# Wise to maxing RSP on a $70K salary?



## hedgehog88 (Nov 18, 2012)

I have been reading that maxing out your RSP is the way to go to lower the tax bracket, therefore lower taxing on income. But depending on which salary bracket, if in the higher bracket its a definitely yes to max and if in the lower bracket its a not at this time. 

I am wondering if one is grossing $70K with no liabilities, is maxing RSP suggested?

Thank you.


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## Four Pillars (Apr 5, 2009)

I wrote an article where I looked at some rough guidelines for this issue:

http://www.moneysmartsblog.com/tfsa-vs-rrsp-which-account-is-best-for-your-retirement-funds/


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## Guban (Jul 5, 2011)

As Mike indicates in his article, this may be a question of RRSP vs TFSA. In general, don't contribute anything to your RRSP that you don't plan on deducting unless your TFSA is maxed out first. Tax free growth is better than tax deferred growth. You can always take money out of your TFSA later and put it in your RRSP.


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## none (Jan 15, 2013)

If your tax bracket is the same when you put money in and take money out a TFSA and RRSP are equivalent vehicles.

If you expect your tax bracket to be lower when you withdraw money from your RRSP then an RRSP is better.


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## aB01 (Sep 11, 2013)

hedgehog88 said:


> I am wondering if one is grossing $70K with no liabilities, is maxing RSP suggested?


Saving is better than not saving, so is maxing RSP suggested? Yes, why not. I would suggest maxing TFSA as well. When those are maxed, I would suggest saving some in an unregistered account as well.

If you were not going to max RSP, what would you do with the money?


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## Eclectic12 (Oct 20, 2010)

I believe one poster figured they would be in a higher tax bracket later in life and had TFSA room left. 

So they figured using the RRSP to get as close to but not dropping down a tax bracket and then topping up the TFSA was the way to go.


The assumption being that it was a waste to use RRSP room and get less money refunded as lower tax rate was being charged.


Cheers


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## steve41 (Apr 18, 2009)

none said:


> If your tax bracket is the same when you put money in and take money out a TFSA and RRSP are equivalent vehicles.
> 
> If you expect your tax bracket to be lower when you withdraw money from your RRSP then an RRSP is better.


It is very uncommon to have a similar or higher tax rate in retirement than pre retirement. The main exception is for those who are in estate building mode. For the normal 'working/saving - retiring/desaving - dying broke (or close to it)' individual, rates in retirement are simply lower.


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## kaleb0 (Apr 26, 2011)

Another reason someone might want to leverage an RRSP - even at more modest income - would be the Home Buy's Plan (details here: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/)



> The Home Buyers' Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. You can withdraw up to $25,000 in a calendar year.
> 
> Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year.
> 
> Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount due for a year, it will have to be included in your income for that year.


I make $54k/year but I still put alot into my RRSPs as a means of being an efficient savings vehicle for a first home.. Am I thinking about this wrong? Should I save my contribution room for when I am in a higher tax bracket?


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## none (Jan 15, 2013)

steve41 said:


> It is very uncommon to have a similar or higher tax rate in retirement than pre retirement. The main exception is for those who are in estate building mode. For the normal 'working/saving - retiring/desaving - dying broke (or close to it)' individual, rates in retirement are simply lower.


That besides the point and not always true. It's important that people understand the math behind things.

If you make less than 42K a year then a TFSA is likely a better investment vehicle than an RRSP (or at worst equivalent). That's the only saving grace in my mind whether the TFSA is a plus at all to society rather than just a hand out the the financial industry and the wealthy. Don't get me started on RESP - classic Canadian bait-and-switch. Canadian can be such suckers sometimes.


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## Guban (Jul 5, 2011)

Ok, I'll take the bait. Please get started on the RESP bait-and-switch. What do you mean? You may wish to start this one as a new thread, however. There may be lots of discussion.


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## none (Jan 15, 2013)

Guban said:


> Ok, I'll take the bait. Please get started on the RESP bait-and-switch. What do you mean? You may wish to start this one as a new thread, however. There may be lots of discussion.


I'll quickly address it here. You need to ask the question: why are RESPs even necessary? They are because of draconian cuts in higher education.
1) Government cuts payments to university thus requiring large increases in tuition;
2) Education becomes unaffordable
3) Government starts RESP program to show they support higher education. This is a blatant handout to the financial industry, now everyone has to learn how to invest properly (or get sucked into high MER mutual funds as most are). Why should a single mom who works 60 hours a week at a diner have to learn investing? It's ridiculous.
4) poor people don't have the money to put $2500 away each year to get the $500 bonus anyway.
5) Decades ago Canada decided that grade 12 was a *generally* the minimum requirement needed to be a productive member of society. Most would agree now that that bar has moved up to include some post secondary education and thus, to maintain the logic I think University should be paid by the tax payer (this would actually financially hurt me).
6) Of course, the baby boomers will of course Whine and complain about this while they are heavily sucking on end of life health care. Jerks.


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## nathan79 (Feb 21, 2011)

none said:


> 5) Decades ago Canada decided that grade 12 was a *generally* the minimum requirement needed to be a productive member of society. Most would agree now that that bar has moved up to include some post secondary education and thus, to maintain the logic I think University should be paid by the tax payer (this would actually financially hurt me).


I've been saying that for years. Of course, the alternative would be a re-write of the entire curriculum.

I've long felt there was too much emphasis on rote memorization of useless facts, and too little on critical thinking and practical skills that are actually useful later in life. They used to focus strongly on home-ec, trades, and financial skills in high school, but those things have become watered down or made into electives. Unfortunately, the corporate-aligned educational system has have a vested interest in maintaining the status quo. They don't want to teach kids financial skills because that might cause them to shun credit and consume less, hurting the profits of corporations. They don't want to teach us how to fix our own car, or doing anything ourselves, because they'd rather we hire other people to do those things for us. The entire system is set up to mold us into consumers rather than educated people with real skills. The moving of the bar towards mandatory post secondary education is just another way to milk profits from us.


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## none (Jan 15, 2013)

I agree some 'quality of life' skills for life outside of work should be fundamental. School shouldn't simply be about work training but about preparing students to have a great life which includes work skills and life skills. Of course the latter I suppose is expected to be taught at home, which is somewhat fair but lets face it, lots of adults are lacking in life skills.

I'd love it if 25% of school was dedicated to life skills: cooking, physical education, music, home economics etc.


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## nathan79 (Feb 21, 2011)

^ Yeah, I agree with that too. I think the bottom line is that 12 years isn't long enough; there needs to be something like an optional "grade 13", or fully funded 2-year college.


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## HaroldCrump (Jun 10, 2009)

none said:


> 1) Government cuts payments to university thus requiring large increases in tuition;


Govt. is increasing direct subsidies to the students and their parents, though.
Such as the Tuition Credit for households with up to $160K in annual income.
The way this subsidy system has been working is as follows:

Perform a political gimmick such as "education premier" > subsidize education > surprise, surprise - cost of education goes up > grant more subsidies > cost goes up more > subsidize more > ad nauseum

RESP is part of that whole subsidy program as well.


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## Longwinston (Oct 20, 2013)

none said:


> I'll quickly address it here. You need to ask the question: why are RESPs even necessary? They are because of draconian cuts in higher education.
> 1) Government cuts payments to university thus requiring large increases in tuition;
> 2) Education becomes unaffordable
> 3) Government starts RESP program to show they support higher education. This is a blatant handout to the financial industry, now everyone has to learn how to invest properly (or get sucked into high MER mutual funds as most are). Why should a single mom who works 60 hours a week at a diner have to learn investing? It's ridiculous.
> ...


It is much more fair for the government to be offering RESPs and student loans than directly funding free university education for all. First, free university education is probably not even a good thing on its own, we already have a massive over supply of arts graduates - we need more trades people. But even keeping that aside, it is dramatically more fair for governments to help people save for the cost of education than to fund the universities directly. 
Why?
1) When people have to pay for something they attach a value to it and take it more seriously - more learning is done
2) universities are horribly inefficient with funds. Giving them more will result in wasting tax payer dollars
3) Why should people who have no kids or people who dint go to university pay for others to go to university?
4) University's where tuition is free are almost always inferior to those that aren't free.
5) government encouraging and enabling people to save and invest in themselves is much more preferable to having a populace that expects government to give them things for 'free'. See entitlement culture.

In short, I couldn't disagree with you more.


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## wendi1 (Oct 2, 2013)

To the question posed - the real gift in an RSP is the tax-free growth. If you are young, you get a much longer time to benefit from that, and I would say maxing your RSP is a very good idea if you can manage it when you are young. This argument applies to maxing out your TFSA, too.

The "tax rate differential" argument makes much more sense if you are approaching retirement, and can eyeball whether you will pay more tax than you save.


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## none (Jan 15, 2013)

Longwinston said:


> It is much more fair for the government to be offering RESPs and student loans than directly funding free university education for all. First, free university education is probably not even a good thing on its own, we already have a massive over supply of arts graduates - we need more trades people. But even keeping that aside, it is dramatically more fair for governments to help people save for the cost of education than to fund the universities directly.
> Why?
> 1) When people have to pay for something they attach a value to it and take it more seriously - more learning is done
> 2) universities are horribly inefficient with funds. Giving them more will result in wasting tax payer dollars
> ...


1) Not always true - people go to high school and succeed just fine.
2) I don't know any studies showing the universities are inefficient any more than an equivalent size institution.
3) Same reason that we all pay into health care, roads, environmental monitories etc - An educated population makes a place better to live and reduces social problems.
4) I don't know any universities that are free. If you compare say U of T to say Harvard I don't think the quality of education you get at Harvard is much (if any better) than U of T despite the massive amount of tuition
5) it's more of the governments role to ensure that everyone is given a fair shot and a segment of society isn't excluded from becoming highly productive members of society simply due to the socioeconomic class them happen to be born into.


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## Sampson (Apr 3, 2009)

Longwinston said:


> 4) University's where tuition is free are almost always inferior to those that aren't free.


Does this mean you think all graduates from German Universities (and from other countries where undergraduate tuition is fully subsidized) are worse than those graduating from the Univeristy of Walla Walla?


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## Longwinston (Oct 20, 2013)

none said:


> 5) it's more of the governments role to ensure that everyone is given a fair shot and a segment of society isn't excluded from becoming highly productive members of society simply due to the socioeconomic class them happen to be born into.


Yes, that is what student loans are for.
Look into places where university is free.


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## none (Jan 15, 2013)

Longwinston said:


> Yes, that is what student loans are for.
> Look into places where university is free.


I have and loans don't do what you are saying they do.


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## none (Jan 15, 2013)

Longwinston said:


> Yes, that is what student loans are for.
> Look into places where university is free.


Loans don't always work (surprise...)
http://www.theglobeandmail.com/life...hool-the-poor-need-not-apply/article15443887/


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## Longwinston (Oct 20, 2013)

none said:


> Loans don't always work (surprise...)
> http://www.theglobeandmail.com/life...hool-the-poor-need-not-apply/article15443887/


The article is blocked.
In any case it doesn't matter. Young Canadians have more opportunity than 99.999999998% of the people who have ever lived in the history of the world. Clearly there is a problem of expectations in the younger generation. 

If any one of them want something bad enough then they can get it. If they can't then we are truly in trouble, but it won't be because our government didn't give it to them it will be because they think that that is the only way they can accomplish what they want out of life.


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## none (Jan 15, 2013)

No it's not blocked you have simply used up your monthly allowable articles.

I could easily tell you how to correct that but I'm sure you feel it would be better for you to pull yourself up by your bootstraps and figure it out for yourself.


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## Longwinston (Oct 20, 2013)

none said:


> No it's not blocked you have simply used up your monthly allowable articles.
> 
> I could easily tell you how to correct that but I'm sure you feel it would be better for you to pull yourself up by your bootstraps and figure it out for yourself.


Well, it was a pleasure.


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## none (Jan 15, 2013)

Likewise.


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## Cal (Jun 17, 2009)

If you are frugal and have the extra cash, max both.


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