An RRSP meltdown is a strategy put forward by some financial advisors as a means of drawing money out of a Registered Retirement Savings Plan (RRSP) with little or no income tax obligation. In the simplest form of an RRSP meltdown, the investor sets up an investment loan and makes the interest payments from RRSP withdrawals (equivalent to the interest payment). Since the interest on the loan is tax-deductible, the RRSP withdrawal taxation is canceled out. This RRSP meltdown strategy results in zero tax, owing to the RRSP withdrawal. Moreover, the investment loan can be used to purchase dividend paying stocks to provide income during retirement. On which, you pay a lower rate of tax on dividends from Canadian companies than on interest. However, often the arrangements that financial advisors suggest, involve taking RRSP withdrawals and placing the money in business or real estate deals that generate large tax deductions, in order to offset the taxable income from the RRSP withdrawals. The risk is that the investor can be left holding an illiquid investment. To generate the tax deductions, he may have to guarantee a large debt. Sometimes the RRSP meltdown deal 'guarantees' the investor a steady income. But the guarantee is sure to be full of holes. The only reliable guarantee in RRSP meltdown deals is the huge fees and commissions generated for the sales people and financial institutions involved.
RRSP meltdown strategies promise to ease your tax burden on withdrawals, but these complicated manouvres are usually more lucrative for brokers than for investors
Investors sometimes ask us what we think of the so-called RRSP meltdown. This is a strategy that would let them make withdrawals… Read More
The idea of withdrawing funds from an RRSP tax free has appeal, but RRSP meltdown strategies can serve the interests of the brokerage industry more than those of investors
A loss in your RRSP deprives you of the opportunity for tax-free compounding that the money would… Read More
There are only a few approaches to making an RRSP withdrawal that make sense, and a “meltdown strategy” is not one of them
Registered retirement savings plans, or RRSPs, are a form of tax-deferred savings plan designed to help investors save for retirement. RRSP contributions are… Read More
Don’t use these retirement savings ideas if you want to retire comfortably
To succeed as an investor, you need to get used to the idea that short-term declines come along unpredictably. These declines are common enough that some investors think about them way too much. Far… Read More
Discover the ins and outs of registered retirement savings plans
Registered Retirement Savings Plans, or RRSPs, are a little like other investment accounts, except for their tax treatment. You only pay taxes on your RRSP investment, and the investment income it earns, when you make withdrawals… Read More
This information provider continues to improve its efficiency to better compete with providers of free online data.
THOMSON REUTERS CORP. (Toronto symbol TRI; www.thomsonreuters.com) sells information products to financial clients such as banks and brokerages. It also sells specialized information to professionals in the legal,… Read More
Our top recommendations for finding the best oil stocks to buy
Investors refer to buying oil when the price is low as “trying to catch the bottom”. Another way to think of it is “trying to catch a falling knife”. Oil has indeed come down… Read More
Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific investment tips and stock market advice. Each Investor Toolkit update gives you a fundamental piece of investment advice,… Read More
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