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Already thinking about 2007 taxes

Today I did some rough calculations, and because I’ll be working so much this year, I stand to make just shy of $68,000 in taxable income.

According to my 2006 tax return, I am eligible to contribute up to $15,213 to my RRSP in the 2007 tax year.

If I max out my RRSP with the money I’m saving for my condo down payment (and then utilize the First Time Home Buyer’s Plan when I decide to purchase), according to Morningstar.ca’s RRSP contribution calculator, I stand to get a refund back of over $4,000. That money would go straight back into my RRSP portfolio.

That’s a sizable refund!

Like I’ve said in the past, I don’t like the idea of taking money out of my RRSP for any reason. I’m just so worried of having a problem paying it back in the future. That being said, if the money wasn’t in there to begin with, and I’m putting it in there just for tax purposes, perhaps the refund I’ll be getting would be worth the time it would take to pay back. Because let’s face it, it’s highly unlikely I would be able to make $4,000+ in interest over the same amount of time it would take me to pay back the RRSPs.

At any rate, maxing my RRSP this year is definitely something to think about.

You can’t start saving for retirement too early

According to a recent article, only a third of Canadian baby boomers are saving enough to guarantee a comfortable retirement. How scary is that!?

People born in the early to mid-1960’s who are counting on only one kind of savings to fund their retirement will either have to work past the age of 65, or increase their savings to avoid financial hardship.

This article completely hits home because while my mom has a juicy pension plan, my dad doesn’t have much saved up at all. I remember glancing at his RRSP statement last year, and being completely SHOCKED at the amount I saw. It breaks my heart, because he’s almost certainly going to have to be supported by my mom when she retires … and I only hope he has enough to support himself before she reaches the age of retirement.

He only has a high school education, and has been working at the same shop for a very very long time. They don’t offer any sort of retirement plan, and he’s been with them since well before I was born. A few years ago, he had a stroke, and now he makes 30% less than he was making before … making it that much harder for him to save up money.

The article says that it takes $20 of capital to provide $1 of annual pension income, and assuming it takes $23,000 a year to pay for necessary living expenses when retirement comes, it would take almost $500,000 to provide that amount. Yikes!

P.S. I was A MILLISECOND away from snagging that $700 PPP opp this morning! I kept refreshing my screen, and then I saw it drop into my “Available Opportunities” page! I quickly clicked on it, and hit “Take This Opportunity” … but my screen froze up and I got an error message. By the time I was able to refresh the screen, the opp was taken! ARGG!! Nevermind, I actually DID get it. :)

Down Payment vs. RRSPs

Lately, I’ve been pondering what to do with saving up for my condo down payment.

Currently, I plan to save $2,000/month towards my down payment. I’m investing half of that money towards the down payment in a non-registered mutual fund. The other half is going in a high interest savings account of 4%.

I want to increase my RRSP contribution to $300/month in May. But, am I better off increasing my RRSP by a lot in order to put myself in the next lowest tax bracket (and get a huge tax refund next year)? I would sacrifice saving money towards my down payment, but I figure I could borrow the money out of the RRSP for the First Time Home Buyer’s Plan, and have a big tax refund that I could put towards the down payment as well (or help fund my RRSP contribution for the following year). It would mean repaying back my RRSPs, as well as continuing my contributions, but I think I have 15 years to do that.

This is the plan the BF wants to do with his finances, but I’ve always heard horror stories about borrowing from your retirement. And when you do it, are you obligated to get a mortgage with the bank that holds your retirement account? That’s what my financial advisor hinted at the last time I went to meet with her, but at the time I was still in a lot of student loan debt, and didn’t feel like I was really in a position to ask more questions.

I think the smart thing to do is keep contributing $100/month for now, and then when it comes time to do my 2007 taxes, I’ll let my accountant figure out how much I would have to pay into my RRSP in order to get myself into that lower tax bracket. Because I run my own little side business, I do get the tax perks of being self-employed.

But, I want to get the most bang for my buck, and I’m not sure if this is the best way.

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