Contact: Judy Culford

February, 1996

Phone: (519) 663-2252

When NOT to Invest in RRSPs

“There are times when it’s best NOT to put your money in RRSPs,” claims Talbot Stevens, speaker and author of Financial Freedom Without Sacrifice.

Most people forget that an RRSP is not all theirs. These tax-deferral plans are partially owned by the government.

The minute you put your money in an RRSP, you create a partnership with Revenue Canada. You only own what is left over after paying income tax when you withdraw the funds from the RRSP or RRIF. In the worst case, this partnership could reduce your ownership of the funds to less than half. Non-sheltered funds are all yours.

If you cash in your RRSP within a few years, you could actually end up with less money than if you had invested outside of the RRSP,” says Stevens.

Consider someone in the middle 40% tax bracket who wants to invest $1,000. A year later, they need the money back to cover, say, a major car repair. Ignoring the small growth during the year, if they had put the $1,000 in an RRSP and withdrew it in the same 40% tax bracket, $400 would be lost to taxes, leaving the investor with only $600.

By avoiding the partnership with the government, the investor ends up keeping the full $1,000. Even if all of the tax refund from the RRSP contribution was reinvested, this short-term investor would be better off staying out of RRSPs.

Despite this, Stevens stresses that the message is not to avoid RRSPs. “RRSPs are still one of the two best long-term investment strategies available,” Stevens explains. “The message is to keep your money in your RRSP for the long-term to realize the benefits of the tax-free compounding. Emergency funds should be set aside for your short-term needs, and be kept outside of RRSPs.”

Stevens says he will be doing more research on this issue to quantify the minimum time period needed for RRSPs to come out ahead of non-sheltered investing.

Talbot Stevens is a speaker and author of Financial Freedom Without Sacrifice. President of a London-based financial education firm, he has started a petition to make basic financial education a mandatory part of the school system.

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Talbot Stevens is a financial educator, industry consultant, and author of "Financial Freedom Without Sacrifice" and "Dispelling the Myths of Borrowing to Invest". For other story ideas, visit the Free Resources menu of For more information, contact Judy Culford, Communications Director for Talbot Stevens, by calling (519) 663-2252, or emailing