How to get your money out of RRSPs tax free (sort of)
Unfortunately, there is no way you can avoid tax when
withdrawing money from RRSPs or RRIFs. But, with some tax planning, you
can accomplish a similar result. You can do this by borrowing money to
invest in stocks outside of your RRSP, while you make withdrawals from your RRSP. This is
the same strategy used in borrowing to invest. It converts regular
income, which is fully taxed, into Canadian dividends and capital gains,
which are taxed at lower rates and/or allow you to defer tax. Please
read our Borrow to Invest
page before using the Shelter RRSPs calculator. We do not recommend this strategy
unless you have experience in the stock market! At times the stock market is very volatile, and if
you have no experience you may panic and make bad decisions. Our advice is to slowly
invest in stocks, work your way up to borrowing to invest, and then use this
strategy when you retire.
About the Shelter RRSPs Calculator
The Shelter RRSPs calculator provides a comparison between two scenarios
Non-Borrowing, making your RRSP/RRIF withdrawals until the
money is gone, and
Borrowing, to invest in stocks outside a registered plan, while making
your RRSP/RRIF withdrawals.
The results of this calculator depend in part on the enhanced
dividend tax credit, which is undergoing significant changes starting
in 2010. The federal dividend tax credit rate for 2008/2009 was 27.5%
of actual dividends received. By 2012 this will be reduced to 20.73%
of actual dividends received. However, at the same time, corporate
tax rates are being reduced, leaving more money for a corporation to grow
its business or increase dividends. This should help to offset the
reduction in the dividend tax credit. This calculator has been
revised to use the dividend gross-up and dividend tax credit rates for
2010 to 2012. The 2012 rates are used for years after 2012.
You can compare ten different cases, so that you see the differences
made when you use a different borrowing rate, rate of return, borrowing
amount, inflation rate, etc. You could also compare the results for
ten different provinces/territories.
Enter the required information on the Input sheet of the
calculator. Then, click the Calculate button, and the calculator runs a program called a
macro. This macro adjusts
the withdrawals from your RRSP/RRIF in the Borrowing scenario so that your net
after tax disposable income in each year is the same as it is in the
Non-Borrowing scenario. Once the RRIF in the Borrowing scenario is drawn
down to zero, investments outside the RRIF are sold to provide income.
These sales are adjusted so that the net after tax disposable income in each year is
the same as in the Non-Borrowing scenario. This happens until the RRIF in
the Non-Borrowing scenario is reduced to zero. The results show the value
of your investments in the Borrowing scenario at this time, less any loan amount still
outstanding. This is the amount by which you are
ahead because you borrowed to invest.
Our calculator is in the form of an Excel worksheet file, and
was developed using Excel 2003 SP3. It contains programs called macros, so
we cannot convert it to a web page. You will need some version of Excel to open and use the calculator.
You can save the
worksheet file to your computer for use offline. We have been developing this
calculator for a few years now, and have done extensive testing on it, but it may
still have some glitches that we haven't discovered. The calculator is
protected by copyright. You may use the calculator in your business, but
you do not have permission to sell the calculator, or to deconstruct and revise
the calculator. The calculator is for planning use only, and financial
decisions should not be made based solely on its results. We always advise
getting independent financial advice before making any major financial
decisions.
Because the calculator is an Excel file which you download to
your own computer, you will not automatically know if there are updates
available. If you want to be notified that there is a new version
available, subscribe
to our mailing list. We will notify you approximately once a month about
new items that are added and changes made to the site. The link below for
downloading the calculator will also indicate the last date that it was revised.
Open the Shelter RRSPs
2010 Calculator -
Save to your desktop or your documents directory, then open from that location. Last revised
November 28, 2009.
If you open the file instead of saving it to your computer,
it opens in your browser and may result in errors.
When prompted, save the calculator to your own computer, then open
it. You will have to say Yes when asked if you want to enable
macros. If your Excel macro security level is set at "high", you may have to change
it to run the macro in the
calculator. To do this, from the Excel menu choose Tools Macro Security and change
the security level to medium. If you have the worksheet open when you do
this, you will have to close and re-open the worksheet. When Macro
Security is set to medium, you are given the option to run or not run
macros in any worksheet, when the worksheet is opened.
In order for the Shelter RRSPs worksheet file to work
properly, you must have the Excel Analysis ToolPak enabled.
To enable it, choose Tools from the Excel menu, then Add-ins. Make
sure there is a tick mark beside Analysis ToolPak, and click OK.
If you have any problems with the Shelter RRSPs worksheet file, please let us
know by e-mailing us at .
The information on this site is not intended to be a
substitute for professional advice. Each person's situation differs, and
a professional advisor can assist you in using the information on this web
site to your best advantage.
See our Business
Directory for tax, accounting and finance-related firms in your
area.
Please see our legal
disclaimer.
