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  • What can be withdrawn per year to get to desired RSP amount?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