Comments on: Your Investment Objectives

By: Susan Mladenovich

Susan Mladenovich — Thu, 19 Feb 2009 05:41:53 +0000

I also talk to people about viewing the RRSP as a “make less money” plan. I teach for the self employment assistance program funded by EI and I tell the class at this time of year, they should beg or borrow as much as they can and put it into RRSPs. Most of them worked most of 2008 and will be on EI for 2009 plus any money they make from their business so most likely they will be in a lower tax bracket in 2009. So put the money in when you are in a higher bracket (2008) and take it out in a lower bracket (in 2009). And if their business does well and they don’t need the money, they are fine. Another example I just did with someone was to have her husband max out his contributions to a spousal plan. He makes $125,000 so the deduction is quite significant. After 3 years the plan is vested to the wife and she can take it out while on parental leave and she will have a minimal tax hit. And another thing people miss is that even someone who is over 70 can continue to contribute to a spousal plan as long as his spouse is under 70. This is a way for people to use up their unused room especially if the younger spouse doesn’t have much room. The only drawback of using the RRSP as this type of tool is that unlike the new TFSA, you don’t get the contribution room back when you take the funds out.

By: William Conner

William Conner — Thu, 19 Feb 2009 00:26:21 +0000

We took our down payment and filtered it through our RRSP’s. It sat there for 61 days then we pulled it out and purchased. For us, having just been out of school and working at paying off loans/credit cards/cars first (the bank made us eliminate all debt but our small LOC prior to mortgage approval last year.) We borrowed 20k from our parents for half the down payment and will be able to pay half that off this year when we get our tax returns, the other half will come from the $800 per month we’ve been saving up through having a roommate. By August we’ll only owe our mortgage and RRSP, debts we would have had anyway. The difference the government will enforce our RRSP deficit. The FHBP is a great tool if you can use it like we did.

By: Pol*

Pol* — Thu, 19 Feb 2009 00:15:31 +0000

We haven’t come anywhere close to maxing out our RRSP contributions EVER. I feel good that we are saving something every month but stressed that it won’t be enough. How much should we sacrifice from today to secure and uncertain future?
That’s what keeps me up at night.
Not debt ’cause I don’t have any to speak of.
Not my mortgage ’cause it’s safely managable.
Not my kids’ education ’cause I am sure they will follow their dreams whether I help of not.
It’s my old age that I’m worried about. So far away, but not THAT far!

By: po noyfb

po noyfb — Wed, 18 Feb 2009 22:51:51 +0000

More than exciting. We’ve read enough of Gail’s stuff and seen enough of her shows to know that they will worthwhile materiel. Hey Gail, how much will it cost me to get the first copy? Do you want the money now?

By: Geoff

Geoff — Wed, 18 Feb 2009 21:58:22 +0000

DB — just be sure to adjust your horizons accordingly. It really is a good program but like a credit card can be abused/not work out well (ie anyone investing in the past year but unwisely planning to withdraw it for the HBP this year now has 25% less of a downpayment). An RRSP can have gic’s, cash, bonds, etc just as easily as equities (stocks). I kind of liked a hidden aspect of saving for a house or loft in my case, as the money really wasn’t accessible and I lacked discipline when I was younger. I mean it wasn’t inaccessible like an ING account which takes a few days for an electronic transfer, it was inaccessible as in I’d have to fill out forms, get them signed off on, meet with people, etc and I wasn’t going to do that for a playstation 1 (yes I’m old I know).

By: DB

DB — Wed, 18 Feb 2009 21:44:56 +0000

It’s actually really funny that Gail should post this today. My Mom & I were just trying to figure this all out last night. I am a recently graduated university student in my first full time job we were trying to figure out the best amount for me to put into an RRSP to get the maximum benefit. I have decided to put in more than I was orignally going to because of the HBP. It seems like a great idea!

By: Fiona

Fiona — Wed, 18 Feb 2009 21:43:34 +0000

Diana C…

Yes, this worked for us also. We didnt have a downpayment saved due to a few circumstances, one being that I was in school at the time. We pulled some RRSP’s under the HBP, bought our home. I graduated as a Nurse just a month after we purchased our home. Of course, now having both mine and my hubby’s income, repaying on our HBP is miniscule. I can understand your way of thinking though….I would agree to those thoughts myself….but from experience, I now know that it can work.

By: Saver Queen

Saver Queen — Wed, 18 Feb 2009 19:38:12 +0000

Plus, if you are only borrowing $20,000 or so, it’s pretty reasonable to pay that back within 17 years. After all, I think Gail recommends putting aside $100 a month to RRSPs, so you’d only be following that minimum, or even less. And like Geoff says, if you absolutely can’t pay it back, the worst thing that happens is that you have that amount added back to taxable income – still better than having to pay premiums or paying extra interest due to a smaller down payment.

By: jay

jay — Wed, 18 Feb 2009 19:38:06 +0000

@Cynthia – yes, you’re correct… I probably oversimplified, just going with the (then) max HPB withdrawal situation. Personally, I ended up taking less, and my repayments are about $1300/year.

By: Geoff

Geoff — Wed, 18 Feb 2009 17:50:38 +0000

Marie — the drawbacks can be mitigated. You can hold cash in an rrsp account (in a money market fund) so there’s no drawback at all viz. potential return (aside from minor loss of interest income over the 90 day minimum holding period). And unlike many loans, you don’t technically have to pay the HBP back, but if you don’t what your annual contribution should have been is added onto your taxable income. So if you have lots of cash but no rrsp, it makes more sense to dump that money into your rrsp, wait 90 days, get your return, cash it out per the hbp, and use your refund and original contribution for downpayment (and you don’t need to put your refund into the downpayment, you can use that to pay for the baby!). Just made $20K turn into 26K-ish. And even though you are ‘paying back’ your rrsp, the repayments are still building up your portfolio.

By: Marie

Marie — Wed, 18 Feb 2009 17:26:57 +0000

Here is how some people increase their downpayment using the HBP.
Make a BIG eligible RSP contribution before the March 1st deadline. Get a big tax return. Use BOTH the big tax return and the HBP withdrawal for the downpayment. If you contributed $20000 last minute, you might have $26000 for your down (depends on tax bracket). You repay the $20000 over the 15 year rule.
Drawbacks: potential return on an investment of $20000 over the 17-year period and finding the money to repay the HBP. This requires discipline!
You can pay it back faster if you wish ON TOP of your regular RRSP contributions. Joanne picked a method that works for her.
I don’t like the HBP because new homeowners have too many surprises and they often tend to have babies not long after buying a house.
There are requirements to fulfill in order to qualify for the HBP, so read CAREFULLY before choosing this road.

By: Cynthia

Cynthia — Wed, 18 Feb 2009 17:23:51 +0000

To Jay:

Not everyone pays back $1500 back a year. It is actually dependent on how much you take out of your RRSP for HBP (Home Buyers Plan) or LLL (Life Long Learning). People should keep in mind that you can pay back more than your designated amount for any given year, provided you have room within your RRSP limit. If you fail to pay the amount back (put into your RRSP), any outstanding amount is added at tax time to your income.

By: Diana C

Diana C — Wed, 18 Feb 2009 17:09:51 +0000

Thanks for everyone’s replies. It now makes sense to me! This is such a wonderful forum.

By: joanne

joanne — Wed, 18 Feb 2009 16:59:20 +0000

With the HBP you have a 2 year grace period and then 15 years to “pay yourself” back. Your yearly pay back amount is whatever you borrowed divided by 15 years. Mine is $500.00 per year. However, you take this amount out of your annual RRSP contribution. Mine is at a min of $4000 a year so on my taxes I allot $500 to my HBP plan but I have actually deposited $4000 into my RRSP account but only get $3500.00 credit on my taxes.
It is not in your best interest to “pay it all back at once” as you would then not have any tax benefits. ie; I allot $4000 to my HBP and only have $3500.00 left to pay back but didn’t get any tax credit in that given year.
The less you pay back the more you can use against your taxes with the amount that you would already be inputting into your RRSP account. The RRSP contribution is still the same and in the same “bucket” its just how you direct it in the case of paying back your HBP. Ideally, if you had the additional funds you could deposit the HBP amount and still have your full RRSP contribution to apply to your taxes.
However, in hindsight, I wish that we had found Gail 9 years ago and had a 20% downpayment to avoid CMHC fees.

By: JL

JL — Wed, 18 Feb 2009 16:45:45 +0000

Diana C,

Your home ownership RRSP repayment happens over 15 years and we have ours taken off at tax time – for the $11,000 we pulled out of RRSPs for our downpayment, we pay less than $800 a year and usually paid off by our tax return. It has worked for us.