Watch my RRSP EXPLAINED videos to understand exactly how the RRSP works to reduce your tax bill and invest for your retirement! 🇨🇦 ru-vid.com/group/PLj8bU3AuW2qHOikk4VRpSDXCZTuH7eUhz
And watch the rest of my CANADIAN TAX GUIDE, my videos with the silver-coloured thumbnails to learn everything you need to know about Taxes in Canada! 👇 ru-vid.com/group/PLj8bU3AuW2qEA_ik7NOAIkBY02nt7KAPj
@@insideyourshelter sorry just to be clear, are you asking what Stocks and ETFs to invest in an RRSP? An RRSP is just a type of tax-sheltered account. You can't "buy an RRSP" you buy stocks and ETFS which are held within an RRSP, it's like a basket! And it depends on your time horizon, if you are looking at 1 or 2 years, I definitely would NOT invest in the stock market. That's too short of a timespan and the market can be very volatile and unpredictable in the short term. In the long term, 5+ years then the market is historically very profitable as long as you invest in quality well established companies with a long history of profit and growth and diversified ETFs like index funds! Check out my STOCKS TO BUY playlist to see my favourite stocks and ETFs that I own! 😁
@@insideyourshelter And you might want to consider the new FHSA account, First Home Savings Account which should be launching on April 1, a month away! The bill hasn't officially passed yet but it will be incredibly helpful in helping buy your first home, in addition to the Home Buyer's Plan! I talk about the details of the FHSA in my video on 2023 TAX CHANGES here 🇨🇦 ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-Zjfy_G1l5ok.html
So if you are in the lowest bracket now and have some money kicking around stick it at any time into a TFSA investment portfolio that doesn't contain US dividends, assuming you have room in the TFSA. Then when the TFSA investments grow you will have more funds gained tax free that can be transferred into an RRSP plan as your income level increases above the lowest tax bracket, currently just over 50k/yr federally. Up to 35k (it used to be 20k) can then be withdrawn from your RRSP to reduce your mortgage interest on your first home. This probably pays the best return on your money because there are no management charges on interest that you are not being required to pay, whereas a mutual fund will extract hidden fees, well they're not hidden anymore, but you get the idea. And those mutual funds fees are often higher the less money that you have to invest. Of course this assumes that one is in the market to invest long term in a primary residence and not anticipating a move before having placed those funds back into the RRSP. I guess there is probably more to say on this, am I wrong or out of date on this type of planning? Too late for me really though, I'm almost 60 and didn't have the benefit of TFSA when I was younger and in the lowest tax bracket for over a decade. There was no way I was getting into the property market with interest rates exceeding 20% in the early 80's even if I had the money. It was better to spend the $ on a cheap education.
I don't normally comment on youtube videos because somehow, there's always disagreements and silly arguing. But I have to tell you that you are the ONLY channel that I recommend to friends, coworkers and colleagues who want straight, no nonsense information on all things financially related. Your videos are an absolute wealth of information explained in understandable fashion without digressing. Very concise, succinct, informative and delivered with a smile. Thank you.
Eddie thank you so much for those kind words, that genuinely made my evening! 🙏 I am honoured and proud that I have earned your trust and faith in me and I hope to never lose it! And the fact that you trust me enough to share y videos with friends and coworkers, that is the BEST compliment I can receive so thank you! Viewers like you are the reason why I LOVE this job and I never want to lose this engagement with you guys! 😊
I seriously cant even explain in words how amazing your channel is. Youve answered every single finance question ive ever had. Keep up the great videos!
As always, another awesome video filled with great content! One curious question I have and I’d love your insight: we mentioned in the video about deferring tax deductions until income is increased to have stronger utilization of previously contributed RRSP funds. My bone to pick, is the possible opportunity cost that we’d be giving up by deferring that tax rebate, and placing that return to use *today*. I guess this would be very case-by-case, because if wed be deferring application of the RRSP deduction for 10 years (versus that of 2,3, or 5, for example), we’d be sitting on an additional rebate that begins to negate the deferral of the deduction to begin with, as we’re prolonging the eventual use of those rebated, deducted contribution funds. Again, I’m a firm believer in stretching my dollar bills to the absolute max, and I personally think that the longer we take to implement the actual deduction, the less value in deferring the deduction can become. Feel free to comment any insights, peeps!
You’re such a great teacher dawg. No fluff or bullshit. Straight to the point with easy to understand concepts and you even add visuals to understand better. You’re the goat brother I also fw all your old vintage games, they’re dope as fuck
Thanks Adrian. Carry forward of deduction was new information for me. I always thought if you contributed to RRSP, then you already utilized your rrsp deduction. Thanks for breaking that myth and also for providing info regarding claiming refunds earlier from the payroll in your other video. Keep up the good work.
I'm happy to help! And you are NOT the only one! A HUGE portion of Canadians don't fully understand how the RRSP works, especially with the option to carry forward deductions! And it's not their fault! Especially when "educators" and journalists are conveying misleading or inaccurate information!
Well played buddy! And at the end of the year when you file your taxes, you have the option of adjusting your strategy by carrying forward those deductions to a later year if you expect your salary to increase even further next year! 😁
Interesting. I've never known you could do it this way before. I will definitely be looking into it. I am still in the lowest tax bracket and have been avoiding the RRSP for this reason. Wish someone shared this tip sooner!
I'm glad I was able to shed some light and dispel this myth! I will be making a WHOLE video about TFSA vs RRSP in different scenarios but the point is that now you know that contributing to your RRSP can still be a great option for you, especially if you expect your income to grow throughout your career, you don't have to wait =)
Low income Canadians should use a TFSA. Taxes are one consideration. but government benefits are another. RRSP income can often affect government benefits in your old age.
Absolutely there are a TON of factors to consider including what your retirement income looks like regarding CPP, OAS, business or rental income plus government or employer pensions. It is definitely NOT an easy one-sized fits all decision and I will be making an in-depth, 20 minute video breaking down various scenarios for TFSA vs RRSP, stay tuned! 😁
@@CanadianTShirt can you please include more examples like what would you do if your salary was CAD $80k per year, then for a salary CAD $110k per year, then CAD $140-150k per year, etc.
And in my understanding once you withdraw money from rrsp they will get the withholding tax ex. $10,000 less 30% you will get only 7k.. even your 67 .. and at the end of the year you will declare the 10k as your income. So if you low income try to max out the tfsa 1st..
@@myfairmont The withholding tax on withdrawal is a non-issue. It is merely the bank retaining a portion of your withdrawal to try to cover the eventual tax you pay - no different from your company holding onto some of your paycheck to pay income taxes that you'll owe at the end of the year.
I know you briefly mention TFSAs toward of the end of the video, but when is it better for low-income people to contribute to RRSPs without claiming the deduction, rather than putting that money into a TFSA? Especially in the current circumstances where people are struggling to make it, let alone to save up, I'd definitely put a big asterix and let people know that the TFSA allows a whole lot more flexibility, and putting money not RRSP especially at low income could be a bit reckless if they don't have a rainy day fund. That's my argument but I'm definitely interested in hearing your thoughts.
I wanted to ask just this type of question. For example, it seems to make more sense for low income potential home buyers in the short term to contribute to the TFSA and then transfer/withdraw those funds to the FHSA when it goes online? In my case, I’m a student in my last semester who pretty much doesn’t pay taxes, so I get the feeling the TFSA-to-FHSA is the right move short term. Does my reasoning seem OK?
If we do not consider income-tested benefits like Canadian Child Benefit, then it is NEVER better to contribute to RRSP and delaying the deduction, compared to investing in TFSA. In the former case you're giving the government an interest-free loan and limiting your investment capital, whereas the latter case you have 100% exposure to your investments. But as warned above, even at low income, benefits like the CCB can tip the scale, especially if you have multiple children. But in those cases you'll be claiming the deduction immediately, not delaying it.
Although I agree with you overall with you about the RRSP being powerfull you should really mention that at lower income people should just use their TFSA (after an RRSP employer match). When that's maxed use your RRSP. Also, unless expecting a BIG salary/tax bracket increase in the following year or 2, postponing the refund is rarely the efficient thing to do. You should almost always take all the money asap for the exact reason you mentionned. More time for tax free growth.
I agree with this. The example of having an equally low income now as in later years is not breaking even since you benefit from "more time for tax free growth"
Love your videos! You have helped me tremendously to understand investing, tax savings & feel confident buying my own stocks. Thank you! Would you considering creating a video about the new FHSA. I am a low income single mother (40’s) and wanting to maximize opportunities to help us buy our own home. How would you invest with the FHSA? … knowing the money needs to be withdrawn/used within 15 yrs. With gratitude, Colleen
Way ahead of you Colleen and happy to help! I have already covered the FHSA in a previous video on the 2023 TAX CHANGES so check it out! =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-Zjfy_G1l5ok.html
Something else to keep in mind. Let us assume that I have contributed $2,000 per year for 30 years and due to my low tax bracket, never took the deduction. I would then have $60,000 worth of Deduction to be deducted at a future time. At age 65 I could start claiming say $10,000 per year to reduce my net income. This would reduce the amount of the Age Amount reduction but most importantly, perhaps reduce the net Income enough to qualify for OAS, Income Supement. Keep in mind that the last yr to be able to claim an RRSP Defuction is at the end of the year of our 71st Birthday.
Absolutely there are always many things to consider especially as you get closer to retirement age, you have to factor in OAS clawback, CPP, pensions etc. Generally speaking, carrying forward RRSP deductions should only be done for several years at the most. If you are carrying forward your deductions for 10 years or more, then you need to evaluate and you are losing out on 10 years of investment growth on that tax refund!
Great video! I love this type of content. I never even considered carrying forward RRSP deductions. I can see how it can make sense (especially early in my career when I'm not making much money).
Absolutely! And a lot of Canadians don't even know that you can do this! Make sure you watch the whole video, I go over my personal experience where I contributed to my RRSP as a broke college student and carried forward those deductions for 3 years! That way my investments were able to grow TAX-FREE for an extra 3 years plus I got to claim far MORE in tax savings once I graduated and got a high paying job =)
Except it rarely makes sense to contribute to RRSP and not claim the deduction until later. You're giving the government an interest-free loan so you're hurting yourself by cutting the amount of capital you have invested. If you have TFSA room, invest that amount in the TFSA to let it grow, and then when you are ready to deduct, you pull it out of your TFSA and contribute to RRSP that year. Even a non-registered account can be better than contributing and delaying the deduction. Look at an easy example: Let's say my current tax bracket is 20%, and 3 years later it will be 30%. If I contribute $1000 to my RRSP and I get 10% return a year, after 3 years I will have $1331 in my RRSP + $300 from my refund when I claim it on my third year. That's $1631. If I contribute all of that in a non-registered account, I will have $1331 - $49.65 of capital gains (half of $1331 * 30%) = $1281.35. I contribute all that to my RRSP in year 3 and get the same 30% refund to yield a total of $1665.76. Notice how even though I paid some capital gains tax, I end up $34.76 ahead at the end of 3 years. The moment you contribute to RRSP, it becomes before-tax money. Which means a portion of that is no longer yours - it's future taxes for the government. So if you DON'T claim the deduction, you're cutting out a chunk your investment capital. Adrian, please look at my sample calculations and amend the video because it's really not the best advice. In fighting one misconception you may have introduced another.
Great tips! I didn't realize you could carry forward deductions in RRSP and FHSA. I did lose some $ in my unregistered, I guess best place to lose money since I can carry forward the losses. I don't have much in my RRSP but it makes sense to put money there instead of unregistered.
The answer should be NO, but not always. Your strategy is just for the special case like this. You know you will have high income in future. What if you won't. As my opinion, for low income people, maybe the TFSA contribution is enough, after that they don't have extra money.
Generally I agree, the TFSA is far more flexible and is ALWAYS a good idea! The RRSP can be even better in certain situations but at lower incomes, the TFSA is usually the best choice
Check out my video on WHICH ACCOUNT to Prioritize, TFSA vs RRSP vs RESP vs FHSA here =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-11y_oV3jOU4.html
I do recommend you don't overlook any child benefits that are also directly affected by income, would be terrible to not use the tax benefit in a lower bracket to max out child payout benefits. (Child benefits are greatly reduced as the child gets older.)
I have a tiny amount of room from previous years that I never took advantage of because contributing wouldn’t make a difference to my relatively low income. But if this is true and I can deduct my contributions later in life, I’m gonna throw it into an RRSP right now!
Absolutely! I always try my best to max out my RRSP contributions every year but I don't usually deduct the full thing! Depending on my income situation and what tax bracket I fall under, I will usually carry forward a big portion of it to next year since I am always trying to increase my income year after year! 😁
@@holyshit604 absolutely! You NEVER lose unused contribution room! If you don't max out your RRSP or TFSA, that unused room rolls over to next year and beyond =)
$26 an hour still makes you the lowest tax bracket. Yuk. I was just celebrating that fact I got a job that pays that much, it’s nice to “get lucky” with a good job and still be too poor to do anything hahaha.
You gotta start somewhere! And don't worry, the lowest tax bracket is pretty large up to $53K so almost half of Canadians fall in that category! But don't let that stop you, keep working and track your expenses to save more than you spend and you'll be building your wealth brick by brick =)
You got it buddy! Sure a 15% withholding tax on a small dividend stock like Apple probably won't hurt but if you're looking for high yield dividends, that 15% tax is killing your growth... That's why I ONLY hold my US Dividends in my RRSP. I talk about this in detail in my TFSA MISTAKES video here =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-s4cBibLATOU.html
Actually, you can contribute up to 35,000 to RSP and use HBP to roll it into your first house. After that, at low income I would just stick with TFSA - because when you have higher income and contribute to RSP you’ll get more money back from deferring taxes, and then when your old and retire you can pull from it small amounts at a time and pay the lower tax bracket.
How does the RRSP deferral work? So you invest but don’t claim those until later years? Are there taxes or anything you’d have to pay while your investments grow? Does the CRA consider it an overcontribution? Thanks!
You got it! You put the money into your RRSP right away and you buy stocks and ETFs and they will continue to grow tax-free for years and years! This counts as a contribution so it takes away from your available RRSP room and when you file your taxes, you declare how much you contributed. However, instead of automatically claiming the FULL amount as a tax deduction, you choose to CARRY FORWARD however much you want to a future year. So next year when you file your taxes, you will have unused RRSP deductions available and once again you can choose to claim them to boost your tax refund or carry them forward again! In my example, I carried them forward for 3 years until it was worth claiming those tax savings =)
And nope! You do NOT pay any taxes or anything during that time. The only time you pay taxes on the RRSP is when you WITHDRAW which should only be done during retirement when you are in a low tax bracket. Make sure you watch my RRSP EXPLAINED videos starting with the first one here. It's 20 minutes long and there is a TON of info to cover =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-bKMNgnMBSdE.html
The main downside is missed investment gains on that tax refund, so you have to analyze your own situation to see if the jump in refund due to being in a higher tax bracket will outperform your expected return on the market. Most of the time it doesn't make sense, and if you have TFSA room it NEVER makes sense, because you can always invest in TFSA and get 100% tax-free returns, then transfer it to your RRSP in the year you want the deduction, compared to missing out some gains in the tax refund that you're not getting.
Another important detail to consider is if you have a pension through your employer. I'm low income on long term disability and at 65 I'll switch over to my employer pension. Because I'll have an income I don't want to lock in my money and be forced to take it out in RRIFs. My income might actually be higher in "retirement" which would mean I'd pay more in taxes when I take it out than I saved for RRSP contributions. TFSA is much better value if I can save $5000 a year as it's not taxed as income when you take it out.
Wow! Congratulations on all that OT! But make sure you do the math, maybe you don't want to claim that full tax deduction this year. You might want to carry forward a portion of it to next year =)
Define “low income” TFSA < $53,000 👍 Excellent factual unbiased information clearly presented. ✅ 💯 This is like a Topgun flight presentation prior to a mission. Thanks Maverick!
I'm a financial advisor myself I don't suggest low income to put in rrsp, tfsa better and it's better to have higher tax bracket when contributing then withdraw in lower tax bracket, if put in money when you have low income you won't get the advantage of rrsp, unless you want first time home buyer
I am still bit confused, lets say I contributed $10k and saved $3k in taxes and reinvested that totalling up to $13k. For 30 years at 9% it grows and then I have $130k approx, I choose to withdraw and then I pay may be 20% taxes (lowest marginal tax) i.e. $26k in taxes. Wherein if I just invested $10k and grow it for 30yrs it would turn out to be $97k at same interest rate and it wont be taxed for withdrawals? May be I wrong if someone can correct me :)
You do NOT want to withdraw such a large amount all at once! Because you will be taxed heavily! It will be treated as if you earned $130K in income in a year! That defeats the whole purpose!
With the RRSP, you gain the power of flexibility! You reduce your taxes today in your high income years. And now you have the flexibility to withdraw as much or as little in your retirement years, but don't do massive withdrawals. You want to keep yourself in a lower tax bracket, that's how you get the most benefit out of it! =)
I'll be making an in-depth FHSA as soon as the details are confirmed, in the meantime check out my FHSA introduction in my 2023 TAX CHANGES video =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-Zjfy_G1l5ok.html
Quick math would say if your 1. First tax bracket ( TFSA first) 2. Second bracket (TFSA or RRSP) 3 third tax bracket (RRSP FIRST) Reason I disagree with your argument to add it in and claim later is that the money is locked in for those in the first tax bracket. you are better off putting that money in a tfsa (tax free growth) and taking it out and putting in the rrsp in December. Your proposed method is very inefficient and doesn’t take into account the realities of being low income. since in a low tax bracket you are more likely to need that money in emergencies.
That's a decent rule of thumb. I agree that if you are in the lowest tax bracket, you should prioritize the TFSA especially if you expect to remain in that tax bracket for a year or two, due to it's flexibility. I'll be making a WHOLE video on the TFSA vs RRSP and which one to focus on in different situations. That wasn't the point of this video. The point of this video was to bring light to the fact that you can CARRY FORWARD that RRSP deduction to a future year, something that a lot of Canadians are unaware of =)
@@CanadianTShirt fair point, I just think for low-income people carrying forward claiming contributions is inefficient for their financial well-being. Better to ignore that fact completely and put it in a TFSA first for tax free growth and flexibility to withdraw if needed. (Since the room will refresh on Jan 1st unlike an RRSP where it’s lost forever) Maybe if they max out their TFSA that would be something worth considering!
One thing I just thought of: Could you contribute to your RRSP every year but not use the deductions for years? Then one year use all your deduction room at once? Say if you were going to sell an investment property that year and wanted to offset the capital gains?
Absolutely you can! You can carry forward those deductions as long as you want! However, the longer you carry them out, the less time you have to invest that extra money you would get with the tax refund
So it's a balancing act but generally speaking, I wouldn't carry it forward more than 2 or 3 years. Unless you expect to be in a significantly higher tax bracket (increase in salary or a big sale like an investment property)
Don’t forget the other negative of RRSP’s, we don’t actually know what the lowest tax rates 20 to 30 years from now will look like. What if the lowest tax bracket is now 27%, that could really cut into “theoretical” savings. I like the tip of using them for US dividend stocks.
Oh of course! I've already made 5 whole videos all about the RRSP, the rules and things to watch out for! The RRSP is far more complicated than the TFSA which has no downsides. With the RRSP, if you use it right it can be even more powerful but if you use it wrong and don't plan ahead, it can hurt your future returns! The point of this video was just to be short and sweet and highlight one particular misconception regarding carrying forward RRSP deductions. Check out my RRSP MISTAKES video for warnings and downsides to the RRSP, it's far more in-depth and about 20 minutes long =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-I8k95_R_L_Q.html
Thank you for all the teachings. I wonder if you could do a video analyzing the liquidity/solvency of the 5 major banks in Canada. I wonder how exposed we are to this banking crisis… thank you! And keep up the great and informative videos!
Hey Ricardo! I just saw your comment on my latest video which touched on this topic. Great timing! I can definitely make a video breaking down each of the big 5 banks but bottom line, the financial sector in Canada is strong and I am personally investing more to take advantage of these rare discounts! =)
@@CanadianTShirt Great video. Comprehensive and clear. You answered all my questions and note. But I’d still love if you’d look at the BS of each of the big Canadian banks and let us know how exposed they are. Thanks for such great content and pls keep them coming!
If it's a growth stock, then it's fine in a TFSA since capital gains are always 100% tax free in a TFSA (either Canadian or US stocks) But if it's a US dividend, then it will be charged a 15% withholding tax which you can avoid by moving it into your RRSP instead! =)
Check out this video here to learn how to Transfer BETWEEN accounts, such as moving those US dividends from your TFSA into your RRSP to keep the full dividend =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-WBqJaAFYcRQ.html
I emphasize that point in every one of my RRSP videos I've made! With any tax-sheltered account, you must ALWAYS ensure you have enough contribution room. If you exceed it, the penalties are very steep....
Well you can always change your mind and cancel the request! Or find a middle ground, only claim half of the RRSP amount this year (with the T1213 form) and then carry forward the rest for next year =)
@@MFTW I will comment on what I have read about this scenario but please confirm from a trusted source. I have read you need to wait for CRA to come back with your letter of assessment then you can log in to your CRA account and you get the option within your account to make any changes for your past claims which are already assessed in any of the 10 previous calendar years. Hope it helps :)
Adrian, great work! Keep it up! I have a specific question, hopefully you could help me. Most people recommend LLCs to operate a business in US as a non resident, however, I am a Canadian citizen would that be the same case or would I be better off with a Corporation, tax wise. Appreciate the help
I don't live in the US and I never have so I don't want to give advice on US taxes, something I don't have any personal experience or expertise in. You should speak with a US corporate accountant, ideally one who deals with non-residents. I hope that helps =)
You might as well just say to contribute to TSFA first, until you hit the contribution limit. Because its pointless to put it into the RRSP first unless you have matching plans or claiming the tax deductions for that year.
I did. Used up my limit every year since I was eligible. I figured at 18, I didn't now what my income/tax rate/ability to save up would be later on in life.
@@KMiller-qu6xn You did the right thing, claim them asap to reinvest, carrying forward comes with a risk unless you know for sure when you will reach the next tax bracket
@@CanadianTShirt Yup, that's the first thing I do when I get my refund. If there is room in my RRSP it goes there, or my TFSA. Also thinking about the FHSA...one day I would like to have a home of my own. Mom's basement is fine for now though.
Ive been trying to figure this out for so long thank you. So if someone made 40k last year and got a $1500 tax refund without rrsp contributions. If they made 40k again but contributed 5k into rrsp, they would get more than $1500 tax return, even though claiming less money? \
If you retire at 55 and start receiving your pension and received a lump sum payment from your employer for early retirement you probably will still be in the 28.2% or higher tax bracket. Do not cash in your RRSP monthly to help your income until you are in a year where you are in a 20.5% tax bracket.
How do I know if my $50 commission rebate is working? I used the referral and the account is open but there is zero validation it worked. I made a trade and still get charged the commission fee. Do I just blindly wait 10 business days and trust it will be rebated to my account?
I think that you may be missing out on another RRSP benefit for lower income Canadians, taxwise. There are federal and provincial tax credits (Ontario, here) that are based on your Net Income, and the lower that line is, the more you receive. (There can be other factors too.) RRSP deductions come right off the top, reducing your Net Income, and this can mean you will get higher credit payments, as well as the benefit of the tax refund, and the long timeline for your investments to grow.
That's a very good point! It's important to consider that as well, especially if you are close to the eligibility threshold for those programs and credits =)
Wonderful! I hope they are able to squeeze some of their savings into investments like I did. I know how hard it is to find leftover money in university but any bit you can invest will be worth it in the long run! 😁
@@CanadianTShirt both maximized their TFSA's since tuition fees is covered by the resp that we did set up for them the day they were born ( best decision I've done in my life).
Thank you for the useful information. Can a new immigrant put money into RRSPs. I am asking coz there is no RRSP bracket based on my previous years income which is none.
Unfortunately no! Unlike the TFSA, you don't gain RRSP contribution room as soon you move here! Your RRSP room will be 18% of your earned income from the year before so in your case, you will only gain RRSP room in March 2024! Until then, you will have to stick with the TFSA and RESP if you have children. I cover this in detail in my RRSP MISTAKES video here =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-I8k95_R_L_Q.html
Hi, thanks for the great video. I just have a quick question. In your example case of current salary at $50 and it NEVER grows, the tax benefits are essentially balanced out like you said, however, you still get the benefits of tax free growth over the years, correct? So even in that case, it's worth using your RRSP room, right? Thanks
WOW this is not the first time I learned something from your videos, but this is the first time I audibly gasped lol I did not realize contributions and deductions were separate
Hey Adrian.. thanks a lot for the informative and walk through content. As a newcomer your videos have helped me a lot. A quick question though: As a newcomer, I brought in some cash while landing and then had some amount wire transferred to my Canadian bank account from my home country bank . So do I have pay tax on that? Total newcomer funds are less than $7k. Thanks!
Good news! You do NOT have to pay any taxes on the money or assets you bring with you! In Canada, you are only taxed on INCOME meaning new money that you earn. That money you are bringing was already yours, so it's not considered income. Keep in mind, each country will have their own laws and policies regarding transferring money out to a different country so look into that. But for Canada, they won't charge you any taxes. And with a relatively small amount of $7K there's no problem. Foreign assets only become trickier when they exceed $100K =)
Logically it makes perfect sense but no low income individual is going to not take the deduction knowing they’re going to get cash right away through a tax refund
It really depends! When it comes to the RRSP, it's not a simple black and white! And absolutely, there is a benefit to receiving that tax refund IMMEDIATELY, especially if you are using it to pay down high interest debt, etc. But if you run the numbers, it might make sense to delay that deduction by a year maybe even two years, to get more money in the end. It's your money so it's your call. Just be aware of your options =)
That's exactly how it works! If you owe taxes (due to business income, investments or rental property) whenever you claim a tax deduction like an RRSP, you reduce the taxes you owe. If it reduces to the point of a negative number, then the government owes YOU money so you get a refund =)
Unfortunately low income of 35-40k is the average income in my province. If you’re making over 45k you’re in a government job, medical, or aerospace. This is why I only use my RRSP for US stocks to save on the withholding taxes and all my regular investments go into my TFSA for my long term savings and retirement.
I see, ya in that case it's a little more tricky... it's not as clear cut since your working income probably isn't that much different than your future retirement income, especially if you are receiving an extra pension through work. But again that may change in the future! But ya I think you are making the right call in prioritizing the TFSA for now. There are NO downsides to a TFSA, you can't go wrong! And if your income grows in the future, then you might want to consider boosting your RRSP contributions even more =)
Thanks @canadian in a T-shirt for your work. It could be great see the video of the scenarios that you speak in the comments, it could be interesting see a pos-cons between Non_registered vs Rrsp.
Absolutely! That video is certainly coming! There is a TON to discuss when it comes between choosing different investing accounts, it's not always so simple so expect multiple videos coming up =)
I would also add that the advantage of investing in an RRSP, you get a tax return in which you can reinvest in your stocks that can potentially compound and grow especially if you have decades ahead of you.
100% I cover this point in detail in my longer and more in-depth RRSP EXPLAINED videos! But yes, by claiming that tax deduction you are able to reinvest that dividend and accelerate your growth since you have a larger starting sum of money! 😁
Thank you Enid! That was the main point I was trying to convey in this video. I'll be making a WHOLE video soon about the TFSA vs RRSP and which one makes sense in this video but the main point is that even if you are in a low income bracket, contributing to the RRSP can still make sense because you can carry forward those deductions, just as I did back in my college days =)
I personally don't invest in options and I don't recommend it for beginners. It is far more complicated and risky than buying and holding stocks and ETFs. If you don't know what you are doing, it is MUCH easier to lose money so don't blindly jump into it. Maybe in the future, I might play around with options but for now, I only want to make videos on things which I have extensive, personal experience with. I hope that helps! =)
No time limit! Technically, the only limit is when you reach the age of 71 when you need to close your RRSP and convert it into a RIF. But realistically, I wouldn't carry forward the RRSP deduction more than a few years, unless you are a student or you're expecting to jump more than one tax bracket
When it comes to investing, time is your greatest ally. So if you can claim the tax deduction today, you get to invest that extra money today. That extra time to grow could be worth a lot more than waiting 5 years for an extra 5% tax refund. So if you're expecting to be in a higher tax bracket in 1 or 2 years, then it might make sense to carry forward that tax deduction. But any longer than that and you're losing out on time. Hope that helps! =)
@@CanadianTShirt I will likely become incorporated in the future and have been told that if this is the case, investing in an RRSP is not worth... but now I'm starting to question this advice. Any thoughts on this and will you be doing any videos on incorporation for professionals etc...? Thanks :)
Once you incorporate your business, it adds further complexity and gives you more options to handle your money and taxes. But even if you incorporate, contributing to your RRSP can still be extremely profitable, especially if you are still earning a high income through salary, another job, investments etc. For example, my business is now incorporated but I still contribute to my RRSP since my taxable income is significantly higher now than it will be once I retire. It's not a one-size-fits-all thing, it depends on so many factors but an RRSP can still work wonders with a corporation. There are just more factors to consider =)
I think you missed an opportunity here for some more interesting nuance. If you find a very attractive REITs investment opportunity, then according to your Canadian Tax Guide it would be ideal to have money invested into your TFSA to capitalize on this. At anytime if you find an American investment opportunity, or are ready to claim RRSP deductions, you can always balance transfer from your TFSA to your RRSP with seemingly no penalties at all. Money in your TFSA is more flexible and so I would suggest the TFSA as someones' default investment account. You just need to be cognizant of US RRSP opportunities. This is a low income video, so I would assume these people, like me, are no where fucking close to making a difference in their TFSA. So there's definitely room to exercise this flexibility.
That's interesting! I didnt know this. So basically, I just contributed to my RRSP towards 2022 tax-year I can now defer this deduction to next year when filing taxes. But why do I need to mention in filing taxes that I contributed towards the 2022 RRSP limit when I want to claim it later? Can't I just say that all my previous years contributions were made in the year my income was higher ? or will this be tax fraud?
You must still declare the contribution you made since it does take away from your RRSP room! Your bank or broker will still give you that RRSP tax slip and they also submit this into to the CRA by end of Feb and so the CRA will know how much you put into your RRSP for the 2022 year. But don't worry you're not doing anything wrong at all! You DID put that money into the RRSP and it is growing tax-free so it's a totally regular contribution. You are just choosing NOT to claim the tax deduction. I hope that helps =)
RRSP makes sense in lowest tax bracket. It allows you to retire early!! If you save/invest 90k (your 45k income twice) you can retire 2 years early at 63. Then at 65 apply for oas/cpp. It always makes sense to save in rrsp, but if you don't have the cash, tfsa should be a priority.
I wouldn't say it ALWAYS makes sense, but for the majority of Canadians who are in a higher tax bracket in their working years than in retirement, then yes the RRSP makes sense. But as I said, if you are already in the lowest tax bracket or you think you might make even more money in retirement than your working years (unlikely) then the RRSP doesn't make sense. I'll be making a WHOLE video about when to prioritize the TFSA vs the RRSP
Bottom line: you cannot go wrong with the TFSA, it ALWAYS helps you. But in many situations the RRSP will help you even more! That's why it's so important to plan ahead and consider these factors =)
Again I wouldn't say ALWAYS contribute now! In many circumstances, you will be better off prioritizing the TFSA or RESP. The point of this video was just to highlight and dispel the myth that you should NEVER contribute to your RRSP in low income years. Having the ability to carry forward your deductions gives you flexibility and lets you make the most tax efficient investing strategy =)
@@Narcissist86 I agree that the RRSP is not always the best plan! Far from it, I will be making a WHOLE video on the RRSP vs TFSA and RRSP vs non-registered account, there are a ton of scenarios and factors to consider! But there are DEFINITELY benefits to delaying your RRSP deductions! Of course, within reason. You don't want to delay that tax refund for 5 years, you're missing out on tax-sheltered growth that you would be enjoying with that money. But like I covered in this video, if your marginal tax rate is expected to increase significantly in a year or two, then carrying forward that tax deduction can make sense! =)
@@CanadianTShirt if you have TFSA room, there is zero benefit to delaying your RRSP deductions, because you can always just invest in a TFSA, then move that capital to an RRSP in a later year when you need to utilize the deductions. Even if you have no TFSA room, the majority of time even a non-registered account can outperform contributing to RRSP and delaying the deduction. Only except in very rare cases like jumping 3-4 tax brackets within a year does that make sense. And I think you can agree that those scenarios, especially combined with zero TFSA room, is a very rare occurrence.
There are entire youtube channels devoted to life insurance. I don't have any personal experience with or need for life insurance since I don't have any kids or anyone depending on me. I would rather speak on topics I have expertise on =)
Yes it does! If your employer offers a matching RRSP or RPP program then BOTH your contributions and your employer's contributions take away from your available RRSP room! It's a great deal, you are getting free money but keep in mind that it will reduce your RRSP room. I cover this in detail in my RRSP MISTAKES video here =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-I8k95_R_L_Q.html
And since you guys are working as a team, you might consider having your kid transfer their unused tuition credits over to you guys. That way you save big on taxes being in a higher tax bracket and maybe you can pass on some of those tax savings to your kid to invest even further! =)
May please explain, if someone salary is much lower at 20k- 25k. What is the tax on such income in Québec. can I utilize RRSP to lower tax ? Your answer is really appreciated Mr David.
If your income is that low, you are in the lowest tax bracket so it wouldn't really be worth claiming that RRSP deduction. If you're already in the lowest tax bracket, you can't expect to be even lower in retirement so it defeats the purpose of the RRSP
If you expect to see a significant salary increase in the next year or two, then yes you can contribute to the RRSP and carry forward that deduction until you are in that higher tax bracket and then claim it for a bigger refund
But if you don't expect your income to grow, then you should stick with the TFSA instead. Check out my TFSA vs RRSP video here for more info =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-11y_oV3jOU4.html
Nice video but your assumptions is STILL HALF TRUTH because you're assuming in contributing to the RRSP where that you would have a lower income when you're older. But one needs to consider retiring and being in the high income bracket. When I retire and make more money, I wouldn't want to set myself up for additional high taxes by having contributing to an RRSP which would then mean I get taxed even more upon withdrawal. In this case contributing to an RRSP is likened to setting one's self for being overly tax. I hope everyone truly understands this.
Question, does quest trade allow purchasing Caveat Emptor stocks, and if an American wants to buy into Caveat Emptor stocks, does quest trade allow an American to trade CE stocks if they set up a work visa, or visitor visa, and get a Canadian address. 🤔
Thanks so much for this! I was just talking to my son about putting his extra money into his TFSA because of his low income this year. But now I can get him to put money into his RRSP too, but defer claiming it to another year when it will benefit him more tax-wise. I just didn't know this! Thanks so much!!
No. Do NOT do that when you have TFSA room. Contributing then deferring is almost never the right move, because you're cutting your investment capital by giving the government an interest-free loan. Same example calculation I've given elsewhere here: Look at an easy example: Let's say my current tax bracket is 20%, and 3 years later it will be 30%. If I contribute $1000 to my RRSP and I get 10% return a year, after 3 years I will have $1331 in my RRSP + $300 from my refund when I claim it on my third year. That's $1631. If I contribute all of that in a non-registered account, I will have $1331 - $49.65 of capital gains (half of $1331 * 30%) = $1281.35. I contribute all that to my RRSP in year 3 and get the same 30% refund to yield a total of $1665.76. Notice how even though I paid some capital gains tax, I end up $34.76 ahead at the end of 3 years.
It definitely depends! I will be making a WHOLE video on TFSA vs RRSP, there are a TON of factors to consider. But bottom line, the TFSA is very simple and it has NO DOWNSIDES, you can never go wrong with contributing to your TFSA! The RRSP is definitely more complicated but if you use it the right way and under the right conditions, it can be even MORE beneficial than the TFSA. The point of this video was to be short and sweet and just dispel the myth that you should AVOID the RRSP entirely until you have a higher income. It's frustrating how many publications don't mention that you can CARRY FORWARD tax deductions which is a VERY important feature to consider and that's what I wanted to highlight here! Stay tuned for my upcoming TFSA vs RRSP video! =)
You got it buddy! US capital gains are 100% tax-free in a TFSA but when it comes to US dividends, they face an immediate 15% withholding tax which hurts... That's why I ONLY hold my US dividends in my RRSP to avoid these taxes entirely! I talk about this in detail in my TFSA MISTAKES video here =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-s4cBibLATOU.html
Excellent video as always. Thank you for educating us. I have one quick question: I recently changed my job and my previous employer gave me the option to transfer my pension plan to new employer or in RRSP. Which one should I choose and why?
That will be difficult for me to answer, it depends on so many things like the nature of your previous pension plan, your new employers policies etc. If it is simply a lump sum of money, I would suggest transferring it over to your individual RRSP account through a broker like Questrade. That way you have total control of your money and no restrictions or fees =)
@@kinsuksarker3528 in that case, I would suggest following the steps in this video How to TRANSFER your RRSP into Questrade: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-Bf1zufNlQSk.html I did the exact same thing when I quit my job. I was able to transfer my RRSP funds from my employer's group plan into my Questrade RRSP account. And then I had full control of my money and I could buy whatever stocks or ETFs I wanted without paying those high management fees =)
So heres a question for you , is it possible to roll you vacation pay from a job into a rrsp only or is it possible to have your employer move it into a tfsa directly so i dont have to pay the taxes till i pull it out
Yes you can contribute your vacation pay to an RRSP to reduce your taxable income for the year. You can even use form T1213 which I covered last week in my RRSP Hack to do that =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-edqTW2RRkdg.html
Hey @Canadian in a T-Shirt, it's my first time doing taxes by myself and I was just wondering if Employee's CPP contributions, Employee's EI premiums, RPP contributions, and Pension adjustments are tax deductible? As a baseline I made about 40k this year but my income tax deducted was only 4k. I'm worried that I'll have to owe money. Any guidance would be appreciated!
Great video! I don't see many videos teaching Canadians how to handle their financial situation online and yours are the best. I always max out my RRSP contributions after I started to work in Canada. BTW, the unused RRSP contribution amount cannot be exceed a certain number as I remember, else you may have to pay an excess contribution fees to CRA.
I'm happy to hear that and thank you so much for those kind words and your faith in me! 🙏 No don't worry, you NEVER lose unused RRSP contribution room! So don't worry about maxing it out every year, if you don't max it out, that room gets carried forward to next year and beyond. You will NEVER lose it! =)
There are people who have been working for years and never opened an RRSP so they have hundreds of thousands of dollars of RRSP room, it's still available and waiting for them! The only limit is how much you CONTRIBUTE to the RRSP! And if you exceed your limit, then the CRA will charge you 1% EVERY MONTH on the excess amount so definitely avoid this! =)
I cover the relevant RRSP limits and penalties in my RRSP MISTAKES video here. Hope that helps! =) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-I8k95_R_L_Q.html
What about bein a temporary resident? Should I use my RRSP even if I could at some point go back to my home country? Will I be able to get back the money I put into the RRSP? Would I need to pay some kind of fee because I won't be a Canadian resident anymore which will make the tax deduction not worth it?
Hi, I remember you once showed you hold TD in a margin acct and you said it was on a certain strategy. Do you mind telling more on what strategy you are with? Thank you!
Of course! It's tax sheltered while it remains INSIDE the RRSP but you will be taxed when you eventually withdraw! That's why it's important to claim the tax deductions in your higher tax brackets and only withdraw in retirement when you are in a lower tax bracket! I have a WHOLE 20 minute video all about RRSP Withdrawals and how they are taxed! 😁 ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-gcYlQl6hF6w.html
