Weekend Reading – RRSP facts and guidance for 2022
Welcome to some new Weekend Reading: my RRSP facts and guidance for 2022 edition.
I’ll get to those RRSP topics soon but before that, check out other recent editions and past popular articles below:
Here are some interesting financial predictions for 2022 – including some doom and gloom ahead!
This millennial has accummulated $1.5 million in net worth, in his mid-30s. See how he got there including investing in some exotic assets!
Very recently, I suggested more stock market volatility is on the way for a few reasons – and what you can do about it….
and….don’t forget about my interview and review of Balance, with speaker and auther Andrew Hallam.
Weekend Reading – RRSP facts and guidance for 2022
With “RRSP season” now here, I thought it would be great to highlight a list of lessons learned investing inside this tax-deferred account along with some great tips and insights from other sources.
Enjoy below!
Should you take out an RRSP loan? Boomer & Echo generally say no in this post.
I happen to agree. From Robb’s post:
“One behavioural argument against taking out an RRSP loan is that if you didn’t have the discipline to contribute regularly to your RRSP throughout the year, how do you expect to stick to a loan repayment schedule over the next 12 months?”
I agree because so much more goes into investing than math.
This was and remains my take on any RRSP loan:
“That’s generally a bad idea. Yes, while a short-term loan to contribute to your RRSP might sound like a good idea – let’s face it – borrowing for investing is not generally a good idea for most of us. Especially if you have a large mortgage already. Instead, get your emergency fund in place. Pay off all consumer debt. Pay down your mortgage or car loan debt without fail. Contribute to your TFSA for tax-free wealth-building AND then contribute to your RRSP if that makes sense – if you have more money leftover. Don’t dig yourself another financial hole. If you cannot afford to make regular RRSP contributions in the first place then I don’t believe you shouldn’t be thinking about an RRSP loan.”
So, unless you have no consumer/credit card debt, already have a small emergency fund, and unless your TFSA is already maxed out of contribution room – don’t bother with any RRSP loan.
There are many more RRSP facts, tips and suggestions in this post about tax-deferred investing.
Finally, while the Home Buyers’ Plan seems like a good idea I wouldn’t bother with it either – when it comes to taking money out of your RRSP. I provide two simple reasons for that.
Remaining on this theme, some great tips from Dale Roberts in his RRSP investing post.
A good reminder that high fees is like compounding in reverse:
“Lower fees could help you generate double or triple the returns over decades. There is a negative compounding that occurs as time amplifies the effect of high fees.”
On Cashflows & Portfolios we highlighted 5 big RRSP mistakes to avoid.
Weekend Reading…
Tawcan suggested FIRE should RIP. Yes, especially the RE part of FIRE. I’m all for FI (Financial Independence) (I always have been striving for FI for well over a decade on this site) but the RE part should really be retired. Unless of course, the RE part means = Retire to Entrepreneurship.
A nice passive income summary from Joe at Retire by 40. When you have FI, you can do interesting things like this for side-income:
“Side hustle – I charged scooters so I can exercise and make extra money. This is active income. This year I made about $17,500.”
Ben Carlson mentioned value stocks like higher inflation.
“Value stocks have been laggards for a while now but maybe they just needed the right environment to shine.”
Here are 15 stocks (including some Canadian ones) showering investors with more cash with thanks to Dividend Growth Investor.
The Dividend Guy isn’t worried about his portfolio with any current market volatility. Same here. Check out Mike’s post on this subject.
Congrats to the winners of Salary for Life. I shipped those books out this week!
More income and retirement content
From the retirement files:
Does this couple have enough to retire early, for real, at age 52 with $800k invested?
How I invest in dividend paying stocks is always found here.
Why I invest in low-cost ETFs – along with dozens of articles about ETFs can be found here.
Looking for free calculators, tools, or even my support? Check out my Helpful Sites page here.
Save, Invest, Prosper!
As always, check out my Deals page.
Have a great weekend!
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Mark, you’ve done it again! Thank you for the RRSP advice, and I must say that, like many Canadians, I fell in love with a TFSA as soon as I realised its potential.
Awesome Florian! I’m biased but I love the TFSA for investing!!
Hi Mark,
Thank you, yes I am probably in more of a minority with my situation. I did forget to mention, one of the most important reasons I am using my Catch Up Credit Line is I have accumulated a larger than expected contribution limit over the past few years which I want to use up. I have also been adding to spousal RRSP in order to equalize between the wife and myself with RRSP account sizes. I will eventually get my contribution limit used up and will not use the Credit Line for Contributions. It just has been working well for me to catch up and using that money for a few months while I wait for the tax refund. The interest cost at most is maybe a few hundred bucks to borrow those funds short term but I think it is worth it to catch up much faster.
As to your question, I have been mostly re-balancing, not by selling, but buying more of the stocks that I do own for weighting and also to top up holdings so I can maximize more dividends in order to add those additional shares to my DRIP. In saying that I have been adding to ENB, PPL, T, TD, CM, MFC, BNS and AQN. I have also added to my XUU holding which I only hold for a bit of diversification. I did add on this 10% pullback on the S&P500.
I have also started new positions in XAW, SRU.UN and intend to add more new positions but just have not decided what to invest in as I am waiting to see how this Russia/Ukraine issue gets resolved.
What are you using your new RRSP and TFSA money to invest in? Would love to hear a few of your ideas.
On another note, the extra dividends I receive on my Smith Maneuver investment account I will be sending over to my TFSA on a monthly basis to get them working tax free much faster. I thought that would be smarter since my mortgage at the moment is at 1.6% and I can get well over 5% dividend returns if invested in BTSX stocks. Any thoughts on that?
Have a great day and thanks again for your amazing blog and information you share.
Charles
I love the idea of re-balancing via buys vs. sells. That process has served me well over the years and I will continue to do that.
https://www.myownadvisor.ca/how-do-you-rebalance-your-portfolio/
Those are all great companies but I’m baised since they form part of the BTSX portfolio I follow as well.
Your portfolio sounds very similar to mine 🙂
I like XAW for the extra diversification beyond my 20-25 CDN stocks. I feel it’s a great time to buy more (XAW) inside my RRSP or TFSA – the latter will need to wait until 2023 for me!
For the RRSP, I am likely to buy some QQQ (now beaten up) this spring/summer if it remains low. Otherwise, likely some XAW to offset any taxable purchases this year. In the taxable, I have my eye on more AQN, more TD, more EQB in particular there in 2022. Maybe some WCN if it goes lower.
Yes, no problem with the SM and BTSX stocks as long as you have the long-term discipline to invest this way. I’ve always felt the SM is not a short-term endeavour – it’s a long game thing 🙂
Great work Charles.
Mark
Hey Mark,
Thanks for the replies. Yes, we have similar portfolios for sure. I will look into EQB and WCN closer now as well.
I have added XQQ in one of my ETF portfolios just today, basically QQQ but in CAD dollars. Will buy more when and if we see a substantial enough drop to add more. Yes, SM is a long term thing for me, at least as long as I have a mortgage anyway, after that it really just becomes similar to a Margin Loan.
I had one more question for you if you have an opinion. Since my business is in USD income, I tend to have a lot of USD on hand more than CAD. What are your thoughts on buying stocks in USD vs CAD? What I am referring to in particular are Canadian Dividend stocks in USD. ie: ENB, TD, CM, AQN, etc etc – They are available to buy on both CAD and US exchanges. Any pros or cons you are aware of? I do own CM in USD and it pays the dividend in USD but have not come to the conclusion if it is a good idea or not so good of an idea.
Thanks again for your insight,
Charles
I own WCN for some recession-proof long-term gains. EQB is a small growth play for me in the coming years.
I like XQQ and ZQQ as well. Smart to buy some more if they drop of course.
Almost debt-free here which times nicely with our semi-retirement plans. < $100k to go on debt. Should be killed in 3 years now. I buy interlisted stocks as part of my Norbert's Gambit: https://www.myownadvisor.ca/norberts-gambit-how-to-exchange-canadian-to-u-s-dollars-for-less/
I don’t think it makes too much sense to own CDN stocks on the USD, especially if their dividends are paid in CDN. Your brokerage might charge you small currency conversion fees if you own CDN stocks, on NYSE, and their dividends are in CDN $$.
Essentially, they are the same stocks/companies.
You’re just choosing which currency you use to pay for them. If you have USD already, and those are your selections, you can do it. Just before you do that, make sure your broker can transfer the shares between CAD<->USD accounts. i.e. to keep dividends in the currency in which they are paid is the usual key for me at least.
Cheers!
Mark,
Thank you, I will consider all that. I do also use Norbert’s Gambit also for exchanging my funds. Keep well.
I’ve really struggled with the RSP decision this year. With my dividend income, and some capital gains and my employer match DPSP I currently owe about $6k and waiting to see what my wife owes, but probably about $1k.
Combined we have about 20k in RSP room. I also have about $40k in unused losses. The only available cash is in our HISA (it’s either a renovation fund or the start of our cash wedge savings). But, we do have >100k in a non registered account with stocks. Using that would incur more gains for 2022.
I sort of have a goal to save as much RSP room as well as my capital losses for when we hit retirement in about 5 years. I will have no income (other than my dividends) and could then sell some non-dividend positions in the non-registered account for additional dividend positions. It would be nice to save as much capital gains tax as possible.
Is this a dumb plan?
Not at all James, if I understand your position, since capital gains is an efficient form of taxation.
I know our plan is to max out the TFSA, RRSP and then invest in a non-reg. account where it makes sense. Boring but that plan works for us!
Thoughts?
Mark
Well, our TFSAs are maxed and our RSPs were maxed as of the 2020 contribution year, but none of them have nearly the value they should because of my previous mis-steps. That leaves us stuck with roughly 70% of our portfolio in our non-registered account – and since most of it was purchased in 2020 in the COVID downturn we’ve done very well – but also have to deal with capital gains if we want to move any of it into our TFSAs or RRSPs. It’s a tax conundrum while we’re both fully employed and working towards retirement in 4 – years.
You can always strategically move some $$$ into the TFSA and RRSP then James, but given you have 4 years to go to retirement, potentially only maxing out the TFSA makes sense.
Is your plan to live off dividends or distributions from the taxable in retirement, at least a bit?
Or slowly sell off assets for income?
Well, the current plan is to ride my non dividend stocks until retirement then sell them for dividend stocks. Between the capital losses and the saved rrsp room I hope to minimize the taxes on the gains. We’re about 80% divvy stocks today and collect about 39k in dividends across all accounts. I’d like to get the dividends to 84k per year by retirement. However, I’m not against simply selling some holdings for income – it’ll depend on a few factors.
Amazing post as usual Mark! Thanks for the tips about RRSP and I must say that just like a lot of Canadians as soon as I knew the power of a TFSA I fell in love with it 🙂
AQN is one of my favorite as well and even if the price stay stagnate I’m happy dripping 15 shares a quarter and it will be interesting to see if they raise their dividends 10% like they’ve been doing for couple of years now .
You bet Gus. On Day 1, in 2009, I figured this would be an outstanding investment account. Still is 🙂
I suspect a dividend increase in the 5% range is coming. Still good for inflation-fighting power!
Thanks for the mention Mark.
I know it’s RRSP season but one less known secret about RRSP is that you can use your first 60 day contribution to the current year. For example, rather than using contribution from first 60 days of 2022 for your 2021 income tax, you can use it for 2022. Basically top up your RRSP by end of each year which gives you an extra 60 days to compound.
Nice tip. That’s what I was always doing for past few years. This year I didn’t do it as I am struggling whether or not to continue to contribute to RRSP.
This year I think I will wait until year end or even next year this time so that I would know better of our tax situation.
Thanks Bob! Already maxed out RRSP for 2021 tax year so I don’t have any room to use the first 60 days of 2022 but I know where you are coming from! 🙂
Have a great weekend.
Mark
I think you can continue to contribute for 2022 tax year? What I used do is that I will calculate my income in 2021, and how much I can contribute for 2022 tax year, minus expected group rrsp contribution, get the amount that I can contribute to RRSP for 2022, and contribute at the beginning of year 2022.
Yes, for sure. Now saving up for our RRSP contributions actually for the 2022 tax year. I already invested in our TFSAs (maxed again) so the RRSPs are next and then onto saving another $12k for TFSA contributions in 2023. That will take us from the summer until the end of this year to do that.
Mark,
I enjoy reading your posts, always lots of very informative information. Thank you for your hard work. I also really enjoy following Bob at Tawcan as well however I am not in total agreement about saying No to RRSP loans.
I think finances are personal and not everyone falls under the same broad cloth, and to say NO is the best answer. Generally, it is probably the best answer for most people but not all.
In my personal situation without going too deep into my finances, I have no debt at all with exception of a very small mortgage remaining on my home but that is still bad debt as far as I am concerned as the interest is not tax deductible. I am however working on that via the Smith Maneuver and have paid about 60% of my mortgage off over just 3 years of my 5 year term.
But speaking directly about RRSP loans, I feel like I am investing my RRSP funds a year earlier than I normally would, by not using an RRSP loan. For example this year, to reclaim tax I paid to CRA over the 2021 tax year, I put an additional $20k into my RRSP out of pocket. To further what I have done for 2021 Tax Year is Scotiabank gave me an RSP Catch Up Credit Line ( 2.45% interest rate ) so I further added an additional $15k contribution.
By doing the math for the tax bracket I am in, my $35k RRSP contribution will get me approximately an $11k tax refund which I will apply to the RSP loan I used leaving me a balance of $4k owing on my loan. That will be paid off within the next 60 days and basically the money was loaned to me almost free and generated a large tax return. Since I have the ability to pay that off out of pocket, I am not worried about the $4k debt for 60 days. Next year, rinse and repeat. Now, lets say in September 2022, the market takes a 30% down turn, I may reuse my RSP Catch Up Credit Line to buy up a load of stocks on sale. That would also make sense. I know some day I will pay taxes on drawing down my RRSP but I will have 20 years of growth on it tax free. That credit line is clearly a good tool for some people like myself, I make it work for me but it is definitely not for everyone.
Some will say, why put that extra $15k into your RRSP when you can take a $6k tax refund on the original $20k RRSP contribution. They would say put that into your TFSA. I am doing that anyway, without having to use that tax refund. Again, not everyone has that ability.
In short, not having any debt, using the Smith Maneuver, RRSP catch up loans, rent from my rental properties, non registered accounts and TFSA collecting all those juicy dividends, things are really paying off. There are advantages to using RRSP catch up loans if you have the right tools available to you and you use them the way they were meant to be used.
What is unfortunate is not everyone gets offered the same products as others, but the ones I have I use them in a smart way for my personal financial strategy and situation.
Thanks again for sharing your investing insights.
Charles
Is there a way for you to still contribute max to RRSP without paying 2.45% interest rate? I feel that’s extra cost which should eliminated if possible.
Great stuff and comment Charles. I do however suspect you’re in the minority since you probably have some cash, I doubt you have any rolling credit card debt, and you’re likely making enough money (to fund your RRSP and TFSA or you have choices for both) – since you can pay off the loan rather easily.
Personal finance is always personal but I do believe if you/an investor doesn’t have any cash savings, you are not paying off your credit card debt, etc. then you should not invest in the RRSP. Such folks either don’t have the financial discipline and/or the income to do so. There are better things to do to get financial stability in this case. That’s just me!
Any purchases on your mind for the RRSP?? 🙂
Mark