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Email this9:21 pm
Here's the worst part about having a high interest savings account....paying the taxes!!! I just did my 2008 tax return and found that I made $68,725.00 in gross income. I claimed $8,560.00 from People's Trust on my T5 slip, so I added this money to my normal gross income from work at $60,165.00. I had no RRSP deductions, or any deductions for that matter so my NET income was still $68,725.00.
The thing that baffles me is if I had no high interest savings account and just had my income from work($60,165.00), then I would have broken even getting no refund or owing any money to Revenue Canada. But since I made an extra $8,500.00 now I owe close to $4,000.00!!!That's way too much!!!
I think our government shouldn't tax us so much for keeping a little bit of money stashed away for a rainy day!!!! I think I will invest in a good fire proof safe and put my money in there and avoid paying taxes!!!!
Roc
9:46 pm
May 15, 2007
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The new TFSA will help, slowly.
10:09 pm
Well, you'll avoid paying taxes, but you'll also avoid getting any interest whatsoever.
The taxes suck, but they're less than what you're making in interest, so...
11:00 am
thats why RRSPs introdiced by govt. man, they want you to invest in RRSP and ciruclate it in economy than stashing by yourself
1:55 am
February 3, 2009
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Roc said:
Here's the worst part about having a high interest savings account....paying the taxes!!!
That's not a problem with high interest; that's a problem with high taxation. Whether you earned that money through work or collecting interest, you pay the same amount of tax. Would you feel better if your savings account has tax withholding as RRSPs do?
10:23 am
TFSA will definately help, when it starts to build up $5k+inflation a year after 10 years, you might have $60k in a "tax haven".
You could look at moving to another Provience that has less tax. Try this out:
http://www.ey.com/GLOBAL/conte.....rsonal_Tax
And see how much you would save living elsewhere.
Mike
1:45 pm
People's Trust paid you $8,560 in interest last year? So that means you have approximately $8,560 / 0.04 = $214,000 in your People's Trust savings account (People's Trust savings accounts paid out at 4.00% for most of 2008)? Not bad.
It's none of my business, but wouldn't you be better off putting some of that cash in RRSP-sheltered investments? You will get a big tax refund if you max out your contributions (18% of your 2008 employment income, which would be about $10,830), and you of course pay no taxes on RRSP-sheltered earnings.
2:23 pm
February 3, 2009
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Mike said:
TFSA will definately help, when it starts to build up $5k+inflation a year after 10 years, you might have $60k in a "tax haven".
A $60K TFSA won't help him enough; he needs a $200K TFSA, which he won't have for 3-4 decades.
BTW, it's spelled definitely, not definately.
Mike said:
You could look at moving to another Provience that has less tax.
Roc lives with his parents -- that is the foundation of his financial strategy. Moving to another province would mean having to pay for his own living expenses; he may have to buy a home, or give up his job. Any one of the aforementioned life changes will negate any tax savings. Besides, it's his marginal tax rate that is at issue, and that can't be resolved by moving to a lower-taxing province, because the marginal tax rate won't be lower. Also, that province may have higher living costs.
BTW, it's spelled province, not Provience.
6:19 pm
Some good points mentioned but I think its best to avoid buying RRSP's since I already have over $130,000.00 parked there. If I keep maxing out my RRSP's and get as high as $200,000.00 or even $300,000.00 then I run into a very serious problem at age 71 when I have to convert everything to a RRIF and start withdrawing and again paying tax on that money!!! I'd lose more than half of my RRSP funds quickly!!!
TFSA are good, I have an account with ICICI Bank paying me 3.00%, so I plan on contributing $5000.00/yr annually to that.
I have $300,000.00 sitting at People's Trust earning 3.60% paying me close to $10,000/yr in interest. What am I to do with that money? Put it inside a fire proof safe? Maybe buy a house? Buy Stocks or mutual funds? I haven't decided yet.
For now I'm enjoying living at home, I get free rent, free food, my laundry done, free cable, etc. This is not called taking advantage of my parents, I will move out as soon as I get married or find a girlfriend.
Roc
6:47 pm
February 3, 2009
Offline
Roc, what do you do for work to earn that much income?
8:37 am
Roc said:
I have $300,000.00 sitting at People's Trust earning 3.60% paying me close to $10,000/yr in interest. What am I to do with that money? Put it inside a fire proof safe? Maybe buy a house? Buy Stocks or mutual funds? I haven't decided yet.
Roc
You could send it to my PayPal account... 🙂
1:01 am
November 26, 2008
Offline
[Dream]
I have $1,000,000 at HSBC right now at 3% till March 16th
I have $800,000 at ICICI bank at 2.5%, been there for a while
I have $1,450,000 at ING in GICs I managed to lock in at 4.6% last year
[/Dream]
I have shit. I'm a student and I will soon fall in depts and loans.
One day I will have more money than I can spend. One day. Maybe.
Max
The day you become free is the day you work for fun.
5:19 pm
Roc, it is always good to max out your RSP if you have the money and won't need to touch it until you finish working.
Here's an example I have with the following assumptions:
Rate of Return = 10% (yes, it's high, but just go with it)
Marginal Tax Bracket = 45%
Annual amount invested in RRSP = $6000
If you invested in an RSP, you'd have:
$6000 - $2700 (Tax savings at 45%) = cost to you of $3300, after your tax refund.
So in an RRSP, the future value of the $3300 investment (let's say after 30 years) is:
$6000 x 30 x 10% (compounded, using a fancy formula) = $1,086,000
That same investment, outside of an RRSP, would be:
$3300 x 30 x 10% (compounded, using the same fancy formula) = $252,000
Big difference! In a worse case scenario, if after 30 years you had to withdraw the entire RRSP amount of $1,086,000 all at once, and were taxed at a maximum of 45%... you'd still be miles ahead with $597,000.
8:14 pm
February 3, 2009
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Dave, your calculations use parameters that hugely favor RRSP, resulting in a 137% advantage. (597 - 252)/252 = 1.37
First, he won't get a 10% per year return. That's pure fantasy. If he gets only 3% return, the advantage drops to 25%.
Second, if he earns 3.6% outside his RRSP, but only 3% inside his RRSP as he does now, the advantage drops to 19%.
Third, if the marginal tax rate when he withdraws from his RRSP is equal to the marginal tax rate during the prior 30 years, he'll be no worse off by going with TFSA instead of RRSP. But if the marginal tax rate when he withdraws from his RRSP is higher than the marginal tax rate during the prior 30 years, he'll be better off with TFSA.
6:13 pm
You are correct - the situation changes if the choice is TFSA vs. RRSP. But in his case, he has the cash flow to do the TFSA separately, and still maximize his RRSP amounts every year, vs. leaving it in a High Interest Savings Account.
And, you also have to consider that whatever maximum rate he can earn outside of an RRSP (be that 10%, 3%, or 3.6%), he can earn that same amount inside of an RRSP... even in this climate, if he's prepared to lock in the RRSP amount in a 5-year GIC, he could get 4% right now.
And, of course, when you start withdrawing from your RRSP when you retire, you normally are in a lower tax bracket by that point since you are no longer working and earning an income. The example was not meant to indicate you would have a 137% advantage, but you would still have a significant advantage, assuming you have no intention of needing the RRSP money until you stop working.
10:34 am
There's nothing wrong with paying taxes - it makes for a better place to live. But there's no reason to pay too much or too soon.
Everyone should understand that a tax refund is the WORST thing you can get from the tax people! It's a free loan to the country, often while people are carrying high-interest debt. If, on the other hand, you get a big bill, you've had that money for most of the year (if you earn it at a regular rate, it's pretty much a full year at half the total) and many people (probably not this crowd, as we're savers) would save a fortune on credit-card interest.
Withholding taxes are designed to take just about the right amount so you'll owe or be owed as little as possible at year-end. Tax installments correct for the imbalance favoring people who don't have tax withheld, but it's still wigglable to advantage as nobody can predict their income exactly, and one can often make reasonable arguments that business doesn't look good this year.
Any time you have a lot of deductions and exemptions (RRSPs, dependents etc.) you should make sure you submit the tax form to adjust your deductions at source. If you earn extra income - either interest that has no withholding or earned income that had tax withheld but kicks you into a higher tax bracket because of the two jobs - you should make sure you have the cash to pay that tax AND happily keep it in an interest-bearing investment.
And be cheap - with current tax rates, a penny saved is about 1.7 pennies earned! You pay sales taxes on money spent as well as income tax to earn it.
Be GLAD if you get a hefty tax bill! While Roc wasn't thinking about the tax he would have to pay on that money, he DID get a loan of the difference between the withholding 10% and his real bill at his marginal rate. Make sure to make withdrawals of less than $5K each, and as late in the year as possible, to minimize withholding losses and get the cash back as soon as possible.
RetirEd
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