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Converting RSPs to RIFs
October 4, 2021
3:53 pm
Bill
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Agreed, and don't forget, no need to claim deduction in year of contribution. A young family member has been contributing for about 10 years now, never deducted contributions on tax returns so has a large carry-forward pool available. In 2021 this person got an unexpected (at least to me) mid 6-figures stock market capital gain so can shelter much or all of the 50% on which tax would have been payable at the highest rate. Alternatively, even if the contributions had not been made the person could now contribute as much as possible to the RRSP to again use the deduction to offset the high rate tax the capital gain would have triggered.

If it's likely your income will put you in higher tax brackets later in life you can always do that.

October 5, 2021
6:33 am
RetirEd
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But, COIN, you will have to pay the tax on the compounding as well, so unless your tax rates change it works out exactly the same.

Try it yourself with a spreadsheet or calculator - assume a certain RRSP contribution (you can even use X and do it algebraically) and calculate the tax savings. Then do the compounding over any length of time you want and the tax on the compounded sum.

Compare that to the non-registered growth and its taxation, year by year. Make sure you keep tax and interest rates the same in and out of the RRSP.
RetirEd

October 5, 2021
7:16 am
COIN
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RetirEd said
But, COIN, you will have to pay the tax on the compounding as well, so unless your tax rates change it works out exactly the same. RetirEd  

Yes, tax must be paid sooner or later. I think most people prefer later, much later if possible (time value of money).

October 5, 2021
7:37 am
Loonie
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The tax calculation is more complicated than that. Depending on age, the bump in income due to RSP/RIF will also trigger a loss in the Age Amount credit, a clawback in the OAS, and/or a reduction in the value of the medical expenses tax credit.
By the time the younger person who is currently putting money into RSPs retires, there could be any number of other new ways of subtracting value. Ultimately, the real cost of RSPs is not knowable in advance, let alone several decades in advance. The same could be said for any source of income, of course, but RSPs are a particular category with unique set of regulations at whim of gov't. As they are becoming less popular, it will be easier to change their regulations without major public outcry.

October 5, 2021
7:40 am
Norman1
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There's actually no net taxes with the RRSP when the tax rates are the same when the contributions are deducted and when the withdrawals are taxed.

RRSP's and RRIF's don't work for those who qualify for GIS because the GIS clawback effectively adds 5,000 basis points (50%) of tax to the withdrawals.

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