Whats the ideal situation for RRSPs?
The ideal scenario is to put money in when you are in a high marginal tax rate (40% for example) and take it out when you are in a low marginal tax rate (23% for example). In this example, you would be ahead by 17% just because of tax planning. On the other hand, the worst situation is to put money into an RRSP when you are in a low marginal tax rate (23%) and take it out when you are in a high marginal tax rate (40%). In this situation, you would be losing 17% due to poor tax planning. When should you not buy RRSPs? • If your income is too low and you will not benefit from the tax deduction. Generally this is about $10,000 of income. • If you will be in a higher tax bracket in retirement than when you are working. It’s rare, but it happens. For example, Martha owns her own business and spends next to nothing. She reports personal income of $33,000 per year. As a result of being a saver, she has accumulated $750,000 in RRSPs, $500,000 in investments and her business is worth at least $
