Hi Alison,

This might make sense. It mainly depends on marginal tax rates this year vs. a future year. There can be intersting planning opportunities, depending on your situation.

First, you usually want to leave the spousal RRSP for 3 years. If you have contributed to any spousal RRSP the year of withdrawal or 2 prior years, any withdrawal is taxed to the contributor, who is probably in a higher tax bracket.

It sounds like you can withdraw it at the lowest tax bracket, about 20%. What tax bracket will you be in in future years? Still the lowest 20%?

Paying 20% tax this year that you can defer and pay in a future year, probably means it’s better to pay it in the future. That is generally true even if the future amount is higher.

The future amount will probably be higher if you leave the money in your RRSP and withdraw in a future year. The RRSP grows and the full future amount is taxable, while moving it to the TFSA means you pre-pay tax today, but then don’t pay tax on the higher amount in the future.

Likely the best strategy is to withdraw what you can with zero tax every year. That is about $14,000/year, based on your personal tax exemption. This assumes your spouse is not claiming you as a spousal tax credit.

Ed

Hi Irina,

The first question for any life insurance policy is do you need it? Very few people really have a permanent life insurance need. Once you reach financial independence (FI) and your investments can provide for anyone financially dependent on you at their desired retirement lifestyle, you don’t really need life insurance.

If you don’t need permanent life insurance, then the premium you pay for unversal life insurance is wasted. I agree with you that it’s a lot better than whole life insurance in almost all cases.

If you are looking for the insurance guarantee on declines of your invstments, you could just invest in segregated funds. They are mutual funds plus the insurance guarantee on the principal. You can borrow against them for tax-free cash flow similar to insurance policies.

For growth-focused invstors, the insurance principal guarantee from segregated funds or in a universal life policy are not worthwhile, since the stock market is rarely down after 10 or 15 years (the period of the guarantees).

Ed

Hi Steve,

Thanks for the suggestions.

I generally cover the capitalization in my long post about Smith Manoeuvre. It depends on which bank you are with. I’ll consider a post just on capitalization.

I’ll answer your first question here, since I’m unlikely to do a post about it. The Smith Manoeuvre can be done with business income, instead of investment income. The interst is deductible for business income, same as for investment income – just on a different line on your tax return.

Investing tax-efficiently focused on deferred capital gains can mean little or no tax on investment income in most years. For business income, it’s fully taxable every year. Therefore, your business income would have to be quite a bit higher to get the same after-tax return over time as the normal Smith Manoeuvre strategy.

Ed

Hi Marlow,

Thansk for the excellent suggestion.

I recorded a post about donating effectively: https://edrempel.com/how-to-donate-effectively/ .

The Donor Advised Fund is an excellent topic that would require a separate post. I plan to do this soon.

Ed

Hi Paddy,

Thanks for the topics. I’ll consdider posts on them soon.

I did a post that should answer your last 2 questions about the order of withdrawing from which accounts in your retirement and the LIRA withdrawal: https://edrempel.com/how-to-design-your-retirement-income-an-overview/ .

Let me know if this didn’t answer your questions on the last 2 topics.

Ed

Hi Wally,

Thanks for the great list of topics. I will have posts on most of these topics in the next few months.

Ed

Hey Darren,

The reason you cannot find good info on corporations loaning to shareholders is that CRA considers those loans all taxable income. There are some exceptions, such as to buy a home, but generally a loan to a shareholder even at the prescribed rate is considered that the full amount is taxable income of the shareholder.

There are still signficant benefits for investing inside your corporation. I recorded a video about it: https://edrempel.com/using-your-corporation-as-your-retirement-fund/ .

Let me know if you have more questions.

Ed

Hi Enzo,

Great question. It involves the 2 basic strategies for designing the most effective retirment income:
1. Defer tax as long as possible.
2. Withdraw as much as you can at the lowest tax bracket(s).

Deciding which is best is step #1 in designing your retirement income. There are many factors. I recorded a video about it here: https://edrempel.com/how-to-design-your-retirement-income-an-overview/ .

Ed

Hi Edward,

Infinite Banking is a US concept and not really a Canadian one. It involves whole life insurance policies that have high premiums and fees, and much lower returns than equity investments over time.

Insurance salepeople are very creative in making whole life insurance strategies sound good, but so far, but avoiding whole life insurance policies is almost always the best option. Especially for growth-focused people.

Ed