Is an RRSP the best choice for retirement investments? It depends - BNN Bloomberg | Canada News Media
Connect with us

Investment

Is an RRSP the best choice for retirement investments? It depends – BNN Bloomberg

Published

 on


As the February 29 registered retirement savings plan (RRSP) deadline draws near, a new survey from Edward Jones Canada finds nearly half of Canadians expect to make a contribution against their 2023 income.

Whether an RRSP is the best choice for your retirement investments from a tax perspective depends on individual circumstances. In some cases contributing to a tax free savings account (TFSA) can bring bigger savings. For investors with a longer-term view to retirement, the right combination of both can work wonders.

RRSP: save now, pay later

Canadians love to get their RRSP tax refunds in the spring but not all refunds are equal. RRSPs deliver the biggest tax advantage for wealthy Canadians because contributions can be deducted at the highest marginal tax rates. 

That means someone with an annual income over $250,000, who is taxed at a combined federal/provincial marginal rate of 50 per cent, will lower their tax bill by half of their contribution.

At the other end of the income scale, someone who makes less than $50,000, and is taxed at a rate of 15 per cent, will only lower their tax bill by 15 percent.

In dollar terms, tax savings on a $10,000 RRSP contribution from someone in the top income bracket will be $5,000 compared with $1,500 for someone in the lowest.

RRSP investments can grow tax-free until they are withdrawn; ideally at a lower marginal rate in retirement. That’s why it’s important to target contributions toward high-income years when tax savings are high and take a pass on contributing when income is low.

RRSPs aren’t all sunshine and roses for the rich. If their RRSPs grow too much they will eventually be forced to make minimum withdrawals at a higher tax rate and even risk Old Age Security (OAS) claw-backs.   

TFSA: pay now, save later

You won’t have that problem with a TFSA because contributions are not tax exempt in the first place. You can’t deduct contributions from taxable income but any gains made on the investments inside a TFSA (aside from dividends on foreign equities) are not taxed – ever. Withdrawals can be made at any time with no tax consequences.

In most cases, diverting RRSP contributions or refunds to a TFSA makes more sense for Canadians taxed at a lower marginal rate. There are RRSP contribution limits, (18 per cent of 2023 income up to $31,560), but unused space can be carried forward to future years.  

The TFSA was originally intended as a short-term savings tool when it was introduced in 2008 and contribution limits were low. In 2024, the TFSA contribution limit for those who were 18 years or older when the TFSA was launched in 2009 has grown to $88,000, but it can vary among individuals depending on withdrawals made over the years.

Total allowable space is expected to grow in future years, making the TFSA a potential retirement saving dynamo.

RRSP and TFSA: the best of both worlds

Investors can avoid the risk of an RRSP expanding to higher withdrawal tax rates and OAS claw-backs by strategically shifting contributions to their TFSAs well before retirement.

Banking up a significant amount of cash in a TFSA allows retirees to top up needed cash without tax consequences, while keeping RRSP withdrawals in the lowest tax bracket. 

Just about any investment is permitted in both the RRSP and TFSA – stocks, bonds, mutual funds, exchange traded funds – which presents an opportunity to use both as a single investment portfolio.   

Consolidating retirement investments helps temper overall risk by diversifying across sector and geographic lines, and splitting asset between equities and fixed income.

Adblock test (Why?)



Source link

Continue Reading

Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

 on

 

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

The Canadian Press. All rights reserved.

Source link

Continue Reading

Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

 on

 

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

Source link

Continue Reading

Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

 on

 

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

Source link

Continue Reading

Trending

Exit mobile version