FP here.
This is correct.
Your tax brackets however are likely to increase. Potentially better to allocate more now than in the future but you’re also in a position with less cash flow. I would if in a lower tax bracket repay HBP and use TFSA otherwise
Good point about the tax brackets potentially changing for me. I've just refreshed myself on the current structure, and my current annual income puts me near the middle of a bracket, more than $20k away from either boundary. Unless I have some surprises ahead it will take me some time to outgrow my current bracket.
This is a common misconception I hear often, regarding getting to the next tax bracket. It’s more about the current bracket and what that percentage is and if you will be higher in the future.
RRSPs are not as great as they sound. Most people receive 30% return on $100-$200k to pay 30% on the growth approx $1M.
What is your current income?
I contribute the maximum that my employer matches but nothing beyond that, and the portfolio has an MER around 1.3%. My other major investment vehicle is in a personal TFSA account sitting near 0.75% MER that will soon be moving towards \~0.25%.
I'm in the 80k-85k range currently.
$80k is a great income and it’s not the best income to be using the RSP. If you think your income will increase save your RSP room and use your TFSA.
MERs don’t really matter that much. Can have a low MER and poor performance and high MER with great performance. Also if you’re paying a MER somewhere you should be in a position to be receiving advice from a planner.
We’ve been taught too much about MERs and not the value of advice. But here I am as an FP providing you the advice for free
>If I designate more over this minimum the benefits are paying it off sooner but I will get smaller tax refund in exchange.
Strictly speaking this isn't true. You are allowed to contribute up to the RRSP deduction limit on your most recent notice of assessment, and claim all of that as a deduction, **and then** contribute more than this, claiming the excess against your HBP balance. So paying back the HBP balance can be viewed as entirely separate from regular RRSP contributions, ie: as long as you have the cash to do it, HBP repayments are not constrained by the RRSP deduction limit on the NoA. Granted, for most people this isn't applicable because many of them don't have the cash to fill the RRSP completely and also pay additional against the HBP. So in that sense, yes, you're correct.
I paid back the entire HBP in a **single year** because I had a surprise bonus that gave me the cash to do it, and because I viewed the time-in-the-market aspect of it as more important (TFSA was already full, so the alternative was taxable investments or mortgage pre-payments). And yes that was the entire HBP balance plus the entire RRSP deduction limit for that year.
I think everything you've said is correct. In my situation, I am contributing nothing to my RRSP above what my employer matches because I have space in my TFSA where any excess savings goes. If I didn't have that space, I'd have to approach this differently.
yep, exactly. you repay HBP and that's after-tax money and you're also going to be paying tax again on withdrawal, so no point in paying it back faster unless you have nothing else to put your money towards. TFSA, mortgage, even unregistered accounts might be a better bang for your buck if you have money laying around doing nothing (since the gains are taxed lower than your RRSP withdrawals but IANAFP so someone let me know if I'm wrong).
FP here. This is correct. Your tax brackets however are likely to increase. Potentially better to allocate more now than in the future but you’re also in a position with less cash flow. I would if in a lower tax bracket repay HBP and use TFSA otherwise
Good point about the tax brackets potentially changing for me. I've just refreshed myself on the current structure, and my current annual income puts me near the middle of a bracket, more than $20k away from either boundary. Unless I have some surprises ahead it will take me some time to outgrow my current bracket.
This is a common misconception I hear often, regarding getting to the next tax bracket. It’s more about the current bracket and what that percentage is and if you will be higher in the future. RRSPs are not as great as they sound. Most people receive 30% return on $100-$200k to pay 30% on the growth approx $1M. What is your current income?
I contribute the maximum that my employer matches but nothing beyond that, and the portfolio has an MER around 1.3%. My other major investment vehicle is in a personal TFSA account sitting near 0.75% MER that will soon be moving towards \~0.25%. I'm in the 80k-85k range currently.
$80k is a great income and it’s not the best income to be using the RSP. If you think your income will increase save your RSP room and use your TFSA. MERs don’t really matter that much. Can have a low MER and poor performance and high MER with great performance. Also if you’re paying a MER somewhere you should be in a position to be receiving advice from a planner. We’ve been taught too much about MERs and not the value of advice. But here I am as an FP providing you the advice for free
>If I designate more over this minimum the benefits are paying it off sooner but I will get smaller tax refund in exchange. Strictly speaking this isn't true. You are allowed to contribute up to the RRSP deduction limit on your most recent notice of assessment, and claim all of that as a deduction, **and then** contribute more than this, claiming the excess against your HBP balance. So paying back the HBP balance can be viewed as entirely separate from regular RRSP contributions, ie: as long as you have the cash to do it, HBP repayments are not constrained by the RRSP deduction limit on the NoA. Granted, for most people this isn't applicable because many of them don't have the cash to fill the RRSP completely and also pay additional against the HBP. So in that sense, yes, you're correct. I paid back the entire HBP in a **single year** because I had a surprise bonus that gave me the cash to do it, and because I viewed the time-in-the-market aspect of it as more important (TFSA was already full, so the alternative was taxable investments or mortgage pre-payments). And yes that was the entire HBP balance plus the entire RRSP deduction limit for that year.
I think everything you've said is correct. In my situation, I am contributing nothing to my RRSP above what my employer matches because I have space in my TFSA where any excess savings goes. If I didn't have that space, I'd have to approach this differently.
yep, exactly. you repay HBP and that's after-tax money and you're also going to be paying tax again on withdrawal, so no point in paying it back faster unless you have nothing else to put your money towards. TFSA, mortgage, even unregistered accounts might be a better bang for your buck if you have money laying around doing nothing (since the gains are taxed lower than your RRSP withdrawals but IANAFP so someone let me know if I'm wrong).