Tax Deferral–This simply means that you will not have to pay tax on the money that your money makes for you until later when you need it.

Don’t worry I will make a little more sense of this.

We all understand that we have to pay income tax ( unfortunately)…

What we may not all understand is that when we invest and earn returns on our investments we also have to pay tax on the returns we have earned.

Let’s say for simple sakes that you make $50,000 and you pay 20% tax.

That means that on your income in the year you would have to pay $10,000 in tax (20% of $50,000)
On top of that for  lets say you had $20,000 in some investment and earned a great return of 50%.
You would have made another $10,000 (20k x 50%) this year outside of your job.

Although it should make sense that we earned that extra money on our own and shouldn’t have to pay tax on it, that is not the case.
In this case you would have to pay full 20% on that investment earnings. An extra $2000.

So that means that you really only get to make $8000 even though you should get $10,000.

Sooo… What I am getting at here is….When you invest inside an RRSP you don’t have to pay any tax on your investment earnings until later (Defering it).

In fact you don’t pay tax on anything until you take it out.

One of the big benefits of this is that your money will grow year over year compounding on top of the money you earned prior years, tax free.

Tax will not erode the compounding effect of your money.

Tax can take a HUGE cut out of investment earnings, especially over time. The RRSP helps eliminate this effect.

The scary thing is that I used relatively low numbers here. Many people pay more than 20% tax and some pay up to 48% of what they earn in a year to the Tax Man.

To see the difference for your self, try out this calculator.

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When dealing in financial matters, you are urged to consult an advisor for legal, tax or investment advice. Every effort has been made to present information in a clear, exacting manner. However neither the publisher nor the authors can be held responsible for any losses incurred due to the actions of any individual as the result of this post or any errors or omissions contained herein.

Infinite Financial places mutual fund transactions through Banwell Financial Inc. and Life Insurance transactions through Bridgeforce. To learn more about these relationships - click here

Alot of people arent totally aware of how the RRSP tax refund works, so I am going to do my best to explain it to you. I think it is important that people understand the pros and cons of RRSP`s and what this term even means.

First off and RRSP stands for (Registered Retirement Savings Plan)
This means the account is registered with the government and it helps you save for retirement by giving you tax saving incentives. What kind of tax incentives does it give me you ask?

1) Tax Deduction – This very simply means that every dollar you put in to your RRSP, Your income for the year will lower by exactly that $ amount for tax purposes.
2) Tax Deferral - Avoiding paying tax on current investment earnings, deferring the tax until a later date.

Example: Lets say you make $50k this year and you put $5000 in your RRSP.
- When you claim income taxes, you will only have to pay taxes as if you made $45k.
In the past you have perhaps got money back from your taxes?? The government would pay you back in the same fashion when you make a contribution to your RRSP. You would get a tax refund in the form of a cheque.

Most people want to see dollar amounts for contributions (vs) Refunds, so I am going to give a couple examples.

You make $50,000 in 2012 you will pay $8887 in tax and make a $5000 contribution to your RRSP.
Your income is now considered to be $45,000 and you would have paid $7330 in tax.
In this case you would get $1557 back in the form of a refund ($8887 - $7330)

One more quick example.

You earn $100,000 in 2012…you pay $26,912 in tax. You then Contribute $10,000 to an RRSP at Infinite Financial.
Now for tax purposed you earn $90,000 and pay $22,571 in tax.
($26,912 - $22,571 = $4341.00)

You would get a refund of $4341.00 from the goverment.
As you can see this is one of the PROS of investing using your RRSP as the savings vehicle.

All examples have been done based on Ontario's tax system (including federal tax).

To run these examples using your own numbers you can do this here - 2012 Canadian Personal Tax Calculator

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When dealing in financial matters, you are urged to consult an advisor for legal, tax or investment advice. Every effort has been made to present information in a clear, exacting manner. However neither the publisher nor the authors can be held responsible for any losses incurred due to the actions of any individual as the result of this post or any errors or omissions contained herein.

Infinite Financial places mutual fund transactions through Banwell Financial Inc. and Life Insurance transactions through Bridgeforce. To learn more about these relationships - click here

Now one would think that this is a question that is impossible to answer...However there is actually a very simple formula you can use that will give you an approximate amount of time.
The formula is called The Rule of 72, and it is very simple.
You simply take 72 and divide it by a rate of return.
The Answer is the amount of time in years it will take to double your investment.

EXAMPLE.

Deposit : $10,000
Rate of Return: 10%
You simply take 72/10 = 7.2 years.
It will take you roughly 7.2 years earning a 10% return to turn $10,000 in to $20,000, and 7.2 more years to turn $20,000 in to $40,000.

Let me set up a scenario.

$10,000
1) $20,000
2) $40,000
3) $80,000
4) $160,000
5) $320,000
6) $640,000
7) $1,200,000
8) $2,560,000
9) $5,120,000

Here is money being doubled nine times. Using our example from before:
7.2 years multiplied by the 9 times that your money will double = 65 years.
Using this formula you can turn $10,000 in to $5,120,000 if you have 65 years and a rate of return of 10%.
Remember the Rule of 72 works for any rate of return for any amount of years.

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When dealing in financial matters, you are urged to consult an advisor for legal, tax or investment advice. Every effort has been made to present information in a clear, exacting manner. However neither the publisher nor the authors can be held responsible for any losses incurred due to the actions of any individual as the result of this post or any errors or omissions contained herein.

Infinite Financial places mutual fund transactions through Banwell Financial Inc. and Life Insurance transactions through Bridgeforce. To learn more about these relationships - click here

Let me explain...

What most people think is that these are accounts that you go and open at a Bank and that is the only place you can hold one.

THE TRUTH IS - You can have as many TFSA's or RRSP's as you want with as many different institutions as you want, as long as you fall within the limit of space that is available to you.

For Example: You are allowed to put $5000.00 a year in to a TFSA and right now we as Canadians have $20,000 in available room.


You are able to deposit...

- $2000 in a GIC at the Bank.
- $3000 in an Etrade account buying stocks.
- $1000 in mutual funds with Manulife.
- $2000 in mutual funds with Investors Group.
- $2000 in a high interest savings account with ING.
-$10,000 in a couple investments at Infinite Financial.


You can hold a variety of different investments in the RRSP and TFSA account. Some of which include;

-Stocks
-Bonds
-Real Estate
-Mutual Funds
-Hedge Funds
-Mortgages
-Gold and Silver

Now I do not reccomend having accounts all over the place this is just meant to be an illustration.

What I am getting at here is... As long as you only deposit within our available limits, you can have your money wherever you want.

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When dealing in financial matters, you are urged to consult an advisor for legal, tax or investment advice. Every effort has been made to present information in a clear, exacting manner. However neither the publisher nor the authors can be held responsible for any losses incurred due to the actions of any individual as the result of this post or any errors or omissions contained herein.

Infinite Financial places mutual fund transactions through Banwell Financial Inc. and Life Insurance transactions through Bridgeforce. To learn more about these relationships - click here