Saving Generation Y
Now we want to think OUTSIDE the box (aka RRSP).
Related: See RRSP Part 1
What should we keep outside of the RRSP or Tax Deferred Shelter?
Well, after you maximize your RRSP’s and TFSA, then you can keep investments in the “spillage”
Basically you want investments that are the least “taxing” to you, to keep outside of an RRSP.
So what should one hold in the RRSP? I have heard some people say that an RRSP should be “safe” and should have more low risk investments held in them (e.g. think GIC’s), some people say more growth-geared investments because it grows tax deferred.
From what I have learned, I would say that looking at how investments are taxed would be a good starting point.
This is another “bonus” for RRSP’s. I think I would definitely take advantage of it, if you have that much money saved up in your RRSP’s.
The Canadian government recently up’d the amount from $20,000 withdrawal, to $25,000 this year (2009).
The main catch is that you have to be a first time homebuyer and that all the written agreements/ contracts are in place before you withdraw from your RRSP.
You don’t have to take it all out all at once, too. You can take some out first, and if you anticipate that you need more cash, you can take some out a few months down the road, as long as it’s all done within January of the following year of your home purchase.
Then you have to start repaying the money you withdrew. You would owe about 1/15 of that amount each year until you reach the 15th year. The catch is that the money you contribute back into your RRSP is not tax deductible.
I’ve always been a proponent of lifelong learning. The Canadian government seems like they are supportive too!
The LLP allows you to withdraw money from your RRSP for full time education that is an accredited post secondary educational institution.
You can take out a max of $10,000 per year, up to a max of $20,000 after four years of the first LLP withdrawl.
Then you have 10 years to pay the money back (like the HBP, you have to pay 1/10 of your RRSP back each year), but this starts after the 4th or 5th year from your first withdrawl for your RRSP’s.
Really detailed information on the LLP can be found here on the CRA website:
http://www.cra-arc.gc.ca/E/pub/tg/rc4112/rc4112-e.html#P316_27011
Okay, what are they? To clarify, an RRSP are not mutual funds, but they can HOLD mutual funds. They are akin to the States’ 401 K.
Think of it as a grocery basket. Mutual funds, GIC’s (guaranteed income certificates), stocks, bonds all go into this grocery basket.
A non-registered account is like another grocery basket that holds the same items, BUT the downside is that any income you make on it is fully taxed.
I know I know, you’re thinking “hey but I’m only 24, why the heck do I need to think about retirement?? You may not be thinking about retirement now, per se, but you can start thinking about buying a home (Home Buyer’s Plan) OR going back to school (Lifelong learning Plan) in which case you can withdraw $25,000 from your RRSP for FREE- as long as you pay it back within 15 years (we’ll talk more about this later– stay tuned).
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