Are Canadian RRSP laws fair...? A ponderable....

Are Canadian RRSP laws fair?

As a late-in-life parent, I have reason to think about things from a perspective of an older as to what constitutes “taking care” of our only child. Without an extended family to rely upon, the child will be nothing short of an orphan when her parents die: she won't have us to help her, and no one to turn to for support or guidance. It gave me pause, because we all need help now and then (and 'help' can take many, many forms, not just financial ones).

Her maternal grandparents had started her a bank account, which I had control over. I thought I was being a smart alec when I hit upon the idea of opening an RRSP in the child's name. By my uninformed thinking, I would be able to convert her bank account to a Registered Retirement Savings plan, all I needed was to secure her a Social Insurance Number (S.I.N.); I could take the tax breaks myself, and make sure she had financial security long after we are gone.

I went about getting the SIN for the child , a simple matter of paperwork and waiting.

I went in to see an Accounts Manager at our local bank, where the child's account was (along with other family accounts), armed with that SIN card. Imagine my surprise when I was told that I couldn't do what I wanted to: the only way the child can have an RRSP set up in Canada is after her first year as a wage-earner. Wealth transfer from the upper 5% of income earners (to duck taxes) was one of the reasons I was given for this law.

I was dumbfounded, and yet, I did understand the logic. Trust funds are already abused by the wealthy as means of ducking taxes, allowing the upper 5% of income earners another “out” to avoid paying taxes would surely be taken advantage of: that doesn't stop them helping those same kids once they do start working, though.

I'm torn as to what to think about it. One part of me is indignant because I can't do what I wanted to do, to ensure a financially secure future for our only child: I didn't say the emotion was rational, I said it was present underneath things. Part of me is saddened by the commentary such a law can be turned into as regards the Average Joe not having a level playing field when it comes to taxation and retirement saving: it puts society in a rather shabby light. Part of me is grateful that the wealthy haven't got another such “loophole” to take advantage of, too. Like I said, I'm torn.

So Heaven help me, that bank account is being converted to an RRSP as soon as I can swing it. An only child with no extended family to speak of is a poor child, in many senses, and I'm determined to make sure she doesn't suffer in the financial sense as well. Memories won't help her security, and that's all she'll really have.

I guess it makes sense, but that doesn't make it any less dismaying when you're faced with 15 years of lost compound interest or more....which is probably another reason why it can't be done: the banks don't want to pay out such large amounts of interest over decades, either.

Mich's Mumbles © 2011