I'm a self employed canadian making around 30k/ year on average. I've maxed out my TFSA, and have made that a priority. I've held off on contributing to my rrsp for the past few years, because it's not that beneficial at my income level. I have about 50k of contribution room there.
My questions:
1. Should I be contributing to a taxable account or my rrsp, once my TFSA is maxed out? I've been contributing to the taxable because it's more accessible than the rrsp, in case I need to withdraw. I am not planning to RE, since I'm pretty much FI and doing what I want now part time, but there may be times when I'll need to supplement a slow year's income with investments, so I was thinking I'd access the TFSA and taxable first.
2. Am I wrong to think that I should leave the rrsp alone until I'm 71? (Currently 42, so there is a lot of time to let it grow.) This is another reason I haven't been contributing to it -- though I don't have tons of money in it, if it grows for 30 years then I don't want it to get out of hand, since I'll be paying tax on the withdrawals.
Any advice would be much appreciated!
Don't cut your nose just to spite your face.
You are right in that TFSA > RRSP at low incomes, but RRSP > taxable anytime. In fact, in very rich circles the advice is to max both, then look at deferring income using a corp; but that's inefficient under 128k$ of regular income.
I don't understand why people are so scared to get their OAS+GIS clawed back; that's (at most!) 16k per year, if you are alone and destitute. To me, it's like stopping to work just to prevent from getting "your" welfare benefit cut.
At 30k$, you are pretty close to zero effective tax rates (check for your province's number). An RRSP deposit could take you there. On the other hand, taxable investments' income will be added to your income EVERY YEAR, which will create a tax load which eats some of your employment income. Moreover, paid taxes are compounded just like investment returns: all paid tax dollars cannot be invested, and produce no returns, those missed returns produce no returns themselves, etc, etc.
Also, RRSP's are great for people having irregular incomes: you deduct all deposits from your income on a good year, and withdraw some of them back in bad years, lowering your average lifetime tax rate. RRSP's can be withdrawn at any time without penalties (except if your investments or brokerage charges some), you only add them to your income for the year. That's also true for ER: you certainly could withdraw from your RRSP from your first "retired" fiscal year without losing a cent to the tax man - keep the annual withdrawal under the "zero tax" number and make up the missing spend with TFSA withdrawals.
If you want to know more, read "Money road" from Garth Turner. He's an ex-cabinet minister in charge of the CRA, so he knows a thing or two about taxes. That book was written before the TFSA, but the rest is still good.
Note: I am not a tax accountant, fiscal planner or responsible for your choices.