How to Use the RRSP: Part 2

By | 03/22/2012

RRSPs can be used to lower our overall tax burden. Continued from How to Use the RRSP: Part 1

Another use for an RRSP is to treat it as a jobless fund. I don’t have an emergency fund in the traditional sense, but if for whatever reason I stopped working, didn’t qualify for E.I. benefits, and ran out of TFSA money, I would immediately sell $12,000 of the stocks in my RRSP account and withdraw small amounts of money from it each month to cover my living expenses until I can find a more permanent solution. Luckily I have never had to resort to such an emergency ( ´_⊃`) I do have to pay a withholding tax when I withdraw money from an RRSP account, but depending on the circumstances I might get that tax refunded. Spending RRSP money when I have NO other taxable income is even better than spending it when I retire when I’ll have CPP benefits, (social security,) OAS,and other government or private pensions to push my income into a higher tax bracket. I do lose the contribution room, but I will likely be using spousal RRSPs to lower my RRSP portfolio anyway.

In the tables above, an RRSP strategy can help save $3,000 in taxes. Money invested in RRSPs can grow tax free so it’s a good place to hold bonds and US equities.

Another possible use for RRSPs is the Home Buyer’s Plan. As long as contributions are made to an RRSP for at least 90 days, home buyers can take up to $25,000 out of their RRSPs without any penalty to buy a qualifying home. For couples, that means they can take out $50,000 to help pay for their home together. Certain restrictions apply such as the couple will need to repay all their RRSP withdrawals within 15 years. But it’s another option for people with large retirement accounts, but very little savings otherwise. Similarly the Lifelong Learning Plan allows you to borrow money from your RRSP to finance full-time schooling for either you or your spouse. So if your wife or husband is going through school, this is another option besides student loans. But you do have to pay back the withdrawn RRSP funds within 10 years.

Like I said before, the RRSP is not a retirement tool, but rather it’s a tool for creating wealth. Next time, spousal RRSPs (゜∀゜)

Random Useless Fact: One third of Americans now plan on working past the age of 70.

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