Reader Question:Do I Have To Share My RRSP With My Spouse When I Get Divorced?

Another reader of the Canadian Budget Binder blog asked the question, “Do I have to Share my RRSP with my Spouse When I get Divorced”? In Ontario there is the Family Law Act. In simple terms all property acquired after the date of marriage, up until the time of marriage breakdown is deemed to be the property of both parties. The ownership of the property is not a factor. So in short each person is entitled to 50% of the total family property. There are certain exceptions like the family home that was brought into the relationship or received as a gift or inheritance. However to keep things simple we will ignore this. RRSP’s, Stocks, Bonds, Pensions, are all subject to being included under Family Law. So if one spouse had a significant RRSP and the other nothing then the spouse with nothing would be entitled to 50% of the spouse’s RRSP. Note: the courts adjust the value of the RRSP down, by the amount of withholding tax that would be payable if the RRSP were cashed in. So the figure used is less than fair market value of the RRSP. To understand this fully the courts ask each person […]

Reader Question:Is It Savvy To Cash In My RRSP’s To Pay Off Debt?

A Reader Question about whether it was savvy to cash in an RRSP to pay off Debt was submitted to Canadian Budget Binders Ask Mr.CBB. He forwarded it to me to share my opinion on this topic with all of you. My short answer is that it depends. There are several factors to consider: The age of the person The withholding tax on the funds withdrawn on the RRSP The amount of debt and its’ interest rate The type of investment held in the RRSP The opportunity cost of the withdrawal To keep things simple let me say if you are doing this and are under 30 then it might not be a bad thing. At older ages you have a shorter accumulation period and time and the magic of compound interest work against you. I have always maintained that paying off debt is one of the best investments someone can make. Let’s say you’re carrying a credit-card balance of $1,000 with 18 percent simple annual interest. That’s $180 a year in charges. Pay off that debt and you’ve saved $180. That’s the same as investing $1,000 in something that earns an 18 percent return after tax. Tax Withholding Rates […]

Straight Talk About Fees and Penalties on Mutual Funds

Mr. Canadian Budget Binder received a question from one of his readers and asked me to craft a guest post to answer it. Question: Can you explain MER Fees and Penalties regarding investments?  What Does MER stand for? MER means Management Expense Ratio. There are a variety of expenses that make up MER. Some are: The fee paid to the fund managers for managing and investing your money Legal and audit fees of the fund Advisor sales compensation and trailer fees (ongoing service fees) Advertising expenses that promote the fund The cost of buying and selling the stocks the fund holds How does this impact my investing return? All published returns for a fund are net returns, after the MER has been deducted. In simple terms Fund A has a return of 10%. Its MER is 2.5%. The net return to the investor is 7.5% Fund B has the same 10% return but has an MER of 2%. The net is now 8%. The lesson we can learn from this is that lower MER’s usually mean more money for the investor all other things being equal. Some investors have focused exclusively on buying investments with the lowest cost. There are investments […]

Reader Question: RRSP’s-The Need To Know Basics

RRSP’s-The Need to Know Basics Reader Question: I want to save for retirement. Where is the best place to save for this? I have been told NOT to use RRSP. Can you help? Saving for retirement is a good thing and RRSP’s (Registered Retirement Savings Plans) are a popular tool for doing so. I don’t know the client’s age or his/her income so this answer is predicated on the fact that the client has several months of income in an emergency fund.  An emergency fund is a base component of proper planning and should be done before making any RRSP contributions. Also, it assumes the client is making more than $40,000 in income per year, as incomes under $40,000 don’t benefit much from tax savings on RRSP contributions. Below I will try to define some of the Basics of RRSP’s and also illustrate some of the long-term advantages. When Did RRSP’s Begin? RRSP’s first came into existence in 1957 as a government supported effort to help Canadians save for their retirement. Types of RRSP’s There are broadly speaking three main types of RRSP’s Individual RRSP-where the contribution is made in your name and held in your name. Spousal RRSP- The […]