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Simple Wealth Strategies for Physicians: Taking Advantage of Your RRSP Contributions

21/03/2016


The primary advantage of using an RRSP in your wealth strategies is based upon the “before income tax” nature of the contributions made to the plan. Canada Revenue Agency allows you to keep “their” share (the tax) of the contributions you make to the registered plan, make investments of “their” money within the registered plan and keep the income earned on “their” money within the registered plan; until you take the money out of the registered plan. At that time, you are taxed on the original contribution amount and the income you have earned.

What makes RRSP’s attractive?

  1. If you have unused contribution room to make an RRSP contribution and have personal investment funds that are not sheltered from tax, you could consider using the non-tax sheltered funds as a contribution to your RRSP. This may improve your investment returns.

  2. Similar to the scenario above, also consider contributing to RRSPs with an inheritance. The inherited funds can become sheltered from income tax on their earnings and the tax saved by claiming the RRSP contribution can increase the investment value if added to the RRSP.

  3. If you make a contribution to your RRSP (assuming you have the contribution room), you do not need to claim the associated RRSP deduction until you wish to. The income on the funds contributed becomes tax sheltered immediately and by planning when you actually claim the RRSP deduction, you may be able to increase the amount of tax savings in future years when your income (and tax rate) may by higher. This opportunity might be useful for high income taxpayers who will see their personal tax rates rise in 2016 with the new federal surtax on taxable income above $200,000.

  4. You are only taxed on funds withdrawn from your RRSP. If you are considering a risky investment that could be held within your RRSP, remember that the money contributed to your RRSP has in effect been “fully deducted” against your taxable income. So if the risky investment does turn out to be a loss, you are better off having used RRSP funds rather than creating a 50% deductible capital loss in your personal hands.

  5. ​You don’t have to be an experienced investor to consider using the RRSP Home Buyer’s Plan (HBP). If you are saving for a down payment for a home purchase (and you and / or your spouse qualify for the HBP), you should consider using the RRSP as your savings vehicle and accessing the HBP loan from your RRSP funds. Your down payment savings accumulation can be enhanced by this strategy.

As with any investment and wealth strategy, there are pitfalls to avoid when planning and executing. To minimize your tax exposure and to get the most from your wealth strategies, it’s important to talk to a professional advisor.

With 16 locations throughout B.C. and more than 70 across the country, MNP provides support to medical professionals at all stages in their careers. Contact Don Murdoch, B.C. Leader, Professional Services at 1.877.766.9735 or [email protected].