# Question about RRSP swaps



## jpmelito (Jan 6, 2012)

http://www.mrrca.com/new_page_2.htm
http://www.retirementoptimizer.com/articles/CapLoss in RRSP.pdf

I read the articles above regarding RRSP losses below, and for the life of me, I can't figure out how it's beneficial at all. In a nutshell, they describe a scenario where you had an initial 10K equity position in your RRSP that sank to 5K. Assuming an eventual rebound in value, the strategy is to do a cash-for-stock swap. Once the stock value rebounds back to 10K, you reverse the swap and then deposit the other 5K in stock into your RRSP as a contribution in kind. Let's say your marginal tax rate is 45%. Your ending position is:

$ 10,000 stock
+ 5000 cash
+ 2250 tax refund
- 1125 capital gains tax
= $16,125

I just don't see how this helps. The refund on an additional 5K RRSP contribution is the same, regardless. All you've done is incur CG tax when you didn't have to, what am I missing?


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## natalie_d (Nov 25, 2009)

I read the article twice, and based on my understanding, the purpose of the swap is to use up "unused RRSP contribution room that you don’t think you can use in the near future".
The swap basically converts 5K of unused RRSP contribution room into a 2.5K reduction in taxable income. The key assumption is that you don't think you can use the unused RRSP contribution room, so you can't just put $5K of cash in it and leave it there.


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## Charlie (May 20, 2011)

it's a sophisticated sounding plan predicated on knowing a stock will go up.

Essentially.....
you take the stock out of the RRSP
it goes up (this is key to the plan ) 
you put it back in the RRSP.

You pay CG tax on the gain (at 50% your marginal rate)
You get RRSP deduction of the value (at 100% marginal rate).

So you're 'ahead' by the tax free portion of the gain. 

All you need to determine is which stocks are set to go up (or rebound, if you want to tie it to today's narrative). 

The swaps etc make it sound more sneaky then it really is...(you could accomplish the same thing by selling the stock in the RRSP and holding the $5K in cash, while you used the $5K you were going to swap into the RRSP to buy the stock outside the plan and then contributing it when the it went up).

And again -- all you need to do is figure which stock is about to double in value!


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## HaroldCrump (Jun 10, 2009)

Charlie said:


> all you need to do is figure which stock is about to double in value!


LOL - if someone knew that, they wouldn't need the RRSP to begin with


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