February 20, 2019 | Painful

This is ridiculous. Seriously. Four posts on RRSPs? I must be losing it.

However, my mailbox is brimming. The masses cry for direction. So before we move on from this deadly topic, here are some answers.

“I have around 1,000 ounces of silver bullion,” says George. “Am I able to somehow put that sliver into my RRSP without selling it?”

First, why would anyone want $16,000 worth of silver? The metal pays no interest or dividends, costs money to store and is 27% lower in value than it was five years ago. Given central banks’ tight grasp on monetary policy and inflation, it’s hard to see why silver would appreciate. So why own it? And why inside an RRSP where gains are not taxes, where you’re better off holding other assets?

Anyway, the answer’s yes. You can hold it in your retirement plan. But in order to qualify the bullion must be 99.9% pure, from a recognized refiner and be certified by a bone fide, third-party, credible organization. Of course if you’ve made any money on it, tax is payable on the capital gain going into the RRSP. But, George, why?

Now over to Tyler, who sounds a tad insufferable:

“Great blog! Partly thanks to you (good enough of a suck-up or would you like full credit?) we were able to get from $200k to $1.2M in the past 6-7 years: TFSA (200k), RRSP (700k). LIRA (100k), and some non-registered (200k). During that time my wife hasn’t worked for the past 3 years and I am about to go on my second unpaid parental leave of 14 months (the first one was 8). We’ve been “throwing our money away” on rent this whole time.

“Now comes the question: You have written about using RRSPs to finance parental/maternity leaves. But I think a couple of years ago the child benefit rules changed and the amount is now dependent on family income (from prior year). Is the advice still the same? I have other sources that I could tap (e.g. non-registered investments that were purchased relatively recently so not much gains there). At some point we will start taking sabbaticals (or just retire early) so would it not be better to use the RRSP money later when we’re not receiving the child benefits?

“P.S. We’re pension actuaries in our mid/late 30s by the way.”

Is the tax-free Canada Child Benefit really meant for millionaire couples who have more than quadrupled their net worth in a handful of years and where dad wants to stop working for 14 months? Just asking. Maybe I’m paleo.

In most marriages mom takes a mat leave and foregoes some or all of her income during that time. By planning for this in advance, a spousal RRSP can be built up, then collapsed during the leave period, helping to replace lost income. With a spousal plan one spouse funds it (and benefits from the tax reduction) while the other is the beneficiary who can withdraw the money after three years. If s/he is in a lower tax bracket (or on mat leave) this can effectively split income and finance the time off. Of course making big RRSP contributions also lowers net family income and potentially increases the tax-free moolah from Ottawa. It’s now worth over $101,000 per child from birth to age 17. As mentioned, it costs the country $22 billion a year. Chew on that.

Sheila quoted this from yesterday’s blog: “Money taken from an RRSP to pay an advisor’s fee is tax-free and does not need to be repaid.”

“I pay approx. $1100 a month for advisor fees on all my Non Reg, RRSP and TSFA accounts,” she says. “My Master Card gets charged monthly as per my request and as a small perk I collect some cash back rewards. If I understand correctly I could pay this $1100 a month by pulling from my RRSP account without any tax implications even though I am paying fees for Non Reg holdings ? If so would this be a better solution ?”

As stated, advisor fees come out of an RRSP account and are not counted as income when that happens – so the feds actually pay a chunk for you (since it’s pre-tax money). This is the only instance in which RRSP money can be sucked off, tax-free since withdrawals for a house downpayment or education need to be repaid, or are added to taxable income.

But don’t push it. The CRA will not allow you to raid your RRSP monthly to pay for fees on others kinds of accounts, using untaxed dollars. Besides, the fees on your non-reg account are 100% deductible from taxable income. Finally, I hope you pay your CC bill in full every month, or you’re giving the bank 19% interest. Ouch.

Here’s, John, who is easily excited. “I think I discovered a beautiful thing today! I was reading your blogs over the last two days and thought of spousal RRSPs. Not entirely sure on how they work, but slowly starting to understand they are a Godsend.

“Turns out my wife hasn’t been contributing to her RRSP as I thought. I was mixing it up with her pension. She makes 75k a year and owes 500 bux back to the CRA in taxes. Our total income is 150k. We got married in 2018 and according to CRA rules, we can use a spousal RRSP contribution for the whole year rather than prorated. Right?

“Now here comes the tricky part. Because we have over 50k total in RRSP contribution room together, can she dump this money into the Spousal RRSP and bring her income down to 25k? Or will it reduce both our incomes? Because no sense in reducing my income since it’s already down to 0.

“If she does this, she will get like 9000 back on her taxes rather than paying the 500. When we want to buy a house, we can take the 50k out of our spousal RRSP? 25k each is the rule for first time buyers right? Thanks Garth, got me excited about RRSPs haha.”

You’re right about being able to fund a spousal RRSP in the year of marriage, but take some time to understand how a spousal plan works. RRSP room cannot be combined between spouses, no matter how much you adore each other. It’s earned individually, and remains the property of each taxpayer. However, you can open a spousal plan, fund it up to your own contribution limit and claim that against your own income. After three years the money may be withdrawn by the beneficiary – your squeeze.

In your case spouses make the same amount, so a spousal plan won’t income-split. If you plan on kids down the road, it could help finance the mat leave. But you can’t take your room and give it over to reduce her tax bill. There are limits to chivalry.

Helpful tip: be excited about her, not an RRSP. Better returns.

Garth Turner February 20th, 2019

Posted In: The Greater Fool

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