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  • richardmkiernicki

The Unconventional Conventional, Part V

Updated: Aug 6, 2019

Let’s get right to it then shall we? Let’s bash RRSP’s. As you may have gleaned from references made in my earlier posts, I am not a fan of RRSP’s and in this weeks column I intend to point out a few more flaws in the RRSP scheme and why there is little leadership in the advisor community when it comes to suggesting alternative strategies for the accumulation of retirement capital.

The originator of the RRSP is of course the Government of Canada. So you have to follow their rules, good and bad. I will admit that the thought behind the RRSP is a good one, to help individuals save for their retirement through a monitored program. It’s just that the rules imposed and the strategies surrounding RRSP’s become somewhat limiting and need to be re-examined. Something like when they restricted, then increased, then not questioned the

amount of foreign content held within the plan.

Last week I referred to RRSP “season” where the topic of RRSP’s becomes the highlight for the 60 or so days before March first comes along. Most individuals are making a deposit, with the added tax break being the high-light, for the past year. To me, tax planning is done all year long and starts in January of the current year. Kudos to those individuals and advisors that promote being current with their financial planning and avoid the big rush. If you are contributing to your RRSP throughout the year, congratulations to you. If you are reducing your taxes throughout the year by taking advantage of other strategies, even better. I say even better because you may decide to add to an RRSP to further reduce last years income taxes or carry forward your unused amount.

If you are reducing taxable income by applying other methods you have the option to carry-forward your allowable RRSP contribution. If you carry forward your unused contributions you can plan to use it when you plan to cash out of another investment or asset and use the accumulated amount to reduce your earned income to a much lower amount. For example, if you have been using the interest deduction to reduce taxes by investing in an appreciating capital asset which has been sold for a profit, part of that profit could be used to make a lump sum RRSP contribution. A spousal plan could also be considered for tax relief. That type of strategy needs forward planning on the part of the individual and on the part of the advisor to build a longer term comprehensive plan taking more into account than a traditional 60 days after the fact RRSP solution. Increased dialogue and looking at different options and strategies will be helpful when developing a comprehensive financial plan with your advisors that may or may not include annual RRSP contributions. See you next week for more on

this topic.

Copyright 2013 Richard M. Kiernicki. All Rights Reserved.

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