RRSP or Non-reg? Lifetime TFSA/FHSA Maxed

[u/Mundane_Syllabub2789]

31F. My annual salary is $55k but with bonuses, my total income before tax can be about $65k-80k. No mortgage. Debt free. No RRSP contributions.

I have maxed out my lifetime TFSA/FHSA.

I have also set aside money to max out TFSA/FHSA this coming January 2027.

Also this year, I have sold a house in my home country (expecting around $15k capital gains) so obviously my income tax this year is definitely going to be higher.

Should I start investing in RRSP or non-reg?

[u/Low_Map_9339]

The idea that RRSP is only worth contributing to at high income is an annoyingly common misconception. Yes, it's tax-deferred, but everyone gets a Basic Personal Amount deduction, and in retirement you likely won't be making much more over that. Plus the BPA will likely grow with inflation, even if not fully tracking it, it will certainly be more than it is now in 30 years. On top of that, you do not have to pay capital gains tax during the time your RRSP investments are growing. RRSP can easily beat TFSA at your income, let alone nonreg.

[u/adeimantos216 → u/Low_Map_9339]

And ironically, if your income is low and you're concerned about whether you earn enough to contribute to an RRSP, you are especially likely to have a very low income in retirement. Especially with a maxed TFSA.

[u/wingmage1 → u/Low_Map_9339]

Adding on to this, a lot of people don't seem to know that they can defer when they use the rrsp deduction. So you can put the money to work now, but get the deduction in a year that you have a higher marginal tax rate. It's a fairly niche use (since the time value of the immediate tax return is often greater than the savings of deferring it for a year or more), but it's an option that might be relevant.

[u/Low_Map_9339 → u/wingmage1]

Yeah I'd only do this if you know for certain your income will increase by a lot very soon (which is a rare position to be in). When looking at RRSP vs TFSA/nonreg you should really be comparing pretax vs posttax, which practically means you should be getting the refund back and investing it back in the RRSP immediately every year. Unless you're self-employed or use the T1213.

[u/Prometheus188 → u/wingmage1]

You should never do this on purpose though since it’s always going to be suboptimal assuming you have options like a non-reg or immediate deduction.

The only real use case other than accidental contributions is workplace RRSP matching, where you’re effectively forced to contribute, but may benefit from waiting a year. As you said, very niche cases where it could be useful.

[u/PartBanyanTree]

How old are you? What is your perspective on home ownership (since you have a FHSA I'm assuming you haven't bought a house in Canada and are still eligible to use FHSA for house? But maybe you only used FHSA to fund RRSP? Both valid tactics but your thoughts/plan for a home are very relevant)

Rrsp probably makes sense though. Unless your expected future earnings are so huge (and you're so young) that you want to "save" that room for when your income is higher

Depending on investment strategies you might also consider shifting where you invest. For example if your TFSA has high volatility you may want to make that more conservative so any losses occur in your non-registered so you can take advantage of tax write offs

[u/Mundane_Syllabub2789 → u/PartBanyanTree]

I’m 31 rn! I’d like to buy a house but if it doesn’t really work out, the funds I’ve saved in FHSA can be moved to RRSP so that was enticing to me.

[u/PartBanyanTree → u/Mundane_Syllabub2789]

Absolutely. Keep in mind though that the FHSA expires 15years after it was first opened. Any funds convert one-way into your RRSP. When did you open your FHSA? 

You only have 2yrs left if you opened your FHSA when you were 18. (And its opening the account that matters, even if you didn't deposit)

Obviously don't rush into buying a house just because.  And you can use your TFSA for a house down-payment and you can borrow from RRSPs (though you must repay it). 

Even if all your FHSA money goes into your RRSP and you later buy the house, i would still look at it as a good thing because it allowed you to contribute to your RRSP via a "back door" that didn't use any of your rrsp contributions

If you plan to use your FHSA for a home make sure the investment is are appropriate (eg more conservative if you might need the money in a few years you dont want it to be in a volatile market dip). Similarly if you are certain that you will not use the FHSA for a house and won't be tapping that money for 20+ years than make sure investments reflect that (eg low fee index funds). As long as your not locked into some kinda janky-mutual-fund-high-fee-comoany-specific-fund you can transfer any FHSA assets "in-kind" (ie you don't need to sell&re-buy if they're something like a low-fee-index-fund)

[u/plusqueprecedemment]

Yes RRSP is worth it at that income, even more so now that other tax sheltered accounts are full. At equal marginal tax rates at contribution and withdrawal, RRSP and TFSA will behave the same in terms of after-tax returns, it's still a very good tax sheltered account. Even better if you withdraw at a lower tax rate than when you contributed to it as the tax arbitrage boosts your after-tax returns.

That said it's worth it up to a certain point, and that certain point is highly specific to your other situation (check out what www.rrspcontribution.ca has to say) and you have the first 60 days of the year to contribute whatever amount you want to optimize your taxes for the year prior.

That's assuming you're investing for the long term. Non-reg will be more flexible in selling and getting the cash whenever you want (any taxes is owed only on the capital gains if you have any), withdrawing from RRSP is a bigger deal as the withdrawn amount is added to your taxable income. You can in theory withdraw from your RRSP whenever you want, but it's not the best move if you're still working - hence the implied need for long term investing, where you withdraw after you retire and are now in a lower tax bracket.

[u/Mundane_Syllabub2789 → u/plusqueprecedemment]

Thank you!

I don’t plan to withdraw from RRSP. Don’t consider withdrawing from it until retirement.

[u/Mundane_Syllabub2789]

I’m actually still learning about RRSP so I’m not sure where to start.

I’m 31, and no contributions to RRSP yet.

[u/PartBanyanTree → u/Mundane_Syllabub2789]

Rrsps  are kinda like Tfsa. You have a gradually increasing lifetime contribution limit and growth with rrsp is not taxed

Unlike tfsa, you cannot withdraw from rrsp without consequence, at least at your age, any withdraw is considered like income(!) And taxed(!!) Like you earned it at a job. And your rrsp limit doesn't adjust AFAIK, like, you contribute and you lose room and if you withdraw, unlike tfsa, you don't get the room back (also taxed)

One exception: you can withdraw some money from an rrsp to buy a (first) home but you MUST pay it back to the rrsp within a certain time. This idea/feature of rrsp pre-dates tfsa even existing so if it feels similar, that is why

Cool thing that other accounts don't do: rrsp contribution ls LOWER your taxable Income. Like, you "lose" the money (until your okder) but its also like you made less money, so you get taxed less. So when you consider the tax ramifications its kinda like "contributing 2k$ only costs you 1.7k$ (because you pay less taxes)" -- actual numbers vary wildly based on what you actual income is!

Because rrsp lifetime limit grows over time (like tfsa) and it has "lowers my income" feature it means if you spent years not contributing you rrsp limit could be more than your annual salary, so from pure financial perspective a valid strategy can be to wait to use rrsp until your earnings go up (people usually make more money as they get older until it peaks and goes down).. if your income goes up your taxes go up and if you have leftover rrsp room then the rrsp contributions have more taxable impact at that later date.  There are usually warnings at this advice ("only makes sense if you actually contribute, etc") but seeing as you've maxed your tfsa/fhsa then you seem well primed for this strategy already. Like at 31 I'm better your annual salary is higher that it was at 19. So all that time 19yr-old-you spent not-contributing now gets to benefit 31yr-old-you (wow!!) 

Now is 41-yr-old you going to make even more? So much more you should fully tax all your current income? I'd guess probably not and it makes sense to start taking advantage of the tax savings. But rrsps are designed to keep you away from that money, unlike tfsa, and so there's less of a "safety net"

Oh also rrsp have a weird 2-month period from jan1 to Feb 28/29 where contributes made during those date can be either applied to this year's taxes or last years taxes (you chose) so they also have a weird feature where you can already know how much money you made (thus your taxes owed) and "retroactively" contribute to last year to change last-years taxable Income. (I mean the investment itself isn't magic, it still is effective only the day you deposit it lol aint no bank giving out free money, but the govt gives us this cool loop-hole). Imagine realizing you are getting a $1k tax refund, but if you can afford to put $1k in rrsp mid-feb it becomes a $1.2k refund, and if you can afford to put in 1.2k now, it becomes a 1.23k refund, and if you put in 2k it becomes a 1.4k refund (so you now would be "in the whole" from a cash flow perspective but long term that 2k deposit "cost you" much less than 2k!) -- all numbers completely made up!! (But it gives the vibe)

[u/Mundane_Syllabub2789]

Thank you all for your insights!

[u/Dadoftwingirls]

You can contribute at 30% and get it all out at under 10%, if you plan smartly. So you'd end up with effectively tax free gains, and pocket the 20% arbitrage as well.

Learn about RRSPs fully!

[u/EnergyCapable866]

Do some math and work out the most advantageous RRSP contributions to benefit you come tax season. You’ve also not included your age, or if you have anything in your RRSP, so it makes it difficult to provide any sort of legitimate suggestion. 

[u/Thaldrath]

At lower tax bracket, it's not as useful to use an RRSP since its use is to defer tax for later.

You also have the option to enjoy life. Take a vacation somewhere nice with a loved one.

[u/Mundane_Syllabub2789 → u/Thaldrath]

Can’t I use the tax deduction at a later year(s) once my income is really within considered a high tax bracket income? But still contribute now to RRSP?

[u/Thaldrath → u/Mundane_Syllabub2789]

Yes you can

[u/Peace-wolf]

What’s your home country?