I was walking through the lobby of the Empress Hotel, in Victoria, one rainy afternoon last month when a well-dressed middle-aged couple approached. The guy took my hand and pumped it. “We just want to thank you,” he said. “Ten years ago we read your strategy for an RRSP mortgage, and it’s made our lives incredibly better – even if the bank hates us.” And off they went, heading to a restaurant where a cup of tea costs five bucks.
And he was right. I first publicized the RRSP mortgage years ago as an example of how incredibly flexible this tax shelter can be. I mean, imagine the power of putting your home loan inside your own retirement plan, making mortgage payments to yourself instead of the bank and accruing wealth in a virtually risk-free way?
How does this happen? Simple. Here’s a simplified version of how I describe the process in my forthcoming book, ‘Money Road’:
- First, you need a self-directed RRSP (the kind you can put virtually any asset inside, with which you make the decisions, and which costs a few bucks a year to maintain.)
- Plus, cash or cashable investments within your RRSP equal to your mortgage, or a good chunk of it.
- And you need the willingness to set this up through a financial advisor, a third-party financial institution (like a trust company) and a few thousand in fees to get it ignited.
Your RRSP is allowed to hold a mortgage on any Canadian real estate – residential or commercial – including owned by you or by an immediate relative, such as a parent or daughter. This means existing cash can be withdrawn from an RRSP and then loaned out as a home loan, with the conditions that:
- Regular mortgage payments must be made back into your RRSP.
- Those payments must be at ‘market’ interest rates.
As you might imagine, a mortgage is an ideal investment for an RRSP to hold, simply because of the awesome way a home loan throws off money. In the early years, almost all of the monthly payments are interest due to the amortization of the loan, which means over the course of a typical 25-year payback period, roughly three times the original borrowed amount is taken from the mortgagee. When you are both the lender and the borrower, that’s a good deal. In addition, once an RRSP mortgage is set up, you’re obligated to make payments into your plan to service it – which does not affect your ability to make new annual contributions. In reality then, you have just found a way to seriously fast-track the journey to retirement independence, and to exceed legislated contribution limits.
Also be aware that unlike a traditional mortgage paid in after-tax dollars to a lender, this is one you’re paying to yourself. So, instead of a low rate and a short payback period, you want the opposite. Therefore:
- Set up the loan with a long amortization – 35 years – which means far more interest will be paid into your RRSP than with a conventional 25-year payback period.
- Since the RRSP mortgage rates must be comparable to market rates, shop around for the highest commercial rate and match it.
- Since interest rates look like they’ll be steadily rising then consider giving yourself a variable rate loan which can be jacked up every time the prime pops.
- Make the loan an open one, repayable at any time. While you have no intention of doing so, this gives you the highest possible interest rate, plus a convenient way to wrap things up if you sell your property.
- You can also make this a second mortgage on your property, which will allow you to establish a substantially higher interest rate. It will require more mortgage insurance, by the way, since all RRSP mortgages must be insured through CMHC – which forms the bulk of the set-up costs I referred to above).
- And construct your RRSP mortgage in a traditional way without any fast-pay techniques you’d normally use as a homeowner, like weekly payments, prepayments or shortened amortization. The idea is to shovel as much money as possible into your RRSP, so stick with a monthly payment.
An RRSP mortgage acts like a conventional one, so you can choose any term you’d like, or even have an interest-only payment. If you default, your RRSP gains ownership of your home – which will be a mess to sort out. While an RRSP can own a mortgage, it can’t own a house, meaning a forced sale would occur. However, if you do default, the mortgage insurance is there to reimburse your RRSP for the amount of the loan.
The most common complaint I hear from people is the trouble they have in finding help to set up an RRSP mortgage, since they typically start by talking to their bank about the scheme. Understandably, banks are in the business of making mortgage loans, not having you pay one off with your RRSP. So, the best first stop is an independent financial advisor who runs a fee-based practice who can get this all done for a modest cost and the least amount of hassle. If you don’t have one, email me (garth@garth.ca).
Now, wouldn’t this be a deliciously, sexy thing to do in 2010?
70 comments ↓
http://tinyurl.com/ygl67g7
Mortgage arrears rates are at an all time high in Alberta, all the while sales are still booming and the economy is rebounding huh? It keeps looking like Alberta is going to be our California.
Garth, cant wait for the book.
A question, approximately how much capital (as a % of the purchase price of your house) do you need in your RRSP to be able to do the RRSP mortgage? Would you need to take a loan to cover the difference? Although I know this is not the same thing as the Smith manouvre, I am just trying to make sense of it in my head.
Any amount can work the same in principal. — Garth
That is just f’ing awesome! I think I will indeed try it in 2010!
Garth, it might be the only thing you can do until your new book comes out brother!
People with pensions from a corporation or government job need to think twice about rrsp’s. When it comes retirement time and the monthly pension kicks in, any money withdrawn from an rrsp is taxable and has a good chance of bumping you into a higher tax bracket. A large purchase after retirement, forget it , you will lose 40% of the amount withdrawn right off the bat. Essentially an rrsp locks a person into a very narrow band of monthly disposable income. Its much better to have non- registered money that can be added to and withdrawn from at any time. You pay more tax up front but save when retirement rolls around. Throw into the mix, as the Government is pondering in the U.S, that they want to take over the 401k system and nationalize it, investing all the money in a pool account which only guarantees a low single digit return every year. Essentially taking everyone’s private savings and throwing it into the Social Security unfunded black hole. If you think your money will be completely safe from a governments larger and larger unfunded deficits 20 years from now, then lock it away in an rrsp.
Obviously you haven’t heard how to get money out of an RRSP, tax-free. — Garth
No it isn’t. This is mere fiddling. You all should have been saving and investing the past two decades so you wouldn’t NEED a mortgage of any kind.
Or you should be RENTING.
Damn!
My RRSP is worth about 1/2 my mortgage. Its too bad I just renewed, this sounds interesting. By the time I renew in 5 years my RRSP should be > my mortgage.
Looking forward to reading the book to determine how an RRSP mortgage works. On the surface it sounds like forced savings, since the interest the RRSP mortgage is earning is really just extra money I’d be paying out of my own pocket on a high rate mortgage rather than a traditional lower rate mortgage from a bank.
Why not just take that extra money and throw it in a TFSA instead?
I assume the investments in my RRSP would have to be sold to setup the loan for the mortgage? Thus I’d be sacrificing earning potential of my RRSP to collect interest – from myself.
So many questions….
Similar to what #6 Tax Haven is saying, I would think that by the time someone has cash or cashable investments within a RRSP equal to the principal of a mortgage, they should be old enough (and responsible enough) to have paid off the mortgage.
Garth — if someone has a fully paid off home (i.e. no mortgage), are you suggesting that they get a 2nd mortgage or even buy a new property to set up this strategy?
Anyone without a mortgage has too much equity in a home. Get a tax-deductible loan at that point and diversify into non-real estate assets. Houses will become a poor repository of wealth. — Garth
Garth,
I don’t quite understand the process you just described. More details would be helpful, at least to me. Also, this is not like a homebuyers plan where one was not supposed to have been a homeowner for 5 years prior to the loan, right?
Thanks,
AgAu
No such requirement. — Garth
# 5 – you also have to think of tax deferred growth combined with compound interest over time. Its a beatiful thing. Non Regisistered may not be the best approach when taking this into consideration.
Also there are efficient ways to withdraw the money to minimize taxes. Garth is aware of a few methods. I would be interested in what you are referring to through Garth.
As far as the RRSP mortgage. I like the idea and need to investigate further and perform some calculations to get more comfortable.
Last time I brought this up Garth didnt really have time
to address it.
The question is : Do you want a high or low interest rate on your RRSP mortgage? I say low. Here’s my reasoning,
and if I have a FACT wrong, somebody please correct
me!
Now its important to realize you RRSP is not making X%
In fact that $$ is GONE and you are paying it BACK at X%. You still have to find something to do with it when it goes back into the RRSP. Also, the payments are NOT tax reducing as they are a mortgage on your PR
(assuming your not investing with the $$ and why would
you do that as you had $$ anyway). So the real issue is
to get the most put back in the RRSP.
Lets use a $165K RRSP mortgage at 45 years old. Amortize for 20 year (until age 65). Monthly payments
at 4% are $1000, at 6.25% $1200 both after tax.
If your marginal tax rate is 33%, the after tax difference
of $200 is a before tax difference of $300, so you put a
total a $1300 into your RRSP under the lower interest
rate, with no more realized income. Of course the $300
diff does NOT go against the mortgage, it goes into a
different investment to maintain the amortization.
The point is to maximiize money flow into the tax shelter. Once inside, it obviously should be put into growth assets for maximum torque, then you can remove it later without paying tax, if you know the strategies. You are wrong. — Garth
I first heard about this in 1986 – it’s pretty cool. Why let the banks have all the fun?
Garth, great post! Is the tax free withdrawal from an RRSP in your book as well??
As well, maybe you could do a blog on the absolutely horrendous ridiculous real estate pumping show “Property Virgins”.
I think it is staged, I mean come on, people cannot be this stupid…are they?? The show makes it look like todays sellers have all of the control of a sale. Bid wars? waive the home inspection or you won’t win the house?????unreal!!
I watched it tonight, I was infuriated!! Why?, I really don’t know since it really has nothing to do with me.
Unrelated to RRSP mortgages, but rather amusing… check out some of the comments on this Vancouver Sun article on Flaherty’s recent threat to tighten mortgage lending standards:
http://www.vancouversun.com/business/clamp+down+home+mortgage+regulations+feds+warned/2375333/story.html
I love the quotes from the Mortgage Brokers Association of British Columbia (MBABC):
“We feel the market is going to self correct, just because the affordability [of housing] isn’t there anymore, and really, the economic news isn’t that strong.”
“But we’re into December now, and things [in the market] have slowed considerably”
So, to translate: it’s December now, and the seasonal slow-down that happens every year in December is in fact the market correcting itself.
Or, stated differently: Please ignore all historical market data, and just trust me — I’m a mortgage broker!
Too bad the stats actually show that we’ve set monthly sales records every month since June 2009! (at least in Toronto)
Yet more brilliance emanates from the church of Garth!! So can we start signing up for the Jan 15th online release yet? When? WHEN??
Garth. Could you please respond to # 5, as how to get money out tax free from the RRSP.
Thanks in advance !!!!
Oh Yea, are ya gonna sign the new book when its ready to order ?
Another post coming on milking RRSPs. And, of course – the book is free, the autograph is $20. — Garth
Jeff Rubin – “It is a bubble if all of a sudden, you have to re-finance at 3 to 4 percentage points higher.”
Hope this link works: Rubin
First, get out of Alberta, like a stampede:
http://www.cbc.ca/canada/calgary/story/2009/12/23/calgary-alberta-population-bc-loss-growth.html
Do you know if the same strategy be applied for business owners using retained earnings?
Yes, if the money passes through your hands as earned income. — Garth
http://www.oftwominds.com/blogdec09/monetary-fraud12-09.html
I don’t get it. Why would you want to shovel as much as possible of your aftertax money into RRSP? You would not get tax refund on those contributions, so why would I want to pay income tax on my money, put it into RRSP without getting a refund, and then be taxed again when I withdraw from RRSP?
Hi Garth, I have never heard about an RRSP mortgage before. To clarify, how does this work with the balance after the downpayment? Example: Currently I have $160,000 saved towards buying a house, $110,000 in investments, $25,000 in my RRSP and $25,000 in my spouse’s RRSP. My understanding is we can use $50,000 from our RRSP via 1st time buyers program, and with the investment money that gives us $160,000 towards the purchase. If we were to get an RRSP mortgage on a house worth say $350,000 where do we get the renmaining balance of $190,000?
#5 “TheBigLebowsky “RRSP: A large purchase after retirement, forget it , you will lose 40% “.
Very good point — I’ve seen it first hand with friends making a purchase on big ticket items (sail boat, RV, etc.) and getting punished at tax time. Kind of makes the golden years a little less golden.
On another subject, here’s the most significant thing I believe anyone can ever watch. Be forewarned, you will never see things the same way again.
“Reflections and Warnings – An Interview with Aaron Russo”:
http://www.youtube.com/watch?v=YGAaPjqdbgQ
Garth — thanks so much for the awesome articles you provide us. We’re lucky to have you. Happy holidays!!
I know that this is seriously off topic but can I wish everyone a happy and safe Christmas and remind you all that the only thing that really counts in life is good health, so I wish all my fellow Garth followers and the big man himself, lots and lots of that really precious commodity. Better than gold any day.
As the old joke goes – when the rich man died unexpectedly, people asked ‘how much he left?’ And the lawyer said ‘all of it’.
So if I understand this correctly, one must have enough in their holdings to cover the amount of the mortgage? If so it’s advantages for those who have a substantial financial portfolio, but for those struggling to save for a healthy (over 10%) down payment don’t have an advantage here.
That is not what I wrote. — Garth
It’s an option as the only thing likely to produce a positive return next year are bear funds.
Garth, your thoughts on Canada/The Provinces, it’s resources, and it’s currency.
I’m thinking ‘Dutch Disease’/Resource Curse. As I’m sure you know, Alberta has 90% of Canada’s carbon resources and they will no doubt push our dollar through the roof in the coming years, the currency is a federal responsbility, the resource is the provinces.
Other states that have experience ‘the curse’ have control of the resource AND the currency.
How might Ottawa temper the competing interests of resource extraxcting provinces vs manufacturing/exporting Provinces?
A 2% tax on foreign investment would knock the dollar down a peg (see Brazil) and get Ottawas hands on some of what the world is putting into Alberta’s Tar patch.
Seems like a bit of a Gordian knot to me. but then again I’m a simple f*cker.
Merry Christmas one and all.
Merry Christmas to you and yours
We do not trust RRSP’s, won’t touch them and just have $1k in one that hasn’t done anything for 20 years (I think it is $1150 after 20 years).
With an RRSP you are gambling that future tax rates are less than your current tax rate. I don’t see that happening. I’d rather pay 33% now than 40%+ later. Also you are gambling that you don’t need the money till long in the future as it is both hard to get out, penalised and you have to pay it back.
RRSP’s, no thank you.
Mike
An RRSP is not a product, but a process. Not sure you understand that. Plus assets and growth can be sheltered 100% until you are 71. Plus, there are ways of getting income out without tax. Do some research, dude. — Garth
Another post coming on milking RRSPs. And, of course – the book is free, the autograph is $20. — Garth
——————————————————-
Are autographs subject to HST? :0
Great post Garth, and a great way to illustrate what people should do with a regular mortgage (drop the amortization, accelerate payments, fix in their rates etc.).
Merry Christmas to all the blog dogs, and to Nostra jr. all the best, hope Santa brings you a bigger lump of coal this year than last. (just joking)
Merry Christmas to Garth and all the Blog Dogs.
“The point is to maximiize money flow into the tax
shelter. Once inside, it obviously should be put into
growth assets for maximum torque, then you can
remove it later without paying tax, if you know the
strategies. You are wrong.” — Garth
By using the the low interest rate you do maximize the flow into the shelter, as per my example, and we are
free to do whatever with the money when its put back in.
Anon @21 has the same concern but puts it in other
words. Where are we wrong?
Here’s an article from somebody who used the $$ for investment purposes. He pays the mortgage a low rate, but I think its irrelevant as he can write off the interest as well as whatever he tops up his RRSP with.
http://www.wiseword.ca/art_oct99.htm
But enough blog for now. My very best to you and yours Garth, and to all fellow bloggers at this festive time.
“Deck the halls with books by Turner,Fa, La,Lul,la,la.”
Keep em coming Garth. Best of the season to all.
Strong evidence of a double dip recession in the U.S.
http://money.ca.msn
See double dip recession.
But, why should we care, that’s all so yesterday from the old-school thinkers and we’re in Canada so we have risen above such petty problems.
Ottawa already gets 60% of what’s coming out of Alberta and that doesn’t even count, for example, all those NFLDers earning 6 digits and sending it home, thus helping numerous other people.
Discouraging foreigners from investing their hard earned money in Canada is just ridiculous.
Merry Xmas to all
#30 – think it through a bit more. You’d rather pay 33% now then 30 years of 0 % tax and then using a tax efficient process to remove it?????
Its not 40 % when you remove from your RRSP’s when you use proper methods and tools available to us via estate planning
K Garth seriously, add this topic to your list of future posts.
Just calculate what $100K at 7 % would look like after 30 years with no tax versus being taxed every year at 33 %.
K I just went ahead and crunched the numbers real quick.
$100 K returning 7 % with NO TAX after 30 yrs = $815 K
$100 K returning 7 % with 33% tax after 30 yrs = $581 K
( I assumed all capital gains so I just taxed 50 % of your gains by 33%)
BIG DIFFERENCE!! Why?
The 8th wonder of the world: Compound interest !!!
Your gaining 7 % on the interest saved every year which compounds and compounds.
I would much rather have $815 K vs. $581 K and worry about how I can efficienctly pull it out.
$200 K difference that I saved just due to tax sheltering and compunding. No brainer
Garth in the next month you need to post about this plz. It may be a bit off the RE topic though.
What is the average set up fee?
When ‘existing cash can be withdrawn from an RRSP and then loaned out as a home loan’ is it taxed as a withdrawl?
A 150K loan/mortgage in the RRSP could very easily become double that simply on repayment alone. (not including the increase in value as it is invested) Plus you would have your annual RRSP contribution room to use as well.
Initially it seems well suited for someone with a fair bit of cash flow to maximize both the RRSP/mortgage payments, plus annual RRSP contribution room, plus a TFSA contribution, however alot of people already make those payments anyways, the only difference would be that the RRSP/mortgage payment might be a little higher than a regular mortgage payment (and longer), but it appears you really could come out much further ahead after 30 odd years of payments into it and the investment growth.
Garth Turner’s blog is preparing Canadians for the Real Estate crush.
Here is a website preparing Americans for Hyperinflation:
http://inflation.us/
From my understanding, for the RRSP mortgage to work you would need a significant amount of money already in your RRSP portfolio..Its not someting a lot of people can do.
No one strategy is for everyone. But without any strategy, most are lost. — Garth
Anyone without a mortgage has too much equity in a home. Get a tax-deductible loan at that point and diversify into non-real estate assets. Houses will become a poor repository of wealth. — Garth
Playing shell games with ones “paid off” home. Unreal.
Have you put a value on messing with the peace of mind a paid off home brings a family?
Paid OFF without any obligations against it! None. Nada.
Read one of the best books on personl finances and investing. Cure # 5 Own your own home. Outright.
The Richest Man in Babylon(Over 2 million copies sold)!
It’s just land and bricks. Find something more worthwhile to worship. — Garth
I bailed on RRSP’s year ago after realizing they are tax deferrals not deductions as alot of people think. The tax hit is harsh when you take them out. However, I have heard of ways to do it although I did not pay attention at the time and now with Garth’s mention my curiosity is heightened. I decided I was ok with taking tax hits as I went since when do income tax rates ever go down? Hopefully I have taken the hits at a lower rate over the years vs. what is coming.
Garth:
Just think, if everyone could do this with their mortgage! No wonder the banks and RE pushers, are gunning for you Garth. This is a brillant plan…..
I wish I had a job, so I could pay my mortgage.
Mike
Anyone without a mortgage has too much equity in a home. Get a tax-deductible loan at that point and diversify into non-real estate assets. Houses will become a poor repository of wealth. — Garth
Finally Garth gives great advice, to bad he seems to have convinced so many people on this blog that debt is a bad thing.
After-tax debt is bad. Tax-deductible debt is not. — Garth
Merry Christmas Garth and everyone! Thanks for the tip . Just going to get the wife to figure out how this works.
Couple questions:
Being in the public service, we have a pension we pay into that eats into our RRSP contribution limit and makes it difficult to gain enough RRPS value to carry a Toronto mortgage at a younger age. At age 33 we have $75 000 in RRSPs and another $30 000 in cashable assets. We don’t plan to buy a house for another 2-3 years giving us a chance to save about another $150 000, but it will not all be in an RRSP due to contribution limitations. Still not enough to carry all of a Toronto mortgage.
Do you need to be able to cover the entire mortgage with your RRSP or can you mix your RRSP and other available cash to carry the mortgage? Which we could still not do.
Or can you mix this type of mortgage with a traditional mortgage to make up the entire amount? For example, on a $400 000 mortage: $115 000 RRSP – $140 000 Cashable assets and the remaining $145 000 in traditional mortgage. This seems to be quite complicated as you would want to pay the bank quickly and yourself slowly.
It seems like this type of mortgage is just for the middle aged or those who have been contributing since they were 20 and must have had no student debt to pay off.
An RRSP mortgage can cover part of your existing obligation, but this will mean placing it as a second. — Garth
Garth,
thanks for a wonderful post. Simply superb!
I do not have all that much in RRSP, can i use my entire RRSP for half of the house amount and the other half i pay with cash?
It’s just land and bricks. Find something more worthwhile to worship. — Garth
What? Like Gold Garth? HA!!!
Sounds like you’re the one worshipping the RE god.
Complete with a blog dedicated to it.
Preverting the piece of RE vis a vis the slicing and dicing of tactics and strategems for turning it into something it wasn’t intended for.
When a home costs what it now costs, it’s an investment. Treat it as such. — Garth
Ha! Good one Garth. Teach people to be their own banker.
I can hear the real bankers clucking their tongues right now at you. Maybe a little steam rising out from under their collars.
Since this appears to hamper their ability to create funny money out of thin air; is it not deflationary?
It would appear that if everyone did this, the official money supply would be greatly diminished.
It’s always been my contention that if something cost you too much, doesn’t matter if it’s a spouse, a pair of socks or a house, you will end up hating it.
Well according to a Ipsos Descarie survey done for the Chambre des Notaires du Quebec (notaries) 12% or recent homebuyers are disappointed by their recent home purchase, for various reasons but 14% say they wouldn’t buy the house they own. Increase in interest rates can only increase level of disappointment. More houses for sale I guess.
Here’s the link. The article is in French.
http://montoit.cyberpresse.ca/habitation/immobilier/200912/24/01-933885-12-des-acheteurs-decus-de-leur-acquisition.php
Question: I’m considering purchasing a house when the prices bottom out in Point Roberts, Washington. I wonder, can I use this to give my wife a mortgage in the states? Then the mortgage payments would be tax deductible as well (We can live and work in either country).
Nice try, but no cigar. It needs to be a Canadian asset, insured by CMHC or equivalent. — Garth
Don’t forget that the RRSPs of a couple can be combined for an RRSP mortgage.
Oh my goodness, people pay attention. Don’t get financial advice from your friends or family. Just because Bert down the street took a “hit”on his rrsp, or pension doesn’t mean that is written in stone.
Please go seek the advice of a competent accountant/advisor.
I did many, many years ago, as a matter of fact I have been with my present accounting company longer than the owner. I’ve got him trained now (wink)
The tax plans/stageties and tax avoidance that we have done over the years has literally saved tens of thousands of dollars. All was done above board and properly.
We plan three to four years ahead of time as to what direction we are going.
We are now in the process of “melting down” one of our companies, with huge savings all LEGIT and documented.
The next step after that is the rrsps.
As to the rrsp mortgage we looked into it and in our financial postion it didn’t work…….but Garth gave an answer to a previous post and it gave me an idea that may work for us,Thanks again Garth, you always stimulate my brain, love it.
Anyhow go do some leg work talk to some of these people, pay them a small cost for major savings.
It’ll cost you money to make money but….Money well spent. A christmas chuckle for you all. Enjoy.
http://www.youtube.com/watch?v=Jlf—13Q0g
Oh my look at the time, well better go do my christmas shopping. LOL
PS. Thanks for the reply Garth.
Garth, correct me if I’m wrong, but I believe your mortgage plan would work better with the lowest rates possible. Example! Lets say a $100,000 mortgage at 6% was the lowest rate I could get. You would pay the bank $6000 interest a year and it would be gone forever.,however, In your rrsp you would pay in $6000 and when you took out $6000, you would pay tax of $1800 (assuming tax rate of 30%) You would save $4200. Now lets use a higher mortgage rate of say 8%. Now I would pay out of pocket $8000 and if I withdrew $8000, my tax on it would be $2400, for a saving of $5600. Or is this the real saving? (This is where the deceptive part comes in) The $8000 is $2000 more than I would of had to pay in the real world. Ther fore my savings were only $3600 which is $600 more than my lower mortgage of 6%.
Correction. The last sentence of my previous post should read. Ther fore my savings were only $3600 which is $600 ((less)) than my lower mortgage of 6%.
Very good advice.
I used to get angry looking at my yearly statement; showing I paid more interest than principle on my mortgage. I’ve made extra payments to even it out, but I still can’t help but think I’m throwing almost $6000 a year away on interest.
Post # 53 GF ,Don’t think linear, think abstractly, keep in mind compounding interest, and the investment return on the extra money in there. Max out what you can get in there. More money more profit. Then after time, plan to melt it down. You’ll pay tax but not as much as you think.
What are the possibilities that the feds would make this kind of thing illegal when the housing market crashes? What I’ve always wondered is why we pay federal taxes at all, what services does the federal government provide me with, none, nothing. What? A Canadian passport? Big deal. What? A military to protect me from foreign invaders, get real. The Alberta goverrnment provides me with the majority of services I use, not to mention that if they were privatized I would have much better service. Of course one would have to revoke a corporations right to charter but thats another topic. I’ve always had a problem with RRSP’s, and one would not need them if we did not have to obey the person holding the gun to our heads and pay our taxes like a good little slave. Federal governments the world over are an outdated concept, an un-needed burden upon society. Here’s a savings plan, nobody pay their federal taxes, it will only take a few years to save up your own giant nest egg and if we all did it they would go broke and be able to exist, a much better idea than lining them all up against a wall and killing them. Ask yourself, what has a federal employee done for you today? This is not 12th century England, I am not a serf, and I do not need a “leader.” Think it’s your duty to pay your taxes, fine, talk to me in a year or two when your taxes double because of all the defaulted homeowners. I suppose some people out there think the gold I own should be confiscated for the good of society as well, whatever, thats why I’m a gun owner.
Most of your federal taxes go for (a) transfers to the provinces for health care, (b) transfers to the provinces for education and (c) payments to citizens for pensions and jobless benefits. Tell us what you’d like cut. And put the damn rifle down. — Garth
Garth,
As someone with no mortgage and meagre RRSPs, this approach doesn’t help me much. But my dad sure could use it. I’ll be sure to pass this tidbit along. I’ll also get him a copy of your book when it comes out. He needs all the help he can get!
I don’t know what all of you are talking about. The value of an RRSP is not the deduction you get when you contribute…
It’s the compounding of pre-tax money vs. compounding of after-tax money. Simple as that.
As for taking it out…the tax hit isn’t “harsh”, it’s the same as it would have been if you hadn’t used an RRSP at all, except that you’ve deferred the tax and earned a return on a larger initial sum.
Finally, a typical retiree would not be withdrawing more from their RRSP in one year than they made when they worked, hence the actual tax deferral becomes a permanent tax break, because you’re taxed on your income at the marginal rate in the year you take it out.
I don’t know why that’s so hard for some of you to understand.
#44 DaBull on 12.24.09 at 12:05 pm
48 Weston on 12.24.09 at 12:41 pm
#49 Kash is King on 12.24.09 at 12:52 pm
Your posts are unimaginative and senseless. Bashing someone personally because they remind us how to use tax shelters more effectively is quite boring and drull. If the 3 of you don’t mind, try criticizing the message instead of the messanger if at all possible with realistic reasoning on the next one or risk being shown up as being far more stupid than the 3 of you already appear.
Yo Blog Biatches: Merry Christmas, Čestita Koleda & Happy Hanukkah
p.s. I hate Christmas.
Just read Bernie Madoff is having dizzy spells and high blood pressure. Maybe now he is feeling what many investors are going through when they lost money through him.
On a more cheery note. Merry Christmas to everyone.
#61 Daystar, that’s the weird thing about written messages. Sometimes some people misinterpret them.
I was actually praising Garth, and dissing the bankers.
Happy holidays
Anyone without a mortgage has too much equity in a home. Get a tax-deductible loan at that point and diversify into non-real estate assets. Houses will become a poor repository of wealth. — Garth
Wouldn’t that depend on the current value of the home and the value of the rest of one’s net worth? Do you have a % of net worth value in mind for real estate or do you believe that to be a blanket statement?
#64 Kash is King on 12.24.09 at 7:55 pm
My bad. Happy holidays.
Garth,
I am about to buy my first home (I know, bad timing but this is 15-20% underpriced, plus I need it, what are we gonna do). These are the numbers:
House $400K
RRSP: $50K
Cash: $100K
Is this enough to make your strategy work? Also, could you pls. email me the name of a financial planner that can help me set up the structure?
I live in Toronto.
Thanks in advance,
DG
The thought process is simple.
Pay yourself rather than the bank.
It works better for those who do not have a company pension plan and have the wherewithall to max their contributions to accululate the capital to loan to themselves.
This is a great idea for anyone who has a couple hundy lying around in their RRSP, but how many of those people still have a mortgage?
[...] I wasn’t planning to start this year’s blog with a hat tip to the irrepressable market ‘bear’ Garth Turner at his Greater Fool blog. But he has actually written a very good post recently. Garth writes a very informative and useful post on RRSP mortgages. If you don’t know what they are, you should read his post. [...]