You had until March 2 this year to make contributions within your RSP accounts for the 2014 fiscal year. I can hear what you might be thinking: “Gee thanks Sam, now I’m too late to make my contributions.”
Well, the reason I waited until now to talk about this is because I believe RSPs are not for everyone. (I am not a certified financial advisor, but keep reading about why I am not using RSPs). I thought that if I reminded everyone of the deadline, lots of people might not do enough research before feeling rushed to lock their money in for what could be a very long time!
RSPs make sense if you plan to make less money in the future than you are making now. The idea is that you defer the taxes in your current tax bracket by putting your money into a registered account. When you are old and not working your tax bracket will be lower so you will pay less tax.
But, let’s be honest.
If you are a person who is smart enough to save your money and invest it in anything that makes a good return, you are smart enough to ensure your income will continue to grow into your old age. Higher income = higher taxes to pay when you withdraw your RSPs.
I choose instead to pay taxes now, then put that money to work either ridding myself of “bad debt”(ie. personal mortgage and car loans) or investing in my business. Both have much higher returns that I could generate within an RSP account,
I did not come up with the idea that RSPs were not for me out of the blue. I researched a lot. I watched what other successful people were doing. Here is an article about a guy who cashed out all his RSPs!
Also, a great book that discusses RSPs is Greg Habstirtt’s “The RRSP Secret”.
RSPs would be great if a person could hold all investments within them, but some very interesting options are left out:
|Ineligible RRSP Investments|
|Employee options to purchase stock|
|Gold, silver and other precious metals|
|Commodity futures or contracts|
|Listed personal property such as works of art & antiques|
|Gems and other precious stones|
|Bonds where the issuer is a wholly-owned subsidiary and the shares of its parent are not listed on a Canadian stock exchange|
|Mortgages on commercial properties owned by you or a family member|
|Small business investments|
|Puts and uncovered call options|
|Bonds or debentures of a company whose shares are listed only on a prescribed foreign stock exchange, even though the company\’s shares may be qualified|
|Source: Canada Revenue Agency|
Fortunately there is some good options out there if you choose to use RSPs. I know a fellow who made 8% in his RSP account for the past 3 years! If you are making 8% or better in your RSP, this offsets the increased taxes you will have to pay when you withdraw because the 8% growth is tax sheltered.
Anyway, he did it by registering a mortgage against a property(my property). This is great for him, because if for any reason I didn’t pay he gets my property!
I made a flow chart that explains how this works, you can see it here: Registered Fund Mortgages
If you are disappointed by your RSP performance and don’t want to withdraw them now, let’s chat. I may be able to provide you with a much higher interest rate, secured by a REAL piece of property.
Until next time,