RRSP used to pay down mortgage? - - CEN-TA Cross Border Services

QUESTION:

I'm thinking of withdrawing $2000 to pay down my mortgage. My concern is that not only will I be taxed on the withdrawal but also my  total  income will go to $35.500 approx  from $33.500 approx for next yrs tax. I'm paying 5.11 on my mortgage and getting about 3% approx on the RRSP? What would you suggest? I would much appreciate your feed back on this question.

Sincerely
xxxxxxxxxxxxx

----------------------------------------------------------------------
david ingram replies:

If you have it, take out $5,000 better still , make it $10,000

This is a very simplified spread sheet but it shows that you are some $6,000 after tax dollars
ahead by taking $10,000 out of a 3% RRSP and paying down $10,000 of mortgage by 2025

By 2015, you would be ahead by $1,875.52. Double your money. Take out $10,000 in 2008
and another $10,000 in 2009.

Income without RRSP equals				33500	a
		2007 tax equals		4937.74	b

Remove money from RRSP				10000	c
add to original income of	tax at			43500	d
		2007 tax equals		7179.49	f

Tax on extra $10,000 (f - b)				2241.75	g

Pay down difference )c - g)				7758.25	h
Present mortgage interest				0.0511
interest one year equals (h x's i)				396.4466

Compounded for 10 years annually					after tax
		interest			dollars
YEAR		saved on			7758.25
2009			396.45
plus .0511	plus .0511		20.26	416.70	8174.95
2010		396.45	813.15
plus .0511 x's savings			41.55	854.70	8612.95
2011		396.45	1251.15
plus .0511 x's savings			63.93	1315.08	9073.33
2012		396.45	1711.53
plus .0511 x's savings			87.46	1798.99	9557.24
2013		396.45	2195.44
plus .0511 x's savings			112.19	2307.62	10065.87
2014		396.45	2704.07
plus .0511 x's savings			138.18	2842.25	10600.50
2015		396.45	3238.69
plus .0511 x's savings			165.50	3404.19	11162.44
2016		396.45	3800.64
plus .0511 x's savings			194.21	3994.85	11753.10
2017		396.45	4391.30
plus .0511 x's savings			224.40	4615.69	12373.94
2018		396.45	5012.14
plus .0511 x's savings			256.12	5268.26	13026.51
2019		396.45	5664.71
plus .0511 x's savings			289.47	5954.17	13712.42
2020		396.45	6350.62
plus .0511 x's savings			324.52	6675.14	14433.39
2021		396.45	7071.58
plus .0511 x's savings			361.36	7432.94	15191.19
2022		396.45	7829.39
plus .0511 x's savings			400.08	8229.47	15987.72
2023		396.45	8625.91
plus .0511 x's savings			440.78	9066.70	16824.95
2024		396.45	9463.15
plus .0511 x's savings			483.57	9946.71	17704.96
2025		396.45	10343.16
plus .0511 x's savings			528.54	10871.69	18629.94	tax free

								you save
								this much
This is the $10,000 left in the RRSP at the 3% mentioned.						after tax	pay down	by paying
					-25% tax	in RRSP	mortgage	down
2009	10000	0.031	310.00	10310.00	2577.50	7732.50	8174.95	442.45
2010	10310	0.031	319.61	10629.61	2657.40	7972.21	8612.95	640.75
2011	10630	0.031	329.52	10959.13	2739.78	8219.35	9073.33	853.99
2012	10959	0.031	339.73	11298.86	2824.72	8474.15	9557.24	1083.09
2013	11299	0.031	350.26	11649.13	2912.28	8736.84	10065.87	1329.03
2014	11649	0.031	361.12	12010.25	3002.56	9007.69	10600.50	1592.81
2015	12010	0.031	372.32	12382.57	3095.64	9286.92	11162.44	1875.52
2016	12383	0.031	383.86	12766.43	3191.61	9574.82	11753.10	2178.28
2017	12766	0.031	395.76	13162.18	3290.55	9871.64	12373.94	2502.30
2018	13162	0.031	408.03	13570.21	3392.55	10177.66	13026.51	2848.85
2019	13570	0.031	420.68	13990.89	3497.72	10493.17	13712.42	3219.26
2020	13991	0.031	433.72	14424.61	3606.15	10818.46	14433.39	3614.93
2021	14425	0.031	447.16	14871.77	3717.94	11153.83	15191.19	4037.36
2022	14872	0.031	461.02	15332.79	3833.20	11499.60	15987.72	4488.12
2023	15333	0.031	475.32	15808.11	3952.03	11856.08	16824.95	4968.87
2024	15808	0.031	490.05	16298.16	4074.54	12223.62	17704.96	5481.34
2025	16298	0.031	505.24	16803.41	4200.85	12602.55	18629.94	6027.39

		pay down mortgage amount				18629.94
					tax free
		ahead by paying down			profit	$6,027.39

Note - You save $396.45 interest each year by paying down the original amount.

Each year you save the interest again and again.

Then, because you have presumably made the same mortgage payments, you are
saving compound interest on the amount you save because you have paid down
an extra $396 each and every year.

Whatever you do - do NOT get caught with the concept of buying an RRSP and then
using the refund to pay down the mortgage. Although it looks good on paper, it is
only good because you are paying the amount of tax you would have saved extra.

----------------------------------------------------------------------------------------
I first broached this subject on CBC's marketplace in 1976. NO one has ever been able
to disprove the figures. The reason is simple. If they show you an RRSP that made 15%
and destroys this argument, I can easily show you that you should not have bought that
product within an RRSP. You would have been far better off by borrowing the money
from the bank and buying 'that' product outside of an RRSP.

You can hear much of this every Sunday morning on CHBD radio www.600am.com from
9 to 10:30 when i usually appear as a guest with Fred Snyder (who also understands it
backwards and forwards) - Fred also follows my methods of making the mortgage interest
deductible.

Every Thursday at 12 noon and 7 PM, Fred Snyder of Dundee Wealth Management
presents free Financial Seminars for his clients, potential clients and anyone who phones and asks to attend.

THERE is NO CHARGE! (I used to charge up to $999.00 for essentially the same thing)
AND - NO ONE'S ARM IS TWISTED TO BUY SOMETHING.

They are presented at the Dundee Boardroom (holds about 30 people max)

1764 West 7th
Vancouver, BC

phone (604) 731-8900 - ask for Freda to register for free.

These are genuine educational seminars dealing with everything from how to buy a house to making your mortgage tax deductible to buying an RRSP to alternatives to RRSP accounts to estate planning. So what started as 13 separate seminars has now evolved into 23 separate topics.

IT IS NOT UNUSUAL FOR PEOPLE TO COME TO ALL OF THEM.
ONE LADY CAME TO 53 separate seminars and her husband came to about 20 with her.

If you have a financial consultant, bring them. People have brought their bankers and life insurance agents with them.

Take your spouse, your best friend, your son, your daughter, your mother or your worst enemy But do phone 604-731-8900

Fred Snyder also is the host of ITS YOUR MONEY every Sunday morning on CHBD (600 on AM dial) from 9:00 to 10:30. This is a phone in financial show which I appear as a guest on on the last Sunday of every month. (Originally I was the co-host but the program is really devoted to BC finances because of BC Securities Legislation and my practice is world wide.) You can listen to 4 weeks back at www.600am.com and listen to the program live around the world every Sunday morning at the same spot. We have taken calls from around the world. In one case, a lady phoned from Florida, got her answer and then asked if I was the David ingram she knew in Regina back in 1959. Small world as they say.

Call (604) 280-0600 with your question on Sunday Morning.

-------------------------------------------------------

SUGGESTED PRICE GUIDELINES - May 17, 2008

david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:

4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325

Calls welcomed from 10 AM to 9 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) expert US Canada Canadian American Mexican Income Tax service help.

email to [email protected]
www.centa.com www.david-ingram.com

pert US Canada Canadian American Mexican Income Tax service and help.

David Ingram gives expert income tax service & immigration help to non-resident Americans & Canadians from New York to California to Mexico family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.

Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert US Canada Canadian American Mexican Income Tax service and help.

This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.

$1,200 would be the same with one rental

$1,300 would be the same with one business no rental

$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.

$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.

This is just a guideline for US / Canadian returns

We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00

With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.

A Business for $400 - Rental and business likely $550 to $700

And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.

Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.

TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.

8891 forms are generally $50.00 to $100.00 each.

18 RRSPs would be $900.00 - (maybe amalgamate a couple)

Capital gains *sales) are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files. As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files. It can take us a valuable hour or more to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance.

This is a guideline not etched in stone. If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.

RRSP used to pay down mortgage? -

What's Related

Story Options

Trackback

0 comments

Monday 06-Dec

Sunday 05-Dec

Friday 15-Oct

Wednesday 15-Sep

Tuesday 14-Sep