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

ONE OF THE HARDEST FINANCIAL DECISIONS OF YOUR LIFE MIGHT BE WORTH IT   A reader question about whether it was savvy to cash in an RRSP to pay off Debt was submitted to 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.   Cashing your RRSP’s   There are several factors to consider if you are thinking about cashing your RRSP’s. The age of the person The withholding tax on the funds withdrawn on the RRSP The amount of debt and its’ interest rate The type of investment held in the RRSP The opportunity cost of the withdrawal To keep things simple let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 […]

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

YOUR RRSP QUESTIONS ANSWERED 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– […]

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