Investing inside or outside your RRSP
The lower capital gains inclusion rate of 50 per cent might have you wondering about the relative tax advantages of investing in equities within an RSP versus outside an RSP. Well, wonder no more—Investors Group's tax planning experts have carefully analyzed the tax implications of the inside/outside question for you.
"Whether you are planning for retirement or estate enhancement, it is almost always more advantageous to invest in an RSP if the tax benefit from your RSP contribution is reinvested, or used to pay down non-deductible debt," says Myron Knodel, CA and Tax Specialist, Advanced Financial Planning Support at Investors Group.
Use it or lose it
The key is how you use the tax refund or reduced tax payment that results from your RSP contributions. For example, if you use your tax refund for personal financial expenditures—say, to take a vacation—the benefits of your RSP contribution are significantly reduced. Repay a mortgage or other personal debt that decreases your non-deductible interest expenses and increases your personal wealth, and it's a different story. You can enjoy the benefit of more disposable income that can be used for investment or to further reduce your debt.
"There is no doubt that significant long term tax and wealth accumulation advantages come from reinvesting your tax refunds or the extra money from reduced tax payments." Knodel adds.
Finding your answers
Keep in mind that the number of years to your retirement, maintaining an asset allocation strategy that fits your risk profile, your overall tax strategy, and the growing amount of your personal wealth all impact your RSP reinvestment strategy. Your Investors Group Consultant can perform a customized analysis of all these factors and more—and then there will be no question about what's best for you.
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This article, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.
© Copyright 2007, Investors Group. All rights reserved. Do not reproduce without the express written consent of Investors Group.
