Dr. Garth

An Arctic blast up Pennsylvania Avenue kept Nurse Jiggles from taking her outside seat at the Inauguration, while tech billionaires and pipefitters from Arkansas completely filled the Capital rotunda. So back to the clinic she came, minus that damn red ball cap, of course.

Enough spectacle. Let’s get on with the job of saving citizens from themselves.

Like Kevin. He’s about to fulfill the dream every Albertan seems to have these days – becoming an American. Sort of.

“I’ve taken a job opportunity in Houston,” he says, “and will be moving my young family. We have sold our property in Calgary (bought in fall of 2020 – I recall you had a blog post saying that would be a good time to buy, and it was) and we are set to move.

“My biggest decision has been trying to figure out what to do with the equity. RRSPs are full and we are hoping on returning in 3-5 years. I can’t invest the money in Canada or the US without getting taxed on the gains. I’ve debated on buying a house in the US. I’m getting allowances so my living costs/mortgage payments would be covered. My initial plan was to rent but we were having difficulty with that. Any advice?”

First, be very careful about buying property in the US if you’re planning to sell in three or four years. This is the dawn of an unpredictable, potential chaotic Trumpian era when American society could be flipped on its head, monetary policy disrupted and real estate impacted by everything from mass deportations (deeply affecting construction) to a national debt ceiling crisis. Best to rent. Then you can flee back here.

As for your RRSPs, do nothing. Keep them invested. Keep them in Canada. If you have some contribution room left over, you can continue to fill it. Tax-free growth within the accounts will continue, but you can’t claim RRSP deductions from income earned in Texas.

If you’re tempted to withdraw money from the RRSP after you move, don’t. There will be a 25% tax imposed in Canada and you’ll likely have to pay income tax on the funds in the States. If you and your squeeze have TFSAs, you can also keep them in place. There is no departure tax on those (as with non-reg accounts) plus earnings and withdrawals are still tax-free. As a non-resident you cannot make new annual contributions and American law (at least for now) says TFSAs aren’t tax shelters, so earned growth is reportable.

And take a Glock.

Nikki is staying in Canada, for good reason. She and her partner own real estate, have a thriving business, and a big steamy pile of mortgage debt. Plus a bunch of questions.

“I’m a 42 year old mom with two young boys,” she says. “My husband and I own a construction business where I pull a salary of $100k and my husband makes $150k.  I have $672k in my RRSPs invested in the market. I also have 12k in my TFSA with $350k of room left (from previous investment growth which I pulled for our down payment). We own a 2.2 million house of which there is 1.2 million left of our mortgage. We also have a cottage with a $400k mortgage on.

“My question is: do I have too much in my rrsps? Should I try and get it into my TFSA by not taking a salary for a few years? Should I leave it and just continue investing in the tfsa when I can? Should I try and pay off more of our mortgages? We are already doing biweekly to do it faster. I just feel like I have too much in my rrsps with another 20 years left before I retire. Any tips? Tricks? Secrets?  Maybe I’ll just buy a Lamborghini.”

Construction is fickle and uncertain, making incomes prone to fluctuation. That’s a risk. Having $1.6 million in mortgage debt is also a risk. Recall that if Canads gets swept up in a trade war and retaliates, we have a big inflation issue and likely rising interest rates. The construction business could falter just when debt charges grow. That would suck.

Leave the RRSPs invested (hopefully in a balanced way through ETFs, not individual stocks). In two decades that pile should be about $2.4 million. Regardless of whether you make contributions annually or not, your contribution room keeps growing along with income. It is never lost, and might come in handy when you sell the business. Focus attention and cash flow now on reducing debt. The biweekly payments help, but weekly ones would help more. And do you really need the cottage? Do you get there enough to justify hundreds of thousands in debt plus operating costs? Dump it.

After you trash debt, load up the TFSA. The contribution room you have there is an absolute gift. The Lambo can wait. Forever, babe.

About the picture: “I thought you may want a photo of a prey animal for your blog, considering current times,” writes Shannon. “Meet my daughter Phoebe’s 10 week old Flemish Giant bunny named ‘Buttercup.’ Andrew (hubby) and I love the blog, Phoebe just looks at the pictures!”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/01/20/dr-garth-53/