RRSP used to pay down mortgage? -


QUESTION:

I'm thinking of withdrawing $2000 to pay down my mortgage. My concern is that not only will I be taxed on the withdrawal but also my  total  income will go to $35.500 approx  from $33.500 approx for next yrs tax. I'm paying 5.11 on my mortgage and getting about 3% approx on the RRSP? What would you suggest? I would much appreciate your feed back on this question.

Sincerely
xxxxxxxxxxxxx

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david ingram replies:

If you have it, take out $5,000 better still , make it $10,000

This is a very simplified spread sheet but it shows that you are some $6,000 after tax dollars
ahead by taking $10,000 out of a 3% RRSP and paying down $10,000 of mortgage by 2025

By 2015, you would be ahead by $1,875.52.  Double your money.  Take out $10,000 in 2008
and another $10,000 in 2009.



Income without RRSP equals 33500 a




2007 tax equals  4937.74 b











Remove money from RRSP 10000 c


  add to original income of tax at 
43500 d




2007 tax equals 7179.49 f











Tax on extra $10,000  (f - b)  2241.75 g











Pay down difference  )c - g) 7758.25 h


Present mortgage interest 0.0511



interest one year equals (h x's i)  396.4466












Compounded for 10 years annually after tax




interest
dollars


YEAR
saved on
7758.25


2009

396.45
 


plus .0511 plus .0511 20.26 416.70 8174.95


2010
396.45 813.15




plus .0511 x's savings 41.55 854.70 8612.95


2011
396.45 1251.15




plus .0511 x's savings 63.93 1315.08 9073.33


2012
396.45 1711.53




plus .0511 x's savings 87.46 1798.99 9557.24


2013
396.45 2195.44




plus .0511 x's savings 112.19 2307.62 10065.87


2014
396.45 2704.07




plus .0511 x's savings 138.18 2842.25 10600.50


2015
396.45 3238.69




plus .0511 x's savings 165.50 3404.19 11162.44


2016
396.45 3800.64




plus .0511 x's savings 194.21 3994.85 11753.10


2017
396.45 4391.30




plus .0511 x's savings 224.40 4615.69 12373.94


2018
396.45 5012.14




plus .0511 x's savings 256.12 5268.26 13026.51


2019
396.45 5664.71




plus .0511 x's savings 289.47 5954.17 13712.42


2020
396.45 6350.62




plus .0511 x's savings 324.52 6675.14 14433.39


2021
396.45 7071.58




plus .0511 x's savings 361.36 7432.94 15191.19


2022
396.45 7829.39




plus .0511 x's savings 400.08 8229.47 15987.72


2023
396.45 8625.91




plus .0511 x's savings 440.78 9066.70 16824.95


2024
396.45 9463.15




plus .0511 x's savings 483.57 9946.71 17704.96


2025
396.45 10343.16




plus .0511 x's savings 528.54 10871.69 18629.94  tax free


















you save








this much
This is the $10,000 left in the RRSP at the 3% mentioned. after tax  pay down by paying





-25% tax in RRSP mortgage down
2009 10000 0.031 310.00 10310.00 2577.50 7732.50 8174.95 442.45
2010 10310 0.031 319.61 10629.61 2657.40 7972.21 8612.95 640.75
2011 10630 0.031 329.52 10959.13 2739.78 8219.35 9073.33 853.99
2012 10959 0.031 339.73 11298.86 2824.72 8474.15 9557.24 1083.09
2013 11299 0.031 350.26 11649.13 2912.28 8736.84 10065.87 1329.03
2014 11649 0.031 361.12 12010.25 3002.56 9007.69 10600.50 1592.81
2015 12010 0.031 372.32 12382.57 3095.64 9286.92 11162.44 1875.52
2016 12383 0.031 383.86 12766.43 3191.61 9574.82 11753.10 2178.28
2017 12766 0.031 395.76 13162.18 3290.55 9871.64 12373.94 2502.30
2018 13162 0.031 408.03 13570.21 3392.55 10177.66 13026.51 2848.85
2019 13570 0.031 420.68 13990.89 3497.72 10493.17 13712.42 3219.26
2020 13991 0.031 433.72 14424.61 3606.15 10818.46 14433.39 3614.93
2021 14425 0.031 447.16 14871.77 3717.94 11153.83 15191.19 4037.36
2022 14872 0.031 461.02 15332.79 3833.20 11499.60 15987.72 4488.12
2023 15333 0.031 475.32 15808.11 3952.03 11856.08 16824.95 4968.87
2024 15808 0.031 490.05 16298.16 4074.54 12223.62 17704.96 5481.34
2025 16298 0.031 505.24 16803.41 4200.85 12602.55 18629.94 6027.39











pay down mortgage amount 18629.94






tax free




ahead by paying down  profit $6,027.39










Note - You  save $396.45 interest each year by paying down the original amount.









Each year you save the interest again and again.











Then, because you have presumably made the same mortgage payments, you are
saving compound interest on the amount you save because you have paid down
an extra $396 each and every year.












Whatever you do  - do NOT get caught with the concept of buying an RRSP and then
using the refund to pay down the mortgage.  Although it looks good on paper, it is
only good because you are paying the amount of tax you would have saved extra.



















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I first broached this subject on CBC's marketplace in 1976.  NO one has ever been able
to disprove the figures.  The reason is simple.  If they show you an RRSP that made 15%
and destroys this argument, I can easily show you that you should not have bought that
product within an RRSP.  You would have been far better off by borrowing the money
from the bank and buying 'that' product outside of an RRSP.

You can hear much of this every Sunday morning on CHBD radio www.600am.com from
9 to 10:30 when i usually appear as a guest with Fred Snyder (who also understands it
backwards and forwards) - Fred also follows my methods of making the mortgage interest
deductible.

 Every Thursday at 12 noon and 7 PM, Fred Snyder of Dundee Wealth Management
presents free Financial Seminars for his clients, potential clients and anyone who phones and asks to attend.


THERE is NO CHARGE!  (I used to charge up to $999.00 for essentially the same thing)
AND - NO ONE'S ARM IS TWISTED TO BUY SOMETHING.

They are presented at the Dundee Boardroom (holds about 30 people max)

1764 West 7th
Vancouver, BC

phone (604) 731-8900 - ask for Freda to register for free.

These are genuine educational seminars dealing with everything from how to buy a house to making your mortgage tax deductible to buying an RRSP to alternatives to RRSP accounts to estate planning.  So what started as 13 separate seminars has now evolved into 23 separate topics.

IT IS NOT UNUSUAL FOR PEOPLE TO COME TO ALL OF THEM.
ONE LADY CAME TO 53 separate seminars and her husband came to about 20 with her.

If you have a financial consultant, bring them.  People have brought their bankers and life insurance agents with them.

Take your spouse, your best friend, your son, your daughter, your mother or your worst enemy But do phone 604-731-8900

Fred Snyder  also is the host of ITS YOUR MONEY every Sunday morning on CHBD (600 on AM dial)  from 9:00 to 10:30.  This is a phone in financial show which I appear as a guest on on the last Sunday of every month.  (Originally I was the co-host but the program is really devoted to BC finances because of BC Securities Legislation and my practice is world wide.)  You can listen to 4 weeks back at www.600am.com and listen to the program live around the world every Sunday morning at the same spot.  We have taken calls from around the world.  In one case, a lady phoned from Florida, got her answer and then asked if I was the David ingram she knew in Regina back in 1959.  Small world as they say.

Call (604) 280-0600 with your question on Sunday Morning.

-------------------------------------------------------



SUGGESTED PRICE GUIDELINES - May 17, 2008

david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325

Calls welcomed from 10 AM to 9 PM 7 days a week  Vancouver (LA) time -  (please do not fax or phone outside of those hours as this is a home office) expert  US Canada Canadian American  Mexican Income Tax  service help.
pert  US Canada Canadian American  Mexican Income Tax  service and help.
David Ingram gives expert income tax service & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
 
Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert  US Canada Canadian American  Mexican Income Tax  service and help.
This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,200 would be the same with one rental
 
$1,300 would be the same with one business no rental
 
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
 
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
 
A Business for $400 - Rental and business likely $550 to $700
 
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.
 





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