RE:RE:RE:RSP DisadvantageSet up a spreadsheet and track the consequences of your tax decisions in full detail until the day after you die. Nothing is tax-free or tax-reduced in an RRSP; once money is in there it's merely tax-deferred and you can NEVER change that. But a number of things are tax-free or tax-reduced in a non-registered account.
I started my RRSP in the 1980's. I was self-employed and expected my future income to be highly variable, allowing me to withdraw from the RRSP in some years at lower tax rates than when I contributed. That's what happened, and I came out ahead.
But if you have a good pension plan (e.g. Ontario teachers), the RRSP might lose you money and lots of it (I know a few such retired teachers). Better to map out the cash flows in a spreadsheet and see what could happen. Don't forget that massive CRA meat cleaver that hacks the RRSP in half (or worse) before you pass it to the beneficiaries of your estate.
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felix10 wrote: People criticizing RSP's really don't seem to understand how they work. You don't really lose the benefit of dividend tax credits or capital gains. Depending on your income, the dividend tax credit in a non-registered account doesn't elminiate taxes, they just reduce it whereas inside the RSP, dividends are 100% tax free for as long as they're in the RSP. Same thing with capital gains, Instead of being taxed on 50% of your gains, you keep 100% of the gains until the RSP is wound up. Do you really not understand the benefits of decades of tax-free compounding of dividends, capital gains and interest?
And what about the immediate deduction every time you contribute to the RSP? That should save at least a few thousand dollars a year which can be put into a TFSA or non-registered account or anywhere else you want. You don't think that adds up to a substantial amount after several decades?
And it's just wrong to say you pay a low tax rate when you're young, and a high one when you're old (and taking money out of your RSP or RIFF). The tax rate you pay is based on your income regardless of age. For most people, their income actually declines when they retire because they no longer have employment income. So the tax on money taken from the RSP or RIFF isn't so onerous. And you're not taxed on what's in the RSP or RIFF, only what you withdraw from it each year, which is just a small fraction (though it increases) of the account value. And if you're paying a lot on what you get from your RSP or RIFF, it's because you've accummulated a lot of money over the years while it has built-up tax-free. I agree there are great benefits to a TFSA, and to dividends and capital gains from a non registered account, but to suggest there are not signifant benefits to RSPs and RIFFS is just ignoring (or misunderstaning) the facts.