RRSP The Untold Truth And How It Works In Canada

When it comes to your retirement, you're serious about it because you want to be able to count on it when you are no longer working. You need it to be there for you when it's that time. It was created to promote savings for retirement by employees and self employed people. And in order for this RRSP to work, the Canadian government works in collaboration with the Canadian financial institutions like Canadian banks. When you contribute to the rrsp, the CRA will allow you to make a deduction in terms of how much income taxes you would pay. So you get a little, you get some savings related to the income taxes you initially would have paid.

You have most likely heard that you should start saving as soon as you can, especially when it comes to your retirement. And one of the most popular accounts that Canadians, including yourself, have been told to save and put your money into for retirement is a registered retirement savings plan, which is short for a RRSP. Now for some context, the RRSP was created in 1957 and you'd imagine that after more than 50 years you, amongst other Canadians, all other Canadians would have a better understanding of what an RRSP is and how it actually works. Unfortunately, that's probably not the case. The RRSP can be extremely confusing and you've probably searched around the Internet, watched a few YouTube videos and have entrusted a financial advisor or entrusted a financial advisor to handle all of the nuances and details. When it comes to putting money into your rrsp, what I want to do is give you some information to help empower you to see whether or not an RRSP is a good fit fit for you from a strategic standpoint when it comes to your retirement. Hey, I'm Henry Wong, a chartered accountant and authorized infinite Banking practitioner in Canada. And I wanted to share that when it comes to your retirement, there are different ways that you can save for your retirement. And it starts with taking control of the banking function in your life. After you finish watching this video, make sure you visit watchibc.com for for a free 90 minute training on what the process of becoming your own banker is about so that you can take control of the banking function in your life. Now this video isn't meant to bash any financial advisors, money managers or the rrsp. However, some of the items I'm going to share about an RRSP is going to shock you, so make sure you stick through the video to learn more. I want to share this information with you so so you can understand if it's a good fit for you strategically for retirement. What's also important is that this is not financial advice. Please make sure you speak with a financial professional who can properly assess your personal circumstances. This is an important subject I want to talk to you about because it's asking yourself how the money is flowing in and out of your life. You're ultimately paying someone else first and these include things like taxes, other responsibilities like bills, debts and food. You're ultimately left with what's left, which is what you call savings. Now these savings are then divided into pools of money in other bank accounts.

And one of those accounts is an rrsp. If we look at it this way, when the money is flowing into you, you are getting the residual of what's left in the money that you've earned. These savings are coming from your hard earned money and you store it into a RRSP because you have the expectation that this is something you'd like to put away for retirement. When it comes to your retirement, you're serious about it because you want to be able to count on it when you are no longer working. You need it to be there for you when it's that time. Maybe you're watching this during the RRSP season and you're coming towards advertisements from other banks and financial institutions asking you to quickly contribute to your RRSP before it's too late. So have you ever considered whether or not the RRSP meets your expectations? Have you ever wondered whether the RRSP is a great place for you to store your money? Is it a great place for you to build your wealth? Is it a great place for your retirement? Before we answer these questions, let's take a look at what the RSP is, including diving into the anatomy of the RSP and what that would look like. Before we dive into the mechanics of the rsp, let's look at the history of it and who controls it now. The RSP was created by the Canadian government and launched in 1957. It was created to promote savings for retirement by employees and self employed people. And in order for this RRSP to work, the Canadian government works in collaboration with the Canadian financial institutions like Canadian banks. And since it's launched by the Canadian government, the name registered means that these accounts are held with Canadian financial institutions and are registered with the Canadian government overseen by the Canada Revenue Agency, otherwise known as the cra. This means that the CRA sets the rules governing the limits, the timing and what's allowed and disallowed. So they control the rules, not you. So when it comes to planning for your retirement, when they can change, add, remove rules where they deem Appropriate. It's no wonder why you aren't able to keep up with understanding with what an RRSP is. And since its launch in 1957, rather than making it easier for Canadians to understand with all the rules surrounding the rsp, it's admittedly become this confusing monstrosity. This complexity comes from all of the many rules and exceptions that make it really hard to keep track of. Even when you've done the research that you've done on trying to understand what the RSP is, it's too much for you to handle. So you may entrust a financial advisor to handle all those nuances just to make sure you are compliant and you don't trigger unnecessary penalties or interest. The next part is, since the Canadian government works in collaboration with the Canadian financial institutions, like Canadian banks, for opening the accounts, generally the products that go into the RRSP account comes from the financial institution you set the account up with. So now you have the Canadian government and also the financial institution involved in this equation of planning for your retirement. And one of the last things I kind of want to cover when it comes to setting up for retirement and understanding what the RRSP is when it comes to an rrsp, there's a very common misconception that Canadians may have about this plan is that it is used to pay less taxes. This may be the case in some circumstances, but if we look at the design of the rrsp, you'll see that it's not about tax minimization, rather it's about tax deferral, meaning instead of paying taxes now, you pay the taxes later. And the first thing we're going to talk about in terms of the design of the RRSP is the money that goes into the rrsp, which is called the contribution or the deduction limit. When it comes to depositing money into your rrsp, there's actually a annual amount that is calculated every single year. There is a maximum that you can put into your RRSP every year. And so this, the maximum contribution is also called a RRSP deduction limit. So there's some. There can be confusion in terms of the terminology used. Either an RRSP contribution or a RRSP deduction limit. Essentially the definition of that is to say how much money you can put into the rrsp. And the best way for you to know that is to go back to the source of where this program is coming from, which is from the government, and you can typically find the amount that you can contribute to the rrsp. You can find that in two places, your notice of assessment or Your notice of Reassessment from the Canada Revenue Agency. When they send you that mail to tell you what that is, you will receive that usually after you file your tax returns from the previous year. The second place you can find your contribution room to your RSP would be logging into your CRA MY account. And in there you would be able to see what your deduction limit or contribution room to your RRSP would be in total across all of the aggregate sources. Maybe you hold multiple RRSP accounts and so you can see multiple sources what the total contribution room you have left remaining. When it comes to the amount of money that you can put into your rrsp, it is a little bit long in terms of that definition, but to put it in a simple way, generally it's broken down to two components. The first component is 18% of your earned income from the preceding year up to a annual maximum which is defined every single year. The second part is any unused so you can add any unused deduction room from your previous year where you didn't contribute the maximum in terms of your contribution. So let's walk through an example of what that will look like when it comes to your rrsp. There is a contribution maximum every single year. And what that every, that amount, every single year would look like is shown on this table here. So the first part is 18% of your earned income or the maximum annual contribution, whichever is lower actually. So in terms of the, just to share the details of how much each of the annual amounts would be. So in 2012, the annual maximum that you can contribute to the rrsp would be 22,000, 970. If the year is 2022, the maximum contribution that you can put into The RRSP is 29,210. So let's walk through an example just to kind of walk through what those rules would look like. So if you were taxpayer one, if you were taxpayer one, the deduction limit would for this particular individual who earned $30,000 in 2020, we would apply the 18% of earned income. So of that earned income, that 18% equals $5,400 that can be deposited into the RRSP. If we were taxpayer two, the maximum, let's say the earnings for this individual was 55,000. So at 18%, the amount that can be contributed annually for this particular year would be 9,900. Now what if you were an individual who earned 250,000? Well, this is where we would take, if we take 18% of 250,000, the amount under this first rule would be 45,000. But since this 45,000 is greater than the 27,280, then this would be actually for this taxpayer. The maximum this taxpayer can deposit into a cumulatively into the RSP for that specific calculation of the year would be 27,830. Now, what if, as an example, this person only contributes in this particular year, so now the annual maximum for this taxpayer is 27,830. What if this person decides to only contribute 10,000.

So they have remaining 17,830 that is available.

That is available to be carried forward into the next year in terms of the calculation. So let's assume in the next year this taxpayer makes the same $250,000. And we can see the annual maximum for this individual is 29,210. And so this person this year decides to put the annual maximum 29,210. But because of the equation, you can also add the 17, 8, 30. So then the total amount that this taxpayer can contribute.

In the specific year, let's say 2022, can add $47,040. So even though the maximum limit is 29,210, because in the previous year that taxpayer only contributed 10,000, they are allowed to carry that extra 17,830, so they can now deposit $47,040. In Canada, the Income Tax act drives the rules and how much income taxes we pay in Canada and in Canada, those rules, or how the act is designed, is using what's called a progressive tax system. And the progressive tax system is structured according to specific income levels, which therefore attract and set up specific tax brackets. So depending on the amount of income you earn, you fall into specific income levels which therefore attract specific tax brackets. And what the progressive tax system means is that the more income you earn, the higher level of income you will fall into, which therefore brings you to a higher level of income taxes that you will eventually need to pay. And a very popular piece of advice you may have heard is that the higher income you earn, the more you should put away to your RRSP so you can pay less taxes. Well, by design, this is potentially true because when you contribute to the rrsp, in essence, the CRA will allow you to take the initial income level that you were earning, and when you contribute a specific amount, it knocks your income level down. So therefore, you pay less taxes. Today, you've got to take a look at the overall picture, whether or not it makes sense to you. And if you somehow find out that you'll end up in the highest tax bracket, it may make sense for you to temporarily contribute to the RRSP so that you can pay less taxes today. Let's walk through an example of how that would play out. What I'm sharing with you is a simple tax calculator from wealthsimple. It can be from anywhere that you find online. But you know, I just find that this tool works well in terms of illustrating what I'm trying to say. The calculator isn't meant to precisely calculate exactly how much taxes you would pay, but it gives you a directional understanding and approximate amount for, for you to kind of see how, how it plays out. Ultimately, the precision of the number will come down to when you file your taxes, submit it to the cra, and when they've gone through their review, they will be able to assess the actual amounts that you end up having to pay. So the first part is let's use this tool as an example and I'm going to use Ontario as an example. And let's just say your employment income is $100,000. If we kind of put that into the calculator, the total taxes you would pay on $100,000 is 27,084. This is including federal taxes, provincial taxes and CPP and EI premiums. So your after tax income is 72,916, or in other words, 27.08% is being sent to the government as some form of tax to you. Now, if you have decided to put in, if you had an available contribution room of let's say 20,000, essentially what you would be able to do is, let's just put that down here. So when you put in $20,000 as your RRSP contribution, then in that same year you would essentially put in and receive a tax savings of about 6,759, which brings your tax rate down from the initial amount to 20.33. So ultimately, in terms of this example, if you want to pay less taxes today, you are essentially putting, when you put money into the rrsp, you are effectively paying less taxes today. But when we talk about the RRSP being a tax deferral, will you pay more taxes in the future? Well, this is a very important question that you definitely need to consider and some of the drivers, in terms of understanding the drivers behind what, how your taxes are calculated. One of those examples are will you need to contribute more to CPP and ei, which has been a new law enacted by the federal government in 2022. Also, whether or not future income taxes in the very near future and when you plan on retiring, when you need to withdraw the money or use the money. But what's important to illustrate right now is for you to see that when you contribute to the rrsp, the CRA will allow you to make a deduction in terms of how much income taxes you would pay. So you get a little, you get some savings related to the income taxes you initially would have paid. Ultimately, when it comes to deciding how much you want to contribute to your rrsp, you've got to look at multiple factors, some of those being if you're using it from a tax planning standpoint, you've got to look at it Is the income that you're planning to earn in the near future expected to be a permanent situation or a temporary situation, and if it's a temporary situation where you initially will have some increased higher blip, then that may be a good tool for you to mitigate some of the taxes. That and move that would move you from the higher income level so that when you contribute to the rrsp, you get moved to a lower income level so that therefore you attract lower tax rates tax amounts. So this is important where you actually should sit down with a professional who properly understands your personal circumstances and have the complete set of facts to understand the advantage of doing putting money into an RRSP versus not putting money into a rrsp. So these are this is an example of planning for taxes using the RRSP as a tool to plan for taxes. When it comes to the deadline of when you submit your contributions to your RRSP, section 146.5A of the Income Tax act sets the deadline which says on or before the day that is 60 days after the end of the year, which is March 1, except on years where there's a leap year, then that date would be February 29th. Now another exception to that deadline is if February 29th or March 1st falls on a weekend, then the deadline is actually moved to the next business day. What's really important to understand is ultimately if when it comes to contributing to your RRSP before the deadline, the more authoritative source for you to follow would be the Canada Revenue Agency website where they will tell you what that specific deadline would be and when that last contribution would be. Furthermore, just to make sure this situation is properly alleviated, because these circumstances can happen, make sure you take a screenshot and quote and have the CRA website's deadline as they state available for you in case there are any complications. So now that you know that contributing to an RRSP is based on 18% of your earned income and including any unused deduction room from your previous years. Now, what I want to talk to you about is you've moved the cash that you have from your savings account into your RRSP account and you're able to and you want to put that money to work in an RSP account. Essentially you are able to use that cash to buy GICs, stocks, ETFs, bonds, mutual funds, segregated funds, you name it, it will be described in terms of what is eligible and not eligible. Now, the RRSP essentially is like a house that holds those various financial assets. And the most promoted feature of an RRSP is that the growth is completely tax free. That is true, but I think it's really important to understand that with this tax free feature, what is the trade off for this tax free growth? The most common ways that your RRSP balance can grow comes from multiple sources. The first source is the most obvious one which is number one, the contributions of of money that you are sending into your rrsp. The second one, which is interest income. The third is dividend income and dividend can actually be broken down into categories called eligible dividend and ineligible dividend. And a very quick summary of what eligible dividends are is dividends coming from high income earnings corporations. Whereas ineligible dividends are ones that are not part of the higher income which pay the lower income taxes for corporations. And then the last source of income in which your pool of RRSP balances can grow come from capital gains. If you want to learn more about those income sources that I mentioned, make sure you watch my other video on income taxes and the tax system in Canada. Now, depending what you put your money in, you may not realize this, but the types of income you receive attracts different income tax rates. And when your income is stored in an rrsp. Now what type of income source that is coming from? And so when you put your money in the RRSP and it's invested or put into other financial, financial assets like bonds where you receive interest income, like stocks where you sell and can get capital gains from the appreciation of the shares, or you can also get dividends from those stocks when those assets are held in an rrsp, you are likely giving up advantageous tax rates that you would have gotten had they been held in a unregistered account. So let's walk through an example comparing if you were to receive a set of income from an unregistered account versus a registered account. And now what if the incomes that you've earned in that portfolio was held in the rsp, which is the registered account. What would that look like? So the first thing I want to share with you and what you see in front of you is a screen of sharing. Your an illustrative example, just to walk you through the concept of what I'm talking about. So the first concept I'm going to talk about is the unregistered scenario where it doesn't matter what the asset is, whatever that asset is, it pays you $100,000. And the first income source that it pays you in terms of the first income source in which you would get paid, it would be interest income. So if you received $100,000 in an unregistered account as interest income, you would end up paying taxes of 24,205. Now, separately, if you receive the same $100,000, but this time it's in the form defined as eligible dividends, you would pay 6,173. Now what if you receive dividends in the form of non eligible $100,000? The amount of taxes you would pay would be 16,897. What if you received $100,000 as capital gains? You would have to pay 8,257. Obviously you can see that in terms of the form of income you receive, this is going to attract a different tax rate also amongst your own tax bracket. But specifically here, this is using the $100,000 income which has a predefined tax bracket. And from there, depending on the type of income you receive, you therefore will pay a different amount of taxes, which you can see which interest income is the highest amount, eligible dividend is the lowest amount, capital dividend gains is the second, and then dividends is also kind of in between. So this is kind of just a way for you to see that the difference in income sources will attract different income tax rates. Now what if we followed this through and you assumed you're 50 years old and you were receiving income for 20 years, you would essentially receive $2 million depending on the source in which you receive it. That is going to change the outcomes. And just again, to keep things simple, if we were to look at the interest income, the taxes you would pay, the total taxes you would end up paying in that 20 year scenario would be 484,100. Now, if we did the exact same thing for dividends, you can see the amount of taxes you would pay for dividends. Eligible dividends would be 123,460. If we did the exact same thing for the non eligible dividends, again assuming this is your only income source.

You would pay 337,940. And again, if we did the exact same thing for capital gains, then you would pay 165,140. So when we continue this all the way and we make this comparison just to put everything together.

You'Ll be able to see that the net cash that you are actually getting after, so the total amount you would receive is 2 million after you pay taxes. Depending on the income source, you can see this is the total amount related to how much net cash you ultimately end up with after you pay taxes to the CRA on an annual basis. And so I'm just going to show, if I were to rank this, you'll be able to see the worst case scenario in terms of receiving interest income would be 1.515, 900,000. The best scenario would be the eligible dividends and the non eligible dividends would be 1.662 and the capital gains would be 1.834. So if we kind of just look at it here, the best scenario would be receiving eligible dividends. The second one would be capital gains, the third would be non eligible, and the worst would be interest income. This is if you were to earn the $100,000 in an unregistered account. So you have to pay the. So this is where you're paying the taxes right away. Now what if you were to use an RRSP and essentially you would defer the taxes when you withdraw the money out of the rrsp. And again I will tie into talking about withdrawing. But when you withdraw money out of the rrsp, you are going to trigger a taxable event which essentially you will need to pay pay taxes. So let's walk through an example of what that would look like. So now what I want to share with you is the amount of money that you've accumulated in your rrsp. Now we can understand that it doesn't matter if your increase in your portfolio was due to interest income, whether it was due to capital gains, whether it was due to eligible dividends or non eligible dividends. Either way it's just an increase in the pool of money that is not taxed. Now is that scenario better for you? Now you've built up that pool of money that hasn't been taxed that you haven't been, haven't needed to pay. But now you need to use the money for retirement or you need to use the money. So what happens when you withdraw that money? Let's assume now that you've accumulated a sizable portfolio and you want to withdraw that money out. Well, let's look at what that scenario would look like if you were to again withdraw $100,000 in this new scenario. Well, if we withdraw this amount, withdrawn this amount in this scenario, let's say every year you're withdrawing $100,000. And because the money that you're withdrawing from is considered other income, it's not in the form of interest, dividends or capital gains, is in the form of other income you actually would need to pay $24,205. Again, this is just using a simple income tax calculator to illustrate the point here. If we looked at the amount of money that you would now have withdrawn out of the rrsp, which you will have to pay taxes for, you will withdraw $100,000. And in terms of the actual taxes you would be required or obligated to pay, it would be 24,205. And if we kind of take a real quick look at this 24 to 5, it very is very much similar to this interest income. So if we did the same withdrawal out of the RRSP every single year for 20 years, you will withdraw $2 million. But the amount of money that you actually receive in your pocket after you pay taxes from this withdrawal is actually the amount of taxes you would Pay is for 484,000, which essentially maps out to the exact same scenario where you receive really 1.515900, which is matching this scenario of interest income. So under this circumstance, even though you are not paying taxes on the growth of your portfolio, eventually when you need to use it, and when you actually are getting money out of the account, you are now going to be paying taxes on that amount. And that tax, you wouldn't have lost the favorable tax consequences that are taxable rates that you would have received if your income was from eligible dividends, non eligible, or capital gains. So this is something that I wanted to make sure that you knew about. So what I wanted to show you was just an argument to show you that for all of the money that you've accumulated in your rrsp, yes, it doesn't matter what type of income source you received in that portfolio growth. But what's really important to understand that if you were able to achieve the same thing in an unregistered account, you could potentially be giving up favorable tax treatments on the income types you would have received had they been in the unregistered account. So now the next point I want to talk about is how much, when it comes to the growth of your rrsp, do you have in terms of the outcomes? How much control of the outcomes do you have in terms of enhancing and improving the rrsp? Let's take a dive into that now. When it comes to saving for your retirement, I'm sure you can understand that the journey is a long one. Not only is it already a challenge for you to save for retirement today, there are also so many variables that can impact your ability to retire comfortably. It's already a pretty challenging task to capture all of the variables that can impair your ability to build the nest egg for retirement. And any setbacks on that nest egg could mean the difference that you don't have enough money to live on while you are in retirement. When those setbacks happen while you're young and able to work, they can easily be recovered by you contributing and saving more into your retirement. Now what if these setbacks, like the temperament of a stock market crashing, happens as you are approaching retirement? Or maybe while you are in retirement? Or at worst, when you are in retirement and you're in the period that you are no longer capable of working anymore to build that pool of retirement. This creates a tremendous amount of stress on you and those around you who care about you. So when it comes to managing this nest egg, especially for retirement in an rrsp, there are two general approaches. Which is number one, you can self manage it where that's where you can potentially avoid management fees and other fees and maybe you can have some better outcome. That's probably why you chose to manage it yourself. Or you can hand your money to an institution or a financial advisor to help manage it for you, where you will pay them either fees for the funds that you put your money in, or also a management fee for them to monitor your portfolio irrespective of the decision you make on how it's managed. Your nest egg that is housed in an rsp, that money is exposed to the fluctuations of the economy, the stock market, interest rates, government intervention, and a whole bunch of other factors that are out of your control. Ultimately, the ownership, responsibility and risk of having enough money to retire on is placed on you no matter what the odds are stacked against you. And just in case you think saving in an RRSP is the only way, this is where I want to share with you that there are other ways to get there for retirement with more certainties that are achieved through contractual guarantees, a properly designed whole life insurance policy, and when it's structured properly for retirement, this can bring you better control and certainties. And if you want to know more about this, please make sure you visit watchivc.com so you can go through the free 90 minute training on how this process can help you save for retirement. Believe it or not, your RRSP actually has a timeline. So on December 31st of the year you turn 71 years old, this would be the last day you can contribute to your RRSP. When you reach age 71, you will have three options for your RRSP. The first one would be withdraw everything. And as you've seen earlier, when it comes to withdrawing money out of your rrsp, it's going to create a taxable event and this includes the withholding taxes from the financial institution, but also the amount of taxes that you would have to pay and the larger the amount that you withdraw. This could trigger a very high income for you in that year which therefore would result in and high taxes that you would have to pay. The second option that you have is to transfer the RRSP into what's called a Registered Retirement Income Fund, otherwise known as a rif. When you transfer the RRSP to a rrif, this will transfer the total value of what you have in your RRSP to your RRIF completely tax free. The third option you have is to use your RRSP to purchase an annuity, which depending on how that is structured, it will have differing results. Now, the most common option that most people elect with their rrsp at age 71 is to roll it over into a RRIF. And now everything that I mentioned earlier about the RRSP applies to the rrif, except that you are now no longer allowed to contribute to the rrsp. Furthermore, the difference to a RRIF is that there is an annual minimum amount that you must withdraw and this will be compulsory. You do not have the option of not withdrawing money from the rrif. And if you want to learn more about the rrif, please make sure you visit our channel for more videos on around the Rift There are very few guarantees and certainties in life and one of those certainties is death. As morbid as it sounds, death is going to happen. The only question is when? Now on death, the RSPs are deemed to have collapsed and the tax consequences really depend on who is listed as the beneficiary of the rsp. And the general rule for an RSP is that the value of the RRSP at the date of death is included in the income of the deceased for the tax return for the year of death. Now there are three exceptions to this rule where the tax can be deferred if the beneficiary of the RSP or estate is one of these parties, the first one is the spouse, which includes common law partner, a financially dependent child or grandchild under 18 years of age, or a financially dependent, mentally or physically infirm child or grandchild of any age. What may come as a surprise to you is that the CRA is already a beneficiary to the value that you've accumulated in your rrsp. The question is how much? So let's walk through a few examples to show what this looks like. Now, when it comes to the matters around death, I really encourage you to seek professional guidance. Tax and estate planning is a very complex and personal issue and it's not something you can easily find online and do it yourself, while you most certainly can. When it comes to designing the solution that best fits fits your needs, it's important that you speak with qualified professionals. It'll cost you for the professional advice, but the mistakes that you make could cost you your estate and your heirs a whole lot more. If you get it wrong, you don't want to be penny wise pound foolish. Let's continue with the example. Now, that was 100,000. Let's assume you had built up a value of 300,000 in your RRSP. And again, just reciting the CRA's rules around the RRSP on death, the RRSP is deemed to have collapsed. So the value of that RRSP is going to be included in the income.

On the one who is deceased, which let's say is you for that tax return for that year. So for 300,000, the value would be included into your income, your taxable income, which now has pushed the amount of taxes that you have to pay to be 122,750, which the breakdown of that would be 75,000 to the federal government and then the 46,000 to the provincial government. Ultimately, what gets left behind is 177,250. If we kind of compare the percentage of taxes to the amount of value of your RRSP that gets included in your income, 122,000 over 300. Essentially 40%, 41% of that goes to be paid in taxes to the government. And what gets left behind is 177,250. Now, let's just say you've built a portfolio of $1 million.

And you've passed away at that value with the value of the rsp. Again, it'll be deemed collapsed and it'll be included in your income for that year. Now, if we look at that $1 million. The total tax that you would have to pay is 497,457, which is broken down 306 goes to federal, 190 goes to provincial. So your after tax income, income that you would be receiving, your estate would receive, or your heirs or your beneficiaries would receive would be 502,543. And if we look at this, it is basically 50% of your RRSP, the value of your RRSP, the government will receive 50% of that value as taxes. If you, if you were to pay, pass away. I'm not sure if you are aware of that, I'm not sure if you've intended for that. But now you may have put money into your RRSP with the intention to save taxes and you've done the right thing. Ultimately you've accumulated a sizable portfolio in your rrsp. And if we ultimately look at it, maybe initially when you're putting money into your RRSP, you're saving your taxes from 40% to 30% or so on and so forth, depending on which tax rate you've been contributing and getting the refund on. But if you were to pass away, the government would receive above 40% of the value, or essentially they have 40% of the value of your RRSP when you pass away. This, this is something where very few people think about when the focus is on today of how much taxes they save. But you can potentially be paying more taxes at the very end. So when we ask the question, is the RRSP really a vehicle for you to save more taxes? I'm not sure that is the case. And hopefully from everything that I've shown you from this video, this has been a very big wake up call for you to see and understand. Congratulations on making it this far. Give yourself a pat on the back for sticking it through this video. The topic of an RRSP is not exactly the most exciting thing to watch. And I've just shared with you the anatomy of the rrsp. And what I hoped for you to achieve was an understanding of what the RRSP is, where you need to find answers, and when you need help for using the rrsp. And I get it, ultimately you're looking to build a nest egg for retirement. And before you consider using an rrsp, I hope that you get to watch this video. And this video puts into perspective for you.

What the advantages and disadvantages of the RRSP are, whether or not strategically it fits into your plans of retirement. It's always important for you to speak with A financial professional who can speak to your personal circumstances. At this point, you also want to consider if that professional is aligned to your goals and objectives. What I want you to take away is that the RRSP was designed by the community Canadian government and it's carried out by the Canadian financial institutions. The rules are overseen by the Canadian the Canada Revenue Agency, where they set the rules on annual contribution limits, contribution timing, and what assets are allowed into it. These rules can change at any time. And when we look at your ultimate goal of building a retirement nest egg, you're the one who came carries the risk of building that portfolio, and you're the one who carries the risk of managing that portfolio. Now, in your earlier years, if you set, if, if a setback were to occur, then you can make it up from working and either gaining more income or saving and contributing more to your rrsp. But as you reach the point of retirement, these setbacks from the economy, the interest rates and government rule interventions, these changes, they can be significantly more difficult for you to recover. Especially when you're in the stage that you may no longer be able to generate income anymore and you have to rely on the portfolio that you've built. As you build the portfolio, you're potentially giving up favorable tax consequences on income tax sources had you earned them in unregistered accounts rather than the registered accounts. The RRSP is not a tax elimination or minimization plan. Rather, it's a tax deferral plan. That sacrifice of paying taxes today for taxes in the future leaves you exposed to paying more taxes in the future through an increase in tax rates and your eventual death. Where if the size of the value of your RRSP is so large that if you were to pass away today, the tax savings you initially received may be less than the taxes you would pay at death. You've also recognized that when you withdraw money from your rrsp, there are specific exemptions to not triggering taxable income. If the money was used for lifelong learning, learning or the home buyer's plan. Now there are rules in place in terms of how you repay it. And the rules do seem counterintuitive. Where, if it's your money that you built in the RRSP that you have saved, the government is the one who set the specific rules for you on how you can use the money. Aside from that, when you withdraw money from your rrsp, you're interrupting the compounded growth in your pool of money. And you've also ended up prepaying more taxes up front from those withholding taxes. If what you've learned from an RRSP has frustrated you. I completely understand. So please leave a comment on more topics you'd want to see from me. And in case you're wondering, when it comes to retirement, there are different ways to for you to accomplish what you need, and it starts with taking control of the banking function as it relates to your needs. And if you really want to learn more, make sure you visit watchibc.com where you'll get a free 90 minute training on what this process entails. Until then, thank you so much for watching Smash the like button. And instead of sending the dislikes to my videos my way, send the dislikes to the cra. Thank you and see you later.