Qualified Retirement Plans and Infinite Banking | Does a Canadian RRSP Really Work!?

Because if you put it into the market, you put it into an index fund, you know, mutual fund, segregated funds, there's also always some amount of risk that comes with that. So I've always said, you know, really, they should have called it a registered retirement investment plan. But that's, you know, semantics. And true savings, I always say, is you put it, if you have true savings is put somewhere where it's safe and you can't lose it.

Qualified retirement plans and infinite banking. Does an RRSP really work? Today we're going to talk specifically about one type of qualified retirement plan, and that's an rrsp. And as we do, we'll speak about how it compares to the infinite banking concept. We're going to give you three points that we're going to cover today. The first one is what's one advantage of an rsp? And the second one, this is going to be a big one, is things about RRSPs that we'd like you to understand. And the third one is why we no longer put our money into RRSPs. I'm Dan Allen, and with me today is my colleague Jian Jianfeng, and we're going to cover this topic for you. And we both work for Ascended Financial, and we're glad you're here for a few minutes, so thanks for taking that time. All right, Jing Jin, so the first thing we wanted to cover off was what's one advantage of an rrsp? How would you answer that question?

I probably would say it's a great saving vehicle, it's a good saving behavior.

So it really does help people start that behavior, if you want to call it a savings mindset. And it helps people start that key kind of behavior in life of thinking about and actually saving money. And so when I think about the infinite banking concept, how would that compare? Well, I like the concept. Obviously, I teach it. And one of the things that I really like about it is it does teach discipline. It's very similar. It shows you clearly the advantages of saving money, and it's one about putting money in a vehicle that really has a lot of other advantages. So when you think about it, RRSPS starts a savings mindset. And the infinite banking concept, it does that, too. In fact, it does it very well. So that's that. One thing we wanted to share about an advantage is that you can get from RRSPs. Now let's talk about the things that we'd like everyone understand about RRSPs. And the first thing is I'm going to ask Jingjun a question so what does the acronym RRSP stand for?

It stands for Registered Retirement Saving Plan.

So that's exactly what it is. I always have fun with that acronym, actually, and what it means because the third letter stands for savings. What do most people do with the money that they put into an rsp? Gingin? Do they save it or do they invest it?

I think most people invest it maybe in mutual funds, index fund or segregated fund. Most people would put it into the market.

Yeah, right. So yeah, there is, you know, and you can put it into a gic, but most people, because, hey, what's the downside of a GIC Right now?

It's almost nothing.

Yeah, right, yeah. The interest rate you're going to get is just like nothing. So most people, when they go, okay, this thing needs to grow for me, so I'm going to put it somewhere where there's a bit of a risk because if you put it into the market, you put it into an index fund, mutual fund, segregated funds are all always some amount of risk that comes with that. I've always said, you know, really they should have called it a registered retirement investment plan. But that's, you know, semantics. And true savings, I always say, is you put it, if you have true savings is put somewhere where it's safe and you can't lose it. So when I think about the infinite banking concept and people that are putting premiums into a policy structured for this concept, it is safe. It's not at the whim of the marketplace. It is the safest place that I found that I can put my money. Now if you can find a safer place, just let me know because I'm always looking for those. So that's one thing that we wanted to help you understand about RRSPs. Another one, a tax deferral. Everybody and a lot of us, I'm sure we've all experienced this is one of the things people get excited about. And even a great part of what they market RRSPs around is that contribution you could make and you make, you could get a tax benefit in that year. It is a huge thing that people think about. And then the other part that we really wanted you to understand about is it's not like you're not going to pay tax on it. When will you pay tax on it? Gingin?

Well, you pay taxes when you take the money out. You probably have to encounter it withholding tax. You also when you take the money out during your retirement age, you're right.

So it's whenever you take the money out, you're going to have to pay taxes on it. Now when I think about the infinite banking concept and you know, and I related to it, it's like, okay, here's one big difference because with the infinite banking concept, your premiums that you're paying for your policy, it's after tax. You're not going to get no tax credit or deduction on your taxes for the year you're going to be paid with after tax dollars. And I always like to say to people, well, what would you rather pay taxes on, Gingen, the seed or the harvest?

I think the answer is very obvious. I would love to pay at the seed.

Yeah. Because when it comes to the harvest time, there's a few things that we won't know and it's, you know, how much and all those things and it's just that it's growing and so you're paying tax on a greater amount. So I just like to say, okay, that's one thing that you want, you want to understand about RSPS is that's a tax deferral you will have to pay taxes on at some point. So don't think that you won't. Okay, now what about all the rules? Now what are some of the rules that you can think of, gingin, related to RRSPs?

We've already mentioned about the tax issue when we taking out money. I guess you have a lot of limits on how much money you put in as well.

There's definitely one. So there's a limit on how much you can put in every year. And if you don't use it all, you can carry it forward and it can become a bigger number. But here's one experience I had in life. So at one point I was contributing as much as I could to my qualified plan. And I looked at that number, I go, okay, that's, you know, that's as much as it is. And at the same time, I was capitalizing my policies as part of the infinite banking concept and I was able to put a lot more money into those than I ever could into my qualified plan. Now, the withholding tax, you brought that up briefly and it's like, so that if you choose at some point to take money out before retirement, there's always going to be a withholding of a portion of that money. That financial institution where you have your RRSP at will actually take that money out before they ever send you the rest of the funds. And that amount's going to vary depending on how much you're taking out. And, and then at the end of the year. What you have to do is, as you do your taxes for the year, it'll be determined whether they withheld enough tax or too much tax. And then if they didn't hold enough well, then you're going to have to pay more taxes on it. So it all depends on your tax year and the income levels and all those good things. With the infinite banking concept.

It'S different than that. So you can take up to a limit and that's the money that you've put in. And you're going to be able to take a lot out, especially in the first number of years without any tax, because it just looks like you put so much money in and you're just pulling it out through a policy loan, which is simply using the cash value you've built up in that policy as collateral for that loan. So as long as you don't get over the adjusted cost basis, you won't pay no tax. What happens, Jing Jin, if you do withdraw money out of an rrsp, can you put it back in?

I don't think so. You lose that room.

And the other thing is, is you've cut whatever it was doing for you, it stopped growing. The nice thing about the infinite banking concept is if I use a Polish loan, and that's the way we teach people to take money out of their policy, if I use that policy loan and I've used my cash value as collateral, my money keeps on growing. I haven't stopped the growth. Now with an rsp, if you take money out because hey, life happens sometimes you may need to take it out of there prematurely. Like you might have planned on taking it out when you're in retirement stage, but something happened and you have to take it out. You've cut the growth of that money. It's not doing anything for you anymore. So that's another thing that we'd like you to understand about RRSPs, the third one. And let's face it, Jing Jin, I'm a lot closer to this mark than you are. Age 71. So what happens at the end of your 71st year? What's the government tell you you have to do?

You have to withdraw a certain percentage of the money. They can't let it keep growing inside it.

Correct. Like it's a pre described amount. Like they don't give you, you know, they don't give you an option and you got to take out at least this amount and they'll tell you what those numbers are. So you're right. You know, the end of the 71st year, the CRA will just, you know, as wants to get their money and they're going to start to get it and that's when they're going to start to get it at the very latest, if not, if you haven't used or started taking a note before that in the infinite banking concept. So if you have a policy designed for infinite banking now, do you have to start taking money out at age 71?

There's no rules. You can do whatever you want.

You can leave it there for as long as you want. If you live to be 90, 95 or 100, it can stay there. You're not going to be told, okay, you got to take some money out of this thing. You get to a put more money in. So with your RSP, you can't keep on putting in past age 71. You have to, you know, you have to start taking out. But with a policy designed for infinite banking, you can keep on putting premiums in if you want. At age 71, you may not have to, you probably don't have to, but you can if you want and you can leave your money there. Now another piece is so what happens, Jian Jin, if someone dies and they own an rrsp?

Well, I think that gets quite complicated with the tax implications on that.

It definitely can. So first, with an rrsp, you can put a beneficiary in it. And if you're fortunate enough to have a spouse and that spouse is still alive, your RSP can roll over to your spouse with no tax and your spouse can enjoy that amount of money that was built up. But if you do pass and you have no spouse to roll it over to, or if you're the second person in the two, it becomes taxable. So the full value of that RRSP will be taxed in the estate in that year. So you can imagine if you still got a fair sum of money in that rrsp, what's the tax rate going to look like? It's going to be probably at the maximum tax rate. So effectively your beneficiaries, those people that would get what's left after your state settles, is going to get potentially half of what you had, depending on again how much it was. When we think about the infinite banking concept and we think about the policies that we use for that, what happens when someone passes away then?

Jinjin, because infinite banking concept is built on the platform of participated whole life policy, therefore the death benefit is completely tax free to your beneficiary.

There you go. That's right. So your beneficiaries will get your death benefit and tax free. And that's a great thing. When you think about estate planning, that's one of the things that is a huge value that we share with people that they can really, this system, this infinite banking concept, can really support them in estate planning in a way that nothing else really does or can. Now, our third point was why we no longer put money into RRSPs. You can start on this one, Jing Jin.

When you put your money into rrsp, there's really so much limitation that we just mentioned above. If I want to have access to this money while I'm before my retirement age to do some other things.

I have so much limitations. So I prefer IBC because it's not about accumulation, it's about how I can utilize the money while I can still have access to that. And that to me is very, very important that my money is not locked in into some kind of fund that I cannot have access to to it. So the utilization piece is quite important for me.

The other thing is that if you're watching this and you have some thought about that question or anything related to RRSPs, just put it in the comments below. Just, just down there, just put them in there. We'd love to hear from you related to your thoughts around RSPs and you know, just help other people learn, just like we try to now. When I think about why I no longer put money and hey, I own RRSPS right now, so it's not like I'm speaking from a place that I have no knowledge of it. I do have RRSPs, but I no longer put money into RSPS. And for me, there's a couple of things that a reason why I don't do that, obviously, you know, one of them is I found a better place to put my money. I believe and I know it's going to have more advantages for me and my family if I do that. But I like certainty and I like control. And I know with the infinite banking concept, my cash values are going to go up every day. They have to. It's by contract and they do. I've been watching the policies that I own for years now, and their value goes up every day. And I just love that about that process. Just like you said, Jingjen, it's utilization that's a huge part of this. So depending on what stage of life you're in, there's going to be different reasons. But you know, there is so much value that you get with the infinite banking concept that I just go, I wouldn't. And don't no longer put any of my money into RRSPs because I found a better place for it. So with that, I hope you found some value for what jingjin and I shared today. And I'm just going to encourage you to, you know, take in some more of our videos related to this whole concept of ibc.