It's no secret that we here at Metz Financial are huge advocates of investing in the SaskWorks Diversified Fund. There are many reasons to invest, such as benefitting from having alternative investments to diversify your holdings, long term outperformance of its benchmark and peers, stable and consistent returns with very little volatility, having the ability to invest your money right here at home in Saskatchewan companies, and of course, the considerable tax savings. This will be a short blog write up today as we will just be discussing the rollover strategy with a SaskWorks RRSP investment where it would reduce an investors NET cost to below $0.
For more detailed information on SaskWorks, just refer to my blog I wrote earlier this year that is more comprehensive on this particular investment:
8 years ago if a Saskatchewan resident with a marginal tax rate of 35% invested $5000 into the SaskWorks Diversified fund through their RRSP they would have received an additional 35% tax credit on top of their 35% RRSP tax savings. (5000 X .35 = $1750)
$1750 RRSP tax savings + $1750 tax credits = $3500 total tax savings
NET cost on initial investment is $1500 = $5000 (investment) - $3500 (tax savings)
After the 8 years you have to hold the investment, you have the option to cash out your shares, transfer to another RRSP, or rollover an amount up to $5000 to receive tax credits again of 32.5% for 2019 (5000 X .325 = $1625). If rolling over the shares, your holding period would start again for another 8 years.
So, let's rollover $5000 again and keep our money invested and take advantage of another 32.5% tax credit available in 2019, or $1625.
$3500 of total tax savings on your initial SaskWorks RRSP investment plus the tax credit of $1625 received on implementing a rollover = $5125 of tax savings.
NET cost to you after a rollover = -$125
Your net cost of this investment after your tax savings is now below $0.
An individual who invests every year for 8 years using a laddering strategy would just see these tax savings amplified (see previous SaskWorks blog).
Let's not forget, your money is still invested and compounding interest on top of all of these ridiculous tax savings. Here's a quick snapshot pulled from the Globe and Mail showing past returns as of Oct 31, 2019 of the SaskWorks Diversified Fund-A (past returns do not guarantee future returns):
Please consult with a financial advisor or tax professional to review your financial situation before purchasing these funds, as they are not appropriate for everyone.
Happy Saving!
-Marty Metz, CFP, CLU
Comments