Question on RRSP and Dividends

The idea behind a rrsp is to put money in when your income is high and take it out when your income is low. So in that regard your plan sounds good. However, you have to decide if your 2017 income was high enough to be worth it.

Also, keep in mind your contribution room is lost forever.

I'm not sure if your strategy makes sense.

Do you even have rrsp contributing room? Dividends are taxed at a very low rate. You'll probably have very little tax to pay especially if you include your education tax credits.

I would put that money in your TFSA. Wait until you have more earned income before your start contributing to an RRSP.

You use RRSPs to lower your employment income for the year to receive a tax refund (in addition to saving for retirement, ofcourse) . If you don't have any employment income, you will need to defer the refund.

tweep0 wrote: ↑ I'm not sure if your strategy makes sense.

Do you even have rrsp contributing room? Dividends are taxed at a very low rate. You'll probably have very little tax to pay especially if you include your education tax credits.

I would put that money in your TFSA. Wait until you have more earned income before your start contributing to an RRSP.

You use RRSPs to lower your employment income for the year to receive a tax refund (in addition to saving for retirement, ofcourse) . If you don't have any employment income, you will need to defer the refund.

I took it to mean the OP worked in 2017 and had an income. For 2018 though he is going back to school so won't have any income other than the dividends. So if he had a high 2017 income, then it could make sense if he is willing to lose the space.

don242 wrote: ↑ I took it to mean the OP worked in 2017 and had an income. For 2018 though he is going back to school so won't have any income other than the dividends. So if he had a high 2017 income, then it could make sense if he is willing to lose the space.

Thanks for your reply. I worked in 2017 and have an employment income of around $62k for 2017. Going by the tax calculators online i will probably get tax refund of around $2500 more if i put $10000 in RRSP.

I am just a little confused about the withholding tax and if i add Dividends, what will be the optimal strategy.

This is the first time i will do RSP contribution.

guptasulabh7 wrote: ↑ Thanks for your reply. I worked in 2017 and have an employment income of around $62k for 2017. Going by the tax calculators online i will probably get tax refund of around $2500 more if i put $10000 in RRSP.

I am just a little confused about the withholding tax and if i add Dividends, what will be the optimal strategy.

This is the first time i will do RSP contribution.

Is this not making sense for anyone else??

If you're a student and will have no income, you should not put money in an RSP at all.

superfresh89 wrote: ↑ Is this not making sense for anyone else??

If you're a student and will have no income, you should not put money in an RSP at all.

He was not a student in 2017. He had an income. He is talking about putting money into a RRSP now for his 2017 taxes, and then taking the money out in 2018 where he will be taxed very little, if at all on the money because he will have a lower income (dividends only).

guptasulabh7 wrote: ↑ Thanks for your reply. I worked in 2017 and have an employment income of around $62k for 2017. Going by the tax calculators online i will probably get tax refund of around $2500 more if i put $10000 in RRSP.

I am just a little confused about the withholding tax and if i add Dividends, what will be the optimal strategy.

This is the first time i will do RSP contribution.

I would argue that a $62K income last year isn't high enough to justify losing the room. I'd save that room for later years when your income is going to be much higher. That said, I don't really know your situation or expectations. It still can make sense since you will put the money in at a higher tax rate than what you will take it out at. So you will come out ahead. I am just thinking it would be better to keep the room for later.

Any withholding tax will come back as a tax refund if your income in 2018 is low. The best way to figure this out, is just throw the scenario into some tax software now and play with the numbers. I know things may be a little different in 2018 but not much (unless they change the dividends rates or something major), but close enough. Assume you lose 2500.00 in withholding tax when you take out the RRSP and put that in as taxes paid. Then put your dividends and your $10K RRSP withdrawal in and see what it gets you.

I won't recommend this or not, but if you do it don't take the $10k in one withdrawal. Keep the withdrawals to $5k at a time so they only withhold 10% tax.

So you want to contribute to your RRSP to reduce your 2017 taxes, but then withdraw it in 2018?

This is wrong on so many levels.

If you really need the tax relief, consider contributing and using the Lifelong Learning Plan to pay for education.

You should get a financial advisor.