Are you among many Canadians socking away loonies in an RRSP on this the last day for allowable 2004 contributions or have you deliberately stayed away from RRSPs?

Even when investing within tax-deferred Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) was sacrosanct, more than one retirement-oriented savvy investor by-passed these plans.

In the mid 1970s, home owner Jim Williams (name changed) cashed in his RRSPs, took the tax bite and began paying tax as he earned investment income.

"For many people RRSPs are the ideal thing to supplement a pension plan or a poor pension," said Mr. Williams, a retired administrator who believes contributors can be mesmerized by sales pitches and financial hype. "I didn't see mine that way. I saw RRSPs as a tax burden and I didn't like the restrictions the government put on RRSPs."

For several reasons, Mr. Williams decided to pay tax on earned interest while retaining control of his investment portfolio for a few reasons:

• Losses within an RRSP carry no tax advantage.

• RRSP contribution limits are set by the government and further restricted income-earned.

• Foreign investment restrictions confined the bulk (70%) of investing to Canadian vehicles.

• Borrowing to contribute to an RRSP is not a deductible expense while investing in equities or real estate creates a tax deduction.

• RRSP investing does not favour real estate.

When funds are withdrawn from RRSPs or RRIFs, they are taxed at the plan holders marginal rate. Since Mr. Williams projected he might have a higher income in retirement, he felt deferring taxes might cost him more in income tax than paying as he went. Instead, Mr. Williams believes he made 50 per cent more money paying tax as he earned and freely bought what he chose to buy.

"I wanted control of my own money," explained Mr. Simmons. "You can pay the tax during the time you are accumulating or pay through a RRIF. A lot of people are finding their pensions are much larger that they expected and they pay more tax than they expected. In many cases, the RRIF can grow as fast as it is withdrawn. You can end up with as much left as you had in the beginning. This goes right into income and your tax bill could be 50 per cent of that."

Not all RRSP holders wait until age 69 to begin withdrawals. Of those who did make RRSP contributions in 2003, one in six also withdrew taxable funds from their RRSP. This does not include those who withdrew tax-protected RRSP funds under the Home Buyer's Plan (HBP) and Life Long Learning Plan, both overseen by the Canada Revenue Agency . Approximately 1.3 million individuals have withdrawn over C$13 billion from RRSPs, without tax penalties, to buy a home since HBP began in 1992. (For more on the Home Buyer's Plan, see PJ's article Registered Retirement Saving Plans & Canadian Home Buying Through HBP .)

Since HBP takes withdrawals to purchase real estate, the remaining motivations for withdrawing large amounts of C$10,000 or more are death of a spouse, job loss, and business start-up. Secondary motivations. Older contributors more commonly withdraw larger amounts, but surprisingly, nearly one-fifth of taxfilers aged 50 to 59 -- a group considered less likely to repay withdrawals -- withdrew C$10,000 or more from their RRSPs in 2001. By the end of that year, less than 40 per cent had repaid those withdrawals, which could have negative implications on the funds available to them later in life.

RRSPs received a significant "make-over" in the February 23, 2005, Federal Budget that may make them more attractive investment vehicles:

• The 30 per cent foreign content limit on RRSPs has been abolished -- a reflection of the fact that Canada's markets represent only 2 per cent of world stock market capitalization.

• RRSP contribution limits will increase from $18,000 for 2006 to $22,000 in 2010, which will benefit those with annual earnings between $100,000 and approximately $122,000 by then.

Canadians who don't like RRSPs may warm up to tax prepaid savings plans (TPSPs), which did not earn the hoped-for mention in this Federal Budget. In TPSPs, contributions would not be tax-deductible, but investment growth and eventual withdrawals would be tax-free. This investment vehicle eliminates two common RRSP concerns: high-earner frustrations about restricted investment limits, and low-income worries over clawbacks caused by increased taxable income on withdrawal.