The advantage of an RRSP is that amounts contributed are deductible from income and the profits earned in the RRSP portfolio are free of tax when earned. However the downside to these retirement savings plans is that all income that is withdrawn is fully taxable upon receipt. Furthermore once a Canadian taxpayer reaches the age of 71 the RRSP has to be converted into a pension or a RRIF (registered retirement income fund) and part of the RRIF or the pension has to be taken out annually (and subject to tax). An RRSP meltdown is a complex technique to start to deregister part of the RRSP annually and offset the income inclusion by an equivalent deduction. This requires that a loan be taken out and used to invest in a non-registered stock portfolio. The interest on the loan is fully deductible and a portion of the RRSP equal to the interest deduction is deregistered annually. It is a strategy that requires input from one of our experienced Toronto tax lawyers.
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