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Rrsp attn: class action lawyers, canadians should be allowed to withdraw tax free
April 1, 2019
8:51 pm
Bud
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I think the rrsp is bogus a crappy vehicle for lower income and upper income. The clawbacks and higher tax rates later in life. Canadians were sold a flawed structure therefore they should be allowed to withdraw tax free or the government could be looking at legal action.

April 1, 2019
9:31 pm
Denise Milani
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Exclude the fact that way back when we had no idea we would have TFSAs today and that we used to be able to claim, tax free, the first $1000 of interest.

So the whole idea was:

1. Save on your taxes during your wage earning years if you had money to spare or if you could borrow to invest if you could accurately predict your tax return to pay back the loan (as a result of the RRSP contribution only...not because too much tax was withheld)?

2. Make interest, dividends etc. on your RRSP eligible investments.

3. Use the RRSP RRIF or annuity funds during retirement at a lower income tax rate.

So....

A. If I invested the same money for retirement in a non registered fund how much tax would I have paid vs the above process?

B. Who explained and continued to explain what the best practice was, to invest in RRSP? The FIs or the Feds?

C. What examples did the Feds show us that there would be an overall life time tax savings? Was it a one year snap shot? Or was it a convoluted plan just to bluff us into saving for retirement which was a relief for the Feds for OAS and CPP or?

Now we have TFSA.

Who is guiding us on making sure we can get as much income based government sponsored programs by having a lower income in our late years by filling our TFSA allotments with RRSP/RRIF funds even if we don’t need to use RRSP/RRIF funds right yet?

Synopsis.

Mutual funds seemed to be the big solution to fund RRSPs way back when. And here is how I see it...our money was invested....our money paid the mutual fund manager, our money paid the back or front end fees for the advisor, and last and least we the investor were paid a pittance in return.

While i can’t prove it I think we were had on the whole program. And the Feds aren’t going to do anything about it as it would put too many people out of work. And the advisor is nothing more than the Sundance kid with out a gun.

I wished I had done a better job in investing In RRSP as often I used my tax return for things other than investing it in RRSP.

Some advisors are good and 99.9% of FI advisers are useless and have been brain washed to over sell overrated under performing bank products. I hope I got the “o” and “e” in the correct context.

What ever you do, if you can afford it, top up your TFSA and don’t withdraw it. Especially if you are young.

Who is doing the class action law suit?

April 1, 2019
9:58 pm
Norman1
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Denise Milani said

I wished I had done a better job in investing In RRSP as often I used my tax return for things other than investing it in RRSP.

That would be nice. But, don't need to contribute the tax refund from the RRSP contributions back into an RRSP to make it worthwhile.

Earlier examples I gave in favour of RRSP's don't require that. Same with material from author David Chilton, Globe & Mail columnist John Heinzl, and the federal Department of Finance.

April 1, 2019
10:20 pm
Bud
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Rrsp stats by Golembek to justify the vehicle are too tight to call ud have to be very accurate in ur investment calls. Nobody has come forward with a class action yet. Id also like to see lawyers represent taxpayers the way unions get represented in everything.

April 1, 2019
10:47 pm
Denise Milani
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Id also like to see lawyers represent taxpayers the way unions get represented in everything.

I would like to put a bit of a twist on that comment. I believe the politicians represent unionized workers if there is a loss of employment. But DO NOT represent NON union employees.

I don’t want to get into my employer or my 30% loss in pension along with 16,000 NON union employees loosing their jobs and no severance pay. This also happened to another company many many years ago. And the Feds said there needed to be a fix. Today they are turning a blind eye to our situation and they all have the same document to copy and paste non commitment replies to us. We have lawyers working on our behalf and are funded by the last proceeds of the company. So go figure...the only winners so far are the lawyers because the Feds don't protect or put strong laws in place in regards to insolvency or no insolvency and under funded pensions. We are now in year 2 and still don’t see a satisfactory resolution.

It is unfair for politicians or lawyers to protect one group and not another. It is also unfair that the politicians don’t plug the holes in the system. I imagine a lot of us will be collecting GIS at the cost of their lack of giddy up let’s go.

April 1, 2019
11:22 pm
Loonie
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I don't think a class action suit would have a snowball's chance in Hades, and I doubt any lawyer would take it on.

Face it! We believed the hype and drank the koolade. And many of us were effectively conned. I'd say that came more from the "advisors" than the government, but both are guilty. I would also implicate others such as successive ministries of education which did not mandate good financial education. They were all happy so long as you were "investing", whether RSPs would likely benefit you or not. Retirement was far far away and we did not give it much consideration.

It was a kind of insurance scheme with a big carrot - you would have more money in your pocket this year, whatever year it was. Unknowingly, you placed a bet that you'd be in a lower tax bracket later and that nothing else would change.
These changes would include, for example, introduction of clawbacks, negative changes in the CPP Survivor Benefit, Age Amount clawback, end of income averaging, changes in tax brackets (fewer of them, making it significantly more difficult benefit from a lower bracket in retirement), end of interest income deduction, changing "deductions" to non-refundable tax credits, and so on. Note that most of the changes I've mentioned are negatives for retirees, especially poor ones.
Simpler measures that people could use got subtly changed into programmes that you had to involve a bank or "advisor" in, which led to greater promotion and utilization of mutual funds, losses by inexperienced poorly educated investors, and much more money for the banks and mutual funds etc., as mentioned by Denise. Mutual funds owed their great success to the increased utilization of RSPs. Even I had a couple for a while; quit while I was ahead (but I'm the sort who can walk into a casino, spend nothing, and leave - and have done so!)

I'm glad I never topped up my RSP, but I wish we'd never bought them at all. The amount saved was not worth it. I can see putting SOME money into them, maybe, in certain circumstances (e.g. uneven income, such as sales, so that you can take it out in a bad year; a certain amount of insurance value against unforeseen events, etc.) but I think people should cap how much they are willing to have in them cumulatively, to protect themselves against usurious taxation later.Anyone in the first two tax brackets should probably just forget about them except for particular circumstances. You may see it as a help in, for instance, using it to put a down payment on a property, but, don't forget, A. you must pay it back on specified time; B. you will have to cash it out later and need to consider the tax consequences of that.

My advice to anybody who is considering participating in a long term government-sponsored scheme is to be very very cautious. Rules can change. In fact, they WILL change; guaranteed. They will change according to the economic and political needs of whichever government is in power. Recognize that every financial decision, EVERY one, is a gamble of some sort, a bet about what will happen in the future. You won't win them all.

To be honest, I did not realize this when I was young, and that's why I'm saying it loud and clear now, for the benefit of people younger than me. I believed the paper that came from the government (which i still have) that said the CPP Survivor Benefit would be 60% (even if not to exceed one full pension). That rule was changed significantly, and of course it's not to the Survivors benefit at all. Learn from this experience!

As far as I can see, it will only get worse. If you are considering such a scheme, ask yourself and brainstorm with others to see how many things you can think of that could happen to undermine your decision in the future. You will be right about some of them. A proper "risk assessment" (not those silly forms they give you at the financial advisor's office to fill out) includes deciding how you will mitigate "government risk" in your decisions.

I could see a class action against the changes in the CPP re: Survivor Benefits, but, even then, I doubt it would succeed, and a lawyer may say that they do have the power to make these changes. Same goes for any pension plan.

Nothing is sacred any more, if it ever was. They will take whatever they think they can without losing an election over it. It doesn't matter which party is in power.

I imagine most of us were brought up with the notion that if you followed the rules, all would be well somehow, that the rules would be reliable and would support your efforts. That trust has been broken so many times that people have become disillusioned, which in turn puts democracy at risk.

I AM using TFSAs. i can envision ways in which the government could change them too, but I think it would be difficult to completely remove the benefits received. More likely, they would cap contributions, phase out contributions, or place a limit on the tax-free income. I can think of other things too, but I don't want to give them any ideas.sf-wink

April 1, 2019
11:27 pm
Loonie
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If you think unionized employees get the best deals, then join one.

April 2, 2019
1:23 am
Kidd
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Let's talk union... back in the early 80's, Bob White was very proud of his accomplishments. I was in my 20s and we had ground breaking nursing/retirement home coverage. It was something like $4,000 a month, paid for by GM. And by the time i was in my 50s, the union had given most of our nursing/retirement coverage away, in exchange for daycare for our kids.

Now what you must understand... i was in the median age range for an auto worker. So, on both ends of this scale we lost. The strike back in 1984 gave me something to be used in the future and as i became older, i received something that could only be used in the past.

In the auto worker's union, we send members who like to wear their underwear on their head to negotiate contracts with people who have actually graduated university. So, who do you think wins? I can attest, unifor is a complete waste of oxygen. Bob White was the only true leader the Canadian auto worker ever had. Basil Eldon "Buzz" Hargrove, one hell of a nice guy but afraid of a fight. As for Jerry Dias... he couldn't organize a wet t-shirt contest on a rainy day.

** today is the tomorrow i worried about yesterday.

April 2, 2019
5:10 am
Alexandre
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I, personally, took advantage of contributing to RRSP when I was in high tax bracket, and will be taking advantage of withdrawing from RRSP in low tax bracket, before applying for CPP, OAS and GIS.

I do not plan to work after I am 60. I will empty my RRSP between 60 and 65, with moving leftover money from spending on living expenses to Savings and TFSA Savings.

I didn't need financial advisor to figure how to benefit from government offered deferred tax on income, which is RRSP.

Your mileage may vary, but if you don't like RRSP - don't use it. It is not as if anyone was forced to participate.

April 2, 2019
9:11 am
Bud
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You're a wise man Alex we all were. Your comment proves again that the rrsp has become a shell game for many tilted toward the house.

April 2, 2019
8:36 pm
Loonie
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Like any gambling situation, some will luck out.
When you buy into an RSP, you are betting that things will work out in your favour years down the road - should you live that long.

April 3, 2019
4:37 am
Bud
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If taxes were lower but now they are so high thats what puts the rrsp into legal action governments have thrown them under the bus

April 3, 2019
5:21 am
Kidd
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The subject of RRSPs has been debated here before. The value or benefit of having an RRSP is very individualized.

Are you married? Does your spouse have a job? Do you have pension plans?

I honestly stated in the last debate, my rrsp now rrif is/was the worst investment that i have ever made.

If "your" government and "your" banks preach... "this is what you need" we should have known not to drink the kool-aid. "Your" government and banks have never had our best interests at heart. So this argument supports the claim as to why we have been misled, or duped. I am paying more tax on my rrif withdrawal than the tax i saved making my stupid rrsp deposit BUT my income level over the last 35 years has at least tripled.

** Nostalgia isn't what it used to be.

April 3, 2019
5:25 am
Alexandre
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Loonie said
Like any gambling situation, some will luck out.
When you buy into an RSP, you are betting that things will work out in your favour years down the road - should you live that long.  

Actually, there is category of people who will only benefit from RRSP, unless they die before cashing their RRSP. Yet, same applies to regular Savings - you lose them when you die (not if that matters for you at this point).

Beneficiaries are people who expect to have income from all sources including withdrawal from RRSP substantially below what they have when they contribute to RRSP.
Also, RRSP holdings should be liquidated before person is eligible for GIS, if person plans to apply for GIS.

Simply speaking, if you think you'll be making way more money when you are 55+ years old than what you make as 40 years old, RRSP is probably not for you. You could still break even, with careful planning, but why bother?

Yet, if you bought into "freedom 55," which simply means nobody would be interested to hire you for very well paying jobs when you are older than 55, then you should consider RRSP as deferred income tax.

In summary, RRSP is better suited for pessimists than for optimists.

April 3, 2019
5:42 am
Top It Up
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As @Kidd has said the RRSP can has been kicked around the block multiple times on this forum.

The real problem for everyone is, there is no book of life hence you make investment decisions now for a later time horizon - five years out that horizon likely will change along with investment decisions - hindsight is a wonderful thing. Hey I thought I was going to be working until 65 - what happened - I retired at 40. And no one retires at 40, just so they can apply for GIS, early.

April 3, 2019
9:31 am
Bill
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Not much to add, it's stating the obvious that pretty much any financial decision has some potential upside and some potential downside, the cards of life will be played out over time. When it doesn't work out some folks like to look around to see who can be blamed, when it works out nicely we take the credit!

April 4, 2019
10:16 am
savemoresaveoften
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For the lucky high income earner, RRSP helps you delay paying taxes on the amount you contributed, at the expense of reduced OAS and GIS etc. In other words, its another layer of "income equalization" game sort of. Having said that, I wont say RRSP is bad cuz it "does" give you an opportunity of potentially paying less tax down the road, and that may overweigh what you will lose out on any/all welfare program. You just have to quit working before 65 and you should be able to if you are a high income earner (talking the 1% guy, not the $100k a year guy).
The math is so complicated and individualized and there is no one / sure win way no matter how you structure your investment. Its the best/puzzle one will face in their life.
Government never advertise RRSP as a sure win for those who contribute. There is no ground for any class action or I am sure lawyers would have been all over that moons ago.

April 4, 2019
7:38 pm
Norman1
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Alexandre said

Beneficiaries are people who expect to have income from all sources including withdrawal from RRSP substantially below what they have when they contribute to RRSP.

The group of people who will benefit from RRSP's is much larger than that.

If the taxes on and clawbacks from the RRSP withdrawals are the same as the tax savings from the RRSP contributions, then there is no net taxes being paid and the RRSP is equivalent to a TFSA. The material I mentioned from David Chilton, John Heinzl, and the federal Department of Finance, as well as examples I worked out, clearly show that.

There's is one example of paying a higher 40% rate on the withdrawals than the 32½% rate of taxes saved on the contributions. With the amount of gains in the example, the result is tax free return of the original contributions and a net tax of 16.05% on the gains, as if the gains were all capital gains and were taxed at half the 32½% rate.

April 4, 2019
9:24 pm
Loonie
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I would wager that most people won't really know whether they are benefitting from RSPs tax-wise or not because they didn't keep their tax forms more than 7 years, if that, and can't reliably say what their tax rate was 40 years ago. Most of the citations which aim to show that RSPs are worthwhile are based on assumptions about what they would have paid earlier.

When we bought these things, the brackets were smaller and it was easier to envision how we would be in a lower one in retirement. It seemed like a no-brainer.

Now, the brackets are huge, so what seemed like a good deal back then is no longer meaningful.

Further, there was no Age Amount clawback or OAS clawback when we were making these decisions, and we lulled ourselves into thinking things would never change. These clawbacks add to the cost of redeeming your RIFs, effectively increasing the tax rate on them.

Who knows what other changes will have happened by the time today's 40-yr old contriubtors are retired? - or, indeed, in 10 or 30 years when those of us who are now retired are still trying to use our RIFs?

April 5, 2019
4:51 am
Alexandre
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A final (can't promise) thought on what to do if you don't like the concept of RRSP.

For those just keeping few dollars in RRSP Savings, it only works with progressive tax rate. With flat tax rate, RRSP is no longer an attractive offer. Obviously, with flat tax rate, you either pay tax on your income now, or park some in RRSP and pay same tax on withdrawals later.

Also, low flat income tax rate will be an incentive for many to liquidate their RRSP holdings, before government changes its mind or government changes.

So, for someone who wants to change things (pointing at first comment which started this conversation), instead of letting lawyers make money from their fees by starting pointless class action suit against the government, we should just elect the party which offers flat tax rate.

Interestingly, two parties come to mind: one is far left, another is far right. That would be the Communist Party of Canada and the People's Party of Canada.

CPC promises to eliminate income tax on income below $40K, PPC promises flat tax rate.

So, on our next Federal elections (Fall 2019), vote for CPC or PPC. If one of them wins and gets a majority government, not only RRSP will be taken care of, but the life for a Canadian for a while will be a lot of fun.
So much fun that RRSP concerns will just be forgotten as quite insignificant comparing with everything else.

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