Yes, you can contribute up to your maximum lifetime amount(+$2,000 spare). It is not a tax shelter, its a tax deferral, please consider it this way and it'll make more sense. You will be paying taxes on it all upon pulling it out, not so cool. Provided that you were in the same tax bracket it would essentially be a wash except....sarnia saver showed you a better tax strategy
Right, always forget to mention the withdrawal taxes, because I thought the tax rate were lower at around $20000/$25000, but, according to Taxtips.ca, all income under $42,705$ (2017) is equally taxed at 28.53%. Is that right? Isn't there a minimum amount before starting to pay taxes?
Dividends in Quebec are taxed at a much lower rate than income, any money pulled from an RRSP is considered income. So if you invest in funds that pay out dividends you'll pay a miniscule amount of tax on it outside an RRSP and then the tax hit is done. If its held inside the RRSP then you'll be paying tax on it at a much higher rate (see the taxtip table again).
This is one of the few forums that discusses maxed out accounts and investing money, its a rare situation that most sites don't touch upon. I'd dump the financial counselor, you're getting poor value.
Wow, never thought of that, and honestly, I'm pretty surprised the counselor didn't advice me on that. I understand the vast majority of people aren't in this situation, but it's still his job to fully understand all of these advantages... No doubt I'll dump him.
So from what I understand, I should contribute to my RRSP up until I hit the lower bracket ($42.390 for 2016) and invest the rest in an open account that pays dividends. Or should I completely forget the RRSP for now?
You guys talked about dividends that are, effectively, taxed at a much lower rate. But what about the capital gains? I know they also are taxed at only 50% of regular income, but wouldn't it be better to avoid as much capital gains as possible in non-registered account by investing in a RRSP and re-investing the taxes return?
I guess from a long term point of view, it's not better. Too bad I already have $15000 already stuck in a RRSP...
You're also making plans like you won't have equal amounts to save in future years, are you expecting your savings rate to decrease soon?
It's not the case. In fact, I plan to have even more money to invest in future years (as income goes up quicker than outcome). Honestly, I didn't understand it fully (and wasn't that well advised) when I first posted. I probably wouldn't have invested that $15000 in a RRSP if I understood the dividends taxes well enough. It's not that bad in the long run since I'll keep it there and contribute to my RRSP each year in order to achieve the lower tax bracket..
In fact, here's a quick calculation I made with some assumptions trying to figure out how long I could only pay minimum tax bracket (minimum purcentage on maximum lower bracket amount ($42,705 for 2017) if that makes sense):
