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Reality. One Million Canadians have maxed RSPs You can have too much money in your RSP Retirement needs differ from what you will have OAS Claw backs ($60,806, fully clawed back at $98,660) Fully taxable as retirement income (RIF). The RSP Meltdown. Stop Contributing

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Reality

Reality

One Million Canadians have maxed RSPs

You can have too much money in your RSP

Retirement needs differ from what you will have

OAS Claw backs ($60,806, fully clawed back at $98,660)

Fully taxable as retirement income (RIF)


The rsp meltdown

The RSP Meltdown

Stop Contributing

  • RSP will be over funded

  • Desired Income will mean OAS claw backs

    Start Withdrawing

  • Determine over funded amount

  • What can be withdrawn per year to get to desired RSP amount?

    Use Withdrawals to pay for Investment Loan

  • Determine what size loan can be serviced with proceeds from RSP

  • Try to match Interest Exp with RSP withdrawal


Things to consider

Things to Consider

Converting Registered into Non Registered

  • Slows down growth inside RSP

  • Non reg. not subject to minimums or maximums

  • Allows more control of income stream

  • Tax Advantaged

    • Potentially better tax treatment (Cap Gains/Div Income)

  • Complete Flexibility

  • Corporate Class is a perfect solution


Things to consider1

Things to Consider

Assuming leverage on accumulated funds

  • Leverage is NOT for everyone

  • Borrow less than investor can afford

  • Interest Only works best for this strategy

  • Be conservative with Investments

  • Make sure client has consistent, predictable cash flow

  • Benchmark for leverage – 30 - 50% of net worth


Things to consider2

Things to Consider

Tax Advantages

  • Interest Income – 100% inclusion

  • Cap Gains – 50% inclusion

  • Interest exp on loan tax deductible

  • Proceeds from RSP fully taxable

  • Tax deduction from interest wipes out tax obligation of RSP withdrawal


Summary

Summary

  • Great strategy when client has a lot of $$$ in RSP

  • Small RSP investor assuming big leverage doesn’t make sense

  • Client must understand risks of leveraging

  • Client must fit profile – steady cash flow

  • If loan is subject to margin calls client must have funds to cover it

  • Home Equity line of credit may work best

  • Borrow less than investor can afford

  • Can create significantly more after tax dollars for investor

  • A great idea to bring to clients – establish a planning relationship


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