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Maximizing Your RSP: Strategies for Wealthy Canadians to Manage Retirement Income

One million Canadians have maxed out their RSPs, raising concerns about over-funding and OAS clawbacks. It's crucial to understand that too much money in your RSP can lead to significant taxation upon withdrawal. Learn how to optimize your RSP withdrawals, manage investment loans, and consider converting registered accounts into non-registered ones for better control and tax advantages. This strategy is especially pertinent for clients with substantial funds in their RSPs, ensuring they can achieve their desired retirement income without unnecessary taxation.

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Maximizing Your RSP: Strategies for Wealthy Canadians to Manage Retirement Income

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Presentation Transcript

  1. Reality One Million Canadians have maxed RSPs You can have too much money in your RSP Retirement needs differ from what you will have OAS Claw backs ($60,806, fully clawed back at $98,660) Fully taxable as retirement income (RIF)

  2. The RSP Meltdown Stop Contributing • RSP will be over funded • Desired Income will mean OAS claw backs Start Withdrawing • Determine over funded amount • What can be withdrawn per year to get to desired RSP amount? Use Withdrawals to pay for Investment Loan • Determine what size loan can be serviced with proceeds from RSP • Try to match Interest Exp with RSP withdrawal

  3. Things to Consider Converting Registered into Non Registered • Slows down growth inside RSP • Non reg. not subject to minimums or maximums • Allows more control of income stream • Tax Advantaged • Potentially better tax treatment (Cap Gains/Div Income) • Complete Flexibility • Corporate Class is a perfect solution

  4. Things to Consider Assuming leverage on accumulated funds • Leverage is NOT for everyone • Borrow less than investor can afford • Interest Only works best for this strategy • Be conservative with Investments • Make sure client has consistent, predictable cash flow • Benchmark for leverage – 30 - 50% of net worth

  5. Things to Consider Tax Advantages • Interest Income – 100% inclusion • Cap Gains – 50% inclusion • Interest exp on loan tax deductible • Proceeds from RSP fully taxable • Tax deduction from interest wipes out tax obligation of RSP withdrawal

  6. Summary • Great strategy when client has a lot of $$$ in RSP • Small RSP investor assuming big leverage doesn’t make sense • Client must understand risks of leveraging • Client must fit profile – steady cash flow • If loan is subject to margin calls client must have funds to cover it • Home Equity line of credit may work best • Borrow less than investor can afford • Can create significantly more after tax dollars for investor • A great idea to bring to clients – establish a planning relationship

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