from income. Using his example of $10K deduction, then on the 2017 tax return schedule 7, the OP would mark that $10K would be deducted from income with the $80K contribution carried forward for future deduction.

The 2017 tax return NOA woulld include the 2018 RRSP deduction limit. This would be the sum of any RRSP contribution earned plus the remaining $80K that has been contributed but not yet deducted (Part A). In the details, there will be $80K listed as the unused contributions (Part B) that are available to deduct in future years.

This is where some people get caught making an over-contribution as they don't subtract Part B from Part A to get the amount they can contribute to the RRSP. Where one always deducts, then Part B will always be zero - making Part A the available RRSP contribution room.


Bottom line is that as long as the OP makes sure the $90K is contribution room instead of having some unused contributions inflating the deduction limit, there is no over contribution.


Cheers


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## 319905 (Mar 7, 2016)

Deleted ... off topic


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## Jaberwock (Aug 22, 2012)

The after tax impact of investing in an RRSP and a TFSA are equal if the marginal tax bracket you are in when you contribute to the RRSP is the same as the bracket you are in when you withdraw from the RRSP.

Since you will likely be in the bottom tax bracket when contributing, and when withdrawing from your RRSP, there is no advantage to the RRSP over the TFSA. You should max out both of your TFSA's before you contribute to an RRSP, since the TFSA is more flexible in its rules than the RRSP.

Max out your wife's TFSA, then look at investing in dividend paying stocks in a non-registered account. In your tax bracket, you will pay no taxes on dividends, in fact you will get a tax rebate from the dividend tax credit.


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## newfoundlander61 (Feb 6, 2011)

See current income info:

Me Age 55, plan to stop working at age 60 if possible but who really knows 

(!) Canadian Forces Defined Benefit Pension Plan: Starting receiving this in 2000 at age 39, is equal to 40% of my best 5 years when in the army. 

Yearly: $16,216.80 (Gross) This pension is indexed at age 60, based on a number of factors so not sure what the increase would be. Bridge amount on pension is $365, this is stopped at age 65. I have considered starting to draw CPP early which I believe would be around $650 per month, invest this amount for 5 years until the Bridge Benefit portion of my pension stops at age 65. If I wait until age 65 to draw CPP, my guess is the amount received monthly would not be much different than drawing early?? Not positive on this.

Work as a custodian: $29,325.75 (Gross)

For twa2w, forgot to hit "Reply with Quote."
Wife age 67: Retired from a sales position at age 65

(1) OAS: $578.53 
(2) CPP: $271.34 She started receving this at age 65, low amount is due to raising family at home most of her life, working part time later in life when the kids left.

Current investments:

My TFSA $53k Mawer Balanced Fund MAW104, I do weekly auto-purchases, atuo-reinvest distrubtions to buy additional units. A little behind on that but will catch up at some point.

Debt free and have plenty of cash in bank account to meet montly needs.

** We give $500 monthly to local charities.


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