Monday, December 18, 2006

Maxing the RRSP's or Investing outside the RRSP

I recently had a comment left on another post wondering if I max out my RRSP's every year. Up to now the answer has always been no. I was focused on debt reduction for a number of years and with what I was putting in to my RRSP's and my pension adjustment I don't have much extra room built up. But now I'm not sure if I should max the RRSP's or have my wife invest in dividend paying stocks and hold them for the long term.

Option 1: I buy spousal RRSP's and max out each year for the next 16 years or so. I would get back about $35 per $100 invested and then I would get tax free growth for a number of years. The problem would be I would get taxed at my new lower marginal rate when I pull them out in retirement.

Option 2: I have my wife buy quality dividend paying stocks and hold them for the next 15 years. She would have a negative tax rate on her dividends, so no tax on that growth. If I don't sell for that long I would only trigger capital gains at the end, which would be a lower tax rate than my marginal rate at that time.

Has anyone seen a good calculator that is updated with the latest tax rates? I have yet to find one during the weekend and I'm still working out how to simulate the buying stock option well. Once I get some good results I will be sure to post them.

3 comments:

FrugalTrader said...

Yip, newest tax rates along with the enhanced dividend tax credits are up on www.taxtips.ca

FrugalTrader

Canadian Dream said...

FT,

I was refering to a calculator that has the latest divident tax rates to compare inside vs outside the RRSP. I didn't see one at taxtips.ca.

CD

MillionDollarJourney.com said...

Ah, yes, there was a calculation done on the Financial Webring, and the battle between dividends outside or inside the rrsp turned out to be pretty darn close with the "new" enhanced dividend tax credit.