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Tuesday, April 25, 2017

The RRSP Push

Posted by Tim Stobbs on February 23, 2009

So it’s time again.  The ads are full of people buying RRSP’s, have you got yours yet?  Gods I dislike this season for pushing people to invest.  I mean why can’t people just do it all year long?  Yet the ads did give me an idea.

So the idea is based on if you intend to work a bit in retirement.  Would it be useful to contribute a lot of money to an RRSP just prior to shifting to part time work?  The idea would be to not actually claim some of the deductions in the year you made it but rather carry it forward to reduce your taxable income once you are semi retired to hopefully reduce your tax bill during your first few years while you are adjusting.

In some respects the idea is not a bad one, especially depending if you are going to be doing retirement work which has a highly variable income and you have tax concerns.  On the other hand the deductions might be worth more to you to claim on your high income years and just pay your lower income tax rate once you go to part time.

So in general my thoughts are this could be a useful idea depending on your particular situation and concerns.  On the other hand it might just be easier to claim the deduction prior to going part time and then if you have extra cash from work you can contribute at that time.

So what are your thoughts?  Is this a half baked idea and not worth the complication or could it be useful?

Comments

5 Responses to “The RRSP Push”
  1. George says:

    It strikes me as a half-baked idea. If you enter semi-retirement and start working part-time, your total income (and marginal tax rate) are going to be quite a bit lower than when working full-time.

    I suppose you could make substantial RRSP withdrawals to bump up your tax rate, and then use the contribution deduction to bring the tax rate back down, but what would be the point? Any tax saved would likely equal the extra taxes paid during the year when the contribution was made…

  2. Valerie says:

    I’m going to have to agree with George. There doesn’t seem to be a point to making contributions if you don’t have a high tax rate.

  3. Kent says:

    If you are planning on working in retirement and your spouse isn’t, a spousal RRSP contribution would be ideal. Their tax rate would be lower and you would, therefore, get to keep more (that’s what we all want).

    In response to Valerie’s comments, there are several benefits to contributing to your (or your spouse’s) RRSP. First, obviously is put as much away for retirement as possible. Second, is the first time home owners loan. Third, is the education loan that works fairly similarly to the first time home owners loan.

    Cheers!

  4. Hazy says:

    There must be contract workers that do this sort of thing.
    They would need to save money for the slow periods when they are not working anyways.
    Why not save some in an RRSP and get the tax break…then withdraw it when you’re
    not working…makes sense to me

  5. Canadian Dream says:

    George/Valerie,

    After a bit more thought I agree (by the way the idea was half baked I didn’t plan out this weeks posts until Monday afternoon). The initial return while working is more useful than lowering part time income.

    I think Hazy hit it on the head with if it is going to be highly variable income and you have the room then put it in the RRSP to avoid the tax when your part time.

    Thanks,
    Tim

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