Millennial looking to start investing asks: Should I go with Wealthsimple? | Page 3 | General financial discussion | Discussion forum

christinad said
Interesting discussion. I have a pension so a small amount of rrsp room and i can max out my tfsa and rrsp. I am a bit skeptical my income will be $45000 or lower (i make 60000 now so that would be the lower bracket) Does that mean i should invest in a non registered account instead of the rrsp? I struggle with this. Just a comment that at least they invented tfsas and we have that option now.  

As Bill suggested, it depends on how long the money will remain in the RRSP before having to draw down via RRIF, what your tax bracket is today versus when you retire, and what you invest in IF you put it into a non-reg account instead.

When I got to be about 60 years of age, I decided NOT to fill out my remaining RRSP room that came from my Pension Adjustment from the last year of working (I retired on my 57th birthday). I reckoned that I was not going to be in a lower income tax bracket when I had to start RRIFing, AND maybe more importantly, I wanted my investments in dividend paying stocks. Hmmmm..... why would I invest that money in an RRSP taxed at full tax rates upon withdrawal when capital gains are taxed at 50% rate in a non-reg account.

So as I turn 70 (soon) , I have unused RRSP room I will not use. Meanwhile I have over 12 years of capital gains in the stocks I invested in, in my non-reg account. Thank you very...very much.

You just have to do what you think best, and it will either work out...or it won't.

christinad, there is, as others have said, and as you probably realize, no simple answer to your question.
If your income is going to hover around the upper end of the lower tax bracket, you would probably do well to ensure that it stays there, which means avoiding RSPs.
However, there are other factors. If you're young, then you can postpone this decision until things are clearer.
Make sure you are comparing apples and apples, i.e. looking at taxable income now and in the future.
If you are averse to investing in stocks, then you will not benefit as much from putting our money in non-registered assets. But, if you are willing to do so, then that might be a good answer for you because of the preferential tax treatment of capital gains and Cdn dividends.
Might you yet inherit money? That could bump up your savings and retirement sources, making the RSP less necessary or desirable as an inheritance will also earn taxable income.
How secure is your job and your pension? Is your pension defined-benefit or defined-contribution? Is it indexed - fully or partially? Do you read the annual statements to see how well it is doing? An RSP could be very useful if the job or the pension fail.
Do you own property? That too can be a source of retirement income if you sell and rent.
I think you said in previous posts that you are a single person? If so, you miss out on some of the pension splitting that is available to married RIF-holders and RPP recipients. If you are single, I would see this as a negative point for RSPs.
Do you have a good disability insurance plan? This is more important than an RSP in your earning years, especially if you are self-supporting. A car accident can wipe out your earning power and make the RSP question irrelevant. If you have such a plan, do you know its terms in detail? It's worth knowing, as those details will surely matter if you ever need to use it. Buy extra if necessary; and remember to cancel it when it expires (usually age 65) as the insurance company will be happy to keep taking your money (this happened to someone I know).
At what age will you retire? If you retire early, you will have some time in which you can take early withdrawals if you can foresee a larger-than-expected income ahead.
Are you in good health? This affects longevity and thus the need for RSP.
I don't usually recommend this but you might want to look into a long term care insurance policy and/or one for catastrophic illness. They are expensive, too expensive, and that's the problem. LTD may look after the catastrophic illness , so the long term care might be more important. Still, if you have no one else to lean on, you might find it useful. Something to consider. Read policies very carefully, before you need or buy them.
I'm sure there are other relevant considerations, but those are the ones I can think of at the moment. I lean towards thinking RSPs may not be best choice for you. But remember too that tax brackets can change and probably will.
You might benefit from an analysis of your whole situation by a fee-only financial planner who has expertise in retirement INCOME planning. Many don't know much about the income end of it.
I hope that helps a bit.

Thanks for the replies. Lots to think about. The other thing i'm thinking is i would invest in gics in an unregistered account instead ofvthe rrsp which doesn't have favorible tax treatment which isn't great as i've been reading .I'd have to invest in something like mawer tax effective balanced and i'm not sure i want do that. I'm actually leaning to investing in rrsps but revisiting the decision when i'm 55 with the help of a financial planner as some have suggested. I doubt i'd be in a higher tax bracket in retirement. However i could put money towards my mortgage instead of rrsp as well. I am not looking forward to tax at death but i could also melt down rrsp early as i've read about here.

The missing piece of the puzzle for people may be i'm 45 and having money sitting in a taxable account until retirement may be too long.

I agree, it's misleading, and maybe there are some reps in the industry that actually think WHT re RSP withdrawals is an extra tax.

In their defence, they do state "The amount of the withdrawal is also included in your taxable income for the year, so if your marginal tax rate is higher than the withholding tax rate, you’ll have to pay additional tax at year-end on the funds you’ve withdrawn." So they do point out that you may not owe any further income taxes on this income. It would help if they indicated the T4RSP slip (Box 30, I believe) will show the withholding taxes that can be claimed as a credit on your return for the year.

I hope I didn't give the impression that I am not invested in the stock market at all because that is not the case. I invest in mutual funds and etfs in my rrsp and tfsa (Hence the growth in the RSSP) but I don't want to invest in these in a taxable account. Part of it is uncertainty over how to track them for tax purposes and part of it is i'm not sure how long I would hold the mutual fund or etf and I thought it made more sense to have it in a taxable account if you kept it long term. You are right I should go to a financial planner sooner but I just feel like things are too uncertain with my future right now and there is not much point. I'd rather wait until things are solidified a bit. Maybe 50.

Kidd said
Before i put this topic to bed, here's a hmm... (these are my real percentages)

I decided to open my old tax files using studio tax. Doing a what if... What if i did not withdraw any money from my rif. I found the results confusing.

Scenario 1.

Line 150 total income (including rif withdrawal) = A
Line 435 total payable = B
Percentage of (A) paid to the taxman = 23.66%

Scenario 2.

Line 150 total income (no rif money) = C
Line 435 total payable = D
Percentage of (C) paid to the taxman = 20.25%

Okay

A - C = RIF money (E)
B - D = tax paid on E
Percentage of (E) paid to the taxman = 33.43%  

That is normal.

Scenarios #1 and #2 reflect your average tax rate. Scenario #3 reflects the average of the tax brackets your RIF withdrawals span.

Keep in mind that the Canadian tax system taxes income at the rate of the bracket each portion of income is in. Income is not taxed at the highest bracket with income.

For 2018, the first two federal tax brackets are

15% $0 to $46,605
20.5% over 46,605, up to $93,208.

If one has an income of $47,000, one doesn't pay

20.5% x $47,000 = $9,635

of federal tax. Instead one pays

15% x $46,605 + 20.5% x ($47,000 - $46,605) = $7,071.73

christinad said
I hope I didn't give the impression that I am not invested in the stock market at all because that is not the case. I invest in mutual funds and etfs in my rrsp and tfsa (Hence the growth in the RSSP) but I don't want to invest in these in a taxable account. Part of it is uncertainty over how to track them for tax purposes and part of it is i'm not sure how long I would hold the mutual fund or etf and I thought it made more sense to have it in a taxable account if you kept it long term. You are right I should go to a financial planner sooner but I just feel like things are too uncertain with my future right now and there is not much point. I'd rather wait until things are solidified a bit. Maybe 50.  

You did not say above that you were invested in RSP or mutual funds or ETFs. You said you had RSP room and that you could afford to contribute. So, no, i did not understand that you already had non-GIC investments or RSPs.

I don't understand why you would think that you would hold funds for shorter time if in taxable account if you see it as an alternative to RSP. Wouldn't the duration be the same if the purpose is the same?

Someone else here can help you more with the record-keeping (AltaRed?), but I don't think you should let that stop you from getting the advantage of the lower taxation rate from dividends and cap gains. Lots of other people manage it. All I know about it is that you need to keep your original investment records. You could always ask an accountant, with a view to hiring them to do your returns. Hopefully they would give you the necessary info in an initial meeting at no charge to see if you're a good fit for each other, in order that you will be able to provide them with the information they need at tax time. It would probably be worth it.

I can understand your feeling that you don't want to see a financial planner yet if your life is in flux. On the other hand, a good one should be able to help you see where you should be aiming to get to.

I appreciate you trying to help Loonie and i have reread some of your posts. I am feeling more confused now as i contemplate 2 scenarios. Scenario 1: i sail to retirement with a job where i make the same or more money with a pension. In this scenario i would think decreasing the amount in rrsp as between pension and rrsp i would have too much income. In scenario 2 i experience extended unemployment or under employment and my ability to put money in my rrsp is reduced. So in this scenario does it matter if i max out rrsp now? I'm assuming i need to find some middle ground between the 2 scenarios. Although money in a taxable account would be easier to access so there's that benefit.

Norman1 said

Loonie said
My recollection is that, during the 1970s/80s, when I began investing in RSPs, there were more federal tax brackets than there are now in the under-100K category. Can anyone verify if this is correct, and waht taxation rate applied then?
…

Response in new thread.  

Thanks. I have posted some more notes there which show some significant changes in tax brackets that can occur over time. It makes it very hard to plan anything in regards to RSPs. The government of the day can foil your best-laid plans, and often will.
I would bet that most of us don't even know what tax we saved on our original contributions, which makes it hard to compare to post-retirement rates. The rates were probably different in different years, just to make it more complicated.
For me at least, it reinforces my feeling that RSPs, being creatures of government, are risky. You really have no way of knowing what tax rate you will pay on withdrawals down the road. The same can be said for any source of income, of course, but RSPs make us more vulnerable because of the big bump in income that they create. An RIF of 300,000 will add a minimum of almost 17,500 to your income at 5.82% mandatory withdrawal at age 75, for example; and I'm sure a number of people here have significantly more than that.

I'm not entirely sure what point you were trying to make in #50 above, Norman. I don't disagree except to say that the losses due to the age credit etc and income-tested benefits will be greater if your income is bumped up by RIF withdrawals because you will reach thresholds sooner.
The tone of your post suggests you believe RSPs are the superior way to go, but, as you agree in the end, it really depends on how the numbers work out for you. And that, I would argue, is unpredictable with many caveats. Some people have actually manage to LOSE money on their RSP investments, never mind the taxes! And some others do not make enough to justify the undertaking.

Loonie said
Someone else here can help you more with the record-keeping (AltaRed?), but I don't think you should let that stop you from getting the advantage of the lower taxation rate from dividends and cap gains. Lots of other people manage it. All I know about it is that you need to keep your original investment records.  

Managing one's Adjusted Cost Base (ACB) for bond/equity investments in non-registered accounts seems daunting for neophytes to the subject but the basics are pretty simple. It is a matter of keeping track of the 'cost' of each purchase one makes, whether an original purchase, or the re-invested dividends/distributions of recurring income AND keeping a copy of those purchase records as 'proof' to CRA of your costs should they ask for those records on any capital sale.

A really good template for keeping track of ACB is https://www.adjustedcostbase.ca/ and many of the links in the Blog section for the basics are worth reading. For the most part, mutual fund companies are really good at providing you with your Book Values (meaning ACB) with their annual statements. Brokerages are pretty good too with keeping accurate Book Values for most stocks and mutual funds and even ETFs.

There is one quirk on ETFs (phantom re-invested distributions) that some brokerages don't get right, but there is a link in that blog about this issue. I suspect the vast majority of ETF investors don't get the phantom re-invested distribution issue correct in their records but generally the error is not much, and the error is in CRA's favour, meaning no one is going to get into trouble with CRA about missing this concept.