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surprise secret

Jupiterimages/(C) 2008 Jupiterimages

Many people don't know what a registered retirement savings plan is, and so every year they are inundated with the basics - the deadline, the tax advantages and so on. But if you're past the beginner stuff, perhaps you'd like to learn about some of the lesser known RRSP strategies - including the fact that not everyone uses them for retirement.

Use RRSP to pay off your credit card

A couple has $10,000 on their credit card, and their monthly payment is $500. They calculate that a $25,000 RRSP contribution (via a loan) will generate a $10,000 refund, and then they select a loan term that requires a $500 monthly loan payment. Their cash flow remains the same, but now they have replaced their high-interest debt with an RRSP loan that is kick-starting their retirement savings.

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Use your RRSP as an income-smoothing tool

You get an income deduction when you contribute to an RRSP, but when you take it out it's treated as ordinary income and subject to tax just like salary. If your income is volatile, you can use your RRSP as an income-smoothing tool. Contribute in high income years and withdraw during low income years. You'll get a refund calculated against a higher marginal tax bracket, and dinged with taxes on de-registrations based on a lower marginal tax bracket.

Hold your mortgage inside your RRSP

If you have enough money inside your RRSP to cover the balance of your mortgage, you can turn your RRSP account into "the bank." Your RRSP is now lending you the money, and you pay principal and interest to your RRSP. Some people think they can set this up and charge a high interest rate to increase the rate of return on their RRSP investments, but keep in mind this is a double-edged sword. Would you be excited about paying a higher rate on your mortgage? Besides, the rate you pick has to be in line with prevailing rates.

Take out an RRSP loan later

While you have only the first 60 days of the year for your RRSP contribution to count toward your previous year's tax return, there is no rule that says you can't get an RRSP loan after March 1. Perhaps the market has a correction and you want to take advantage of lower valuations (keeping in mind that market timing is hard to do and the markets could go even lower later). Or perhaps you just weren't in a position to get that loan before the deadline - many people find a loan payment mentally easier to stick with as opposed to making regular contributions, which can be stopped more easily.

Start an RRSP for your children before 18

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You can start generating RRSP contribution room as soon as you file a tax return showing you (or your child) has earned an income. Some people avoid filing returns for their children until they earn enough to incur taxes, but this could translate into years of foregone RRSP contributions. Mind you, simply setting money aside in a non-registered account isn't going to be subject to a lot of tax while their incomes are low, but you can still start generating contribution room that can be used at a later time.


You are allowed to make a $2,000 over-contribution to your RRSP. (Note that this provision doesn't kick in until the year the RRSP owner turns 19 for those of you who were thinking of presenting your kids with a kick-start to their savings.) The over-contribution is not deductible, so there is no immediate tax relief for the contribution. But once it's in there it's treated like any other funds inside an RRSP. The over-contribution really only benefits those who plan on maxing out their RRSPs each and every year and want tax shelter on every last penny.

Make a contribution, but defer the deduction

You can enjoy tax-sheltered growth continually but save more in tax by maximizing your contributions every year and waiting to claim the resulting deductions until higher income years. Deductions carry forward indefinitely. Where this can make a lot of sense is for people with unpredictable incomes or younger savers who are not yet in the higher tax brackets. You can start contributing early, and save the deductions for when you are earning more money, and hence in a higher marginal tax bracket.

Make in-kind RRSP contributions

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Maybe you don't have any extra cash, but perhaps you have non-registered investments. Yes, you can contribute securities to your RRSP. The catch: If there is a capital gain, you are deemed to have sold the security at the fair market value on the day of the in-kind contribution. The double-catch: If the investment is at a loss, you might be better off selling it to cash first and then making a cash contribution; you aren't allowed to claim a capital loss if you contribute it in-kind to your RRSP.

Swap into your RRSP to reduce investment taxation

It's more tax-advantageous to hold interest-bearing securities inside your RRSP and shovel the equities outside, all other things being equal. Swapping is similar to an in-kind contribution except it's a two way street. You can take fixed income investments and swap them for equities in the RRSP. No RRSP contribution room is taken up, and no de-registration is deemed to have occurred if you match the fair market values. Make sure to figure out any fees and taxes incurred (not all institutions can accommodate this) and weigh that against the long term tax benefits of reorganizing your investments.

Convert your RRSP into an IPP (Individual Pension Plan)

An Individual Pension Plan is potentially available to business owners and certain highly valued employees, and it allows you to essentially convert your RRSP into the Cadillac of defined-benefit pension plans. This means that instead of contributing to a portfolio, retiring and then seeing how long the pot of money lasts, you can contribute, retire and then get a stable monthly payment for life. IPPs can also allow for higher contribution limits, which can lead to a higher monthly cash flow. There are extra costs associated in setting these up, and an actuarial evaluation needs to be performed (and paid for) every three years. However, many investors have been happy to pay slightly higher fees in exchange for peace of mind and higher contribution amounts.

Preet Banerjee is a senior vice-president at Pro-Financial Asset Management. His website is

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