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Time running out to invest in an RRSPhould you invest in an RRSP? To Both Jack and Jill will have taxes to pay earnings you have.illustrate the RRSP option we are on their non-registered investments in the Deferring the payment of taxes is most Sgoing to have a friendly competition form of capital gains.often a smart decision. So tax savings dur-Dollarsbetween twins. Jack and Jill both have If she withdraws the money from her ing your younger years that is not paid $100,000 to invest, but they have different &RRSP during retirement it is likely she will until you are in your 70s or 80s is to your views.be in a lower tax bracket so the taxes paid advantage.SenseWe will assume they are both in the top will be less than the tax savings that she The time you will want to pay taxes income tax bracket and have $100,000 of enjoyed while she was working.sooner is if you anticipate you will be in a By Petter WatsonRRSP contribution room. The investment The example we have used with the higher tax bracket in the future. Then it is they purchase will provide an annual twins makes certain assumptions.a matter of weighing the deferral advan-growth rate of seven per cent per year and From a practical perspective you could tage with the higher tax rate disadvan-all of that gain is taxable when the invest-ask your advisor for a comparison between tage. worth $387,000; the same amount as her ment is sold. an RRSP and a non-registered investment For many investors the RRSP rules are brothers.The large $100,000 example is used so so your specific situation can be consid-very attractive. And many investors who And that is where the similarity ends. you can easily relate this to your own cir-ered.should use an RRSP do not maximize their Her brother had wished he had invested cumstances. For example, if you have As a general rule, RRSP investing is available annual contribution limit. more. Jill had actually done this by invest-$50,000 RRSP contribution room, then advantageous in the following circum-In summary, you should seriously con-ing her RRSP tax refund.just divide the numbers by two.stances.sider investing in an RRSP if you are in a This was paid to her shortly after she Jack invests his $100,000 in a non-reg-It is more attractive when your income high income tax bracket and have the abil-made the original RRSP contribution. The istered investment. After 20 years the value is higher. Remember the RRSP contribu-ity to leave the RRSP funds invested for tax department gave her $41,000. She of that investment will grow to $387,000. tions are tax deductible so the amount of many years.invested that money in the same invest-In 20 years my guess is that Jack will be tax savings is greater for those paying a Remember, if you want to use an RRSP ment, but this time it was put into her delighted.higher rate of tax. contribution to reduce last years taxable non-registered account.The magic of compounding has worked. If your income decreases during retire-income, you have to contribute by March Now after 20 years that part of her By his own self-evaluation, he is an invest-ment then you will pay less tax when the 1. Time is running out.investment is worth $158,000. Both Jack ing genius. In hindsight he wished he had funds are withdrawn. Submitted by Peter Watson, MBA, CFP, and Jill had invested the same $100,000, invested more.Time is a factor, too. The longer you R.F.P.,CIM,FCSI. In 1991,Peter founded but Jill included an additional investment Jill did things a little differently. She plan to leave the money in an RRSP the Peter Watson Investments in Oakville. Peter that was paid for with her tax refund.invested her $100,000 in the same invest-better. Investment income is not taxed can be reached at 905-842-2100 or visit the Jill has an RRSP and eventually that ment, but decided to put it into her RRSP. within the RRSP, so it can compound tax website at www.peterwatsoninvestments.money will be withdrawn and will be taxed After 20 years her investment was now free regardless of what type of investment com.as regular income upon withdrawal.21 Friday, February 25, 2011 OAKVILLE BEAVER www.insideHALTON.com