Author Topic: {Canada}It's really happening!  (Read 1921 times)

Cannot Wait!

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{Canada}It's really happening!
« on: March 26, 2021, 03:50:39 PM »
Retired 5 years ago - life is very, very good!
I lived off the rental money from my house and have spent the last 3 years happily and frugally living out of my campervan.  Just sold my house, net $600,000.  Yay me.  But now I have to get serious about how this retirement gig works financially!
Questions:
TFSA is full, RRSP has $41,000. Is there any point in filling that before opening a taxable account?
When I opened my Questrade accounts years ago, I opened a TFSA, RRSP and "Margin" account... is the Margin account the taxable account or is there some other name for a regular account?
My RRSP currently has VXC.TO and my TFSA has VCN.TO.  Should I just keep these ETFs in the 3rd account or is there something better? I have a small pension that I can access at 60 ($1100/mth).   I can luxuriously live on $2000/month.  I'm 54.
I feel like I researched lots leading up to retirement and now my brain has happily gone to mush busily enjoying life; thanks for any advice.

daverobev

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Re: {Canada}It's really happening!
« Reply #1 on: March 26, 2021, 04:18:37 PM »
RRSP: Only if you have income. RRSP is tax deferral. If you're low/no tax it isn't worth it.

Margin is an unregistered account. You can have either cash or margin; margin shouldn't be used with Questrade as their rates are bad - margin = buying on credit. I don't mean don't use the account itself, just don't buy *on* margin.

Be aware you can have a + CAD balance but go USD -ve. IE, they don't auto transfer currencies for you - at least they never used to. Use Norbert's Gambit to do so!

RRSP 'should be' USD, US listed stuff. But the faff may not be worth your time. TFSA should be non US ideally.

Canadian dividends get you a tax break. Ah, there are lots of discussions on this. But look, for simplicity and sanity's sake, with 600k you can just get VBAL.TO - it is a chunk bonds and then global equity for the rest. It's a good single thing to own. You could go VGRO instead (former is IIRC 40% bonds, latter 20%). Or mix the two.

Small pension, but yeah you'll get CPP and OAS as well I assume? So basically you need ~$140k in cash to get you to stage 1 (pension), then however many more years to OAS + CPP. You're pretty set :P

I'd consider putting 500k into VBAL and 100k into a GIC ladder. Oaken tend to have good rates.

highflyingstache

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Re: {Canada}It's really happening!
« Reply #2 on: March 26, 2021, 09:41:13 PM »
For applicable comparisons, I recommend Canadian Couch Potato blog, or the more in depth Canadian Portfolio Manager Blog (Justin Bender) Both give great discussion to what, why, and how it'd be taxed in which accounts (including foreign withholding taxes!)

Lews Therin

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Re: {Canada}It's really happening!
« Reply #3 on: March 27, 2021, 11:13:59 AM »
Retired 5 years ago - life is very, very good!
I lived off the rental money from my house and have spent the last 3 years happily and frugally living out of my campervan.  Just sold my house, net $600,000.  Yay me.  But now I have to get serious about how this retirement gig works financially!
Questions:
TFSA is full, RRSP has $41,000. Is there any point in filling that before opening a taxable account?
When I opened my Questrade accounts years ago, I opened a TFSA, RRSP and "Margin" account... is the Margin account the taxable account or is there some other name for a regular account?
My RRSP currently has VXC.TO and my TFSA has VCN.TO.  Should I just keep these ETFs in the 3rd account or is there something better? I have a small pension that I can access at 60 ($1100/mth).   I can luxuriously live on $2000/month.  I'm 54.
I feel like I researched lots leading up to retirement and now my brain has happily gone to mush busily enjoying life; thanks for any advice.

If you are currently in the lowest tax bracket, don`t put money in RRSP.

For investments, if you don't want to think about it, VGRO is your best bet for simplicity`s safe as it rebalances by itself ; but VXC & VCN is fine as well.

Margin is the regular account.

If you want me to, we can talk off-line and I can quickly give you the 30min crash course on everything. (so that you are back up to speed with the stuff you let go to mush :D ; sadly, no CM*TO for us to chat! )

Cannot Wait!

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Re: {Canada}It's really happening!
« Reply #4 on: March 27, 2021, 11:39:07 AM »
I was actually thinking of calling you @Lews Therin !  I'm travelling atm but when I get some reliable cell service, I'll happily take you up on your offer :)

Mighty Eyebrows

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Re: {Canada}It's really happening!
« Reply #5 on: March 27, 2021, 09:39:09 PM »
If you are currently in the lowest tax bracket, don`t put money in RRSP.
This is generally sound advice but it depends on what your taxable income is now (how far up in the first bracket you are) as well as your expected bracket when you will withdraw it. If you expect to have more income now than later, using a bit of your RRSP now isn't a bad thing. If you are fully FIREd, this is probably less likely, but worth thinking about the numbers you expect.

Also, here is something worth contemplating:
https://www.financialwisdomforum.org/forum/viewtopic.php?f=30&t=123122

The basic rule of thumb is to use your RRSP when you really will have income to put it against soon. If you have several years of low (forced) income later, you can always pull out money from your RRSP/RRIF up to the start of the first bracket (if you are able to live on a lean income). That is then essentially tax free.

Just food for thought. Everyone's situation is unique.

Lews Therin

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Re: {Canada}It's really happening!
« Reply #6 on: March 27, 2021, 11:01:18 PM »
6 years to 60, with a 1100/mth (13k ; so pretty much the minimum you`re allowed to pull out,)

Add in the money from 600k in margin accounts, income will never be below the lowest tax bracket in the future.

Stasher

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Re: {Canada}It's really happening!
« Reply #7 on: March 29, 2021, 08:58:00 AM »
I'm going to have to agree with @Lews Therin on this one for sheer simplicity, diversity, rebalances itself and is favourable for dividends in Canada. Go with VGRO in a non-registered account and keep things easy for yourself.

I would add it makes sense to start drawing down the RRSP right now as your income source over the next 6 years before your pension kicks in and get that hit on taxes out of the way now. Or another way that almost works out perfect is to pull out about $8k/year which will leave you just enough after the tax withhold to make your annual TFSA contribution until the RRSP is liquidated.


Lews Therin

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Re: {Canada}It's really happening!
« Reply #8 on: April 01, 2021, 02:56:42 PM »
Feel free to crowd-critique my more detailed answer:

Sell VCN in TFSA to buy VXC ; continue putting in 6k per year forever

Start selling RRSP at 8-12k a year (depending on taxes to ensure RRSP is empty by 65 (41k is the space left, the actual amount is higher; but should be at 0 by 65)) until 65.

Delay pension to 65, in order to empty RRSP  and get higher amount from gov.

Put 580k-600k depending on how much cash you want to keep into VDY ; since it pays out monthly, and is taxed at -10% in BC for income under 42k
Current VDY dividend is 5.54%, so somewhere in the 32k range in dividends.


Sure it could be slightly more efficient to buy separate stock instead of VDY; but for simplicity sake, 1,200$/yearly (.20%MER) is being payed for someone else to manage the Canadian stocks in order to get a high return.

Cannot Wait is currently in the first BC tax bracket, and is expecting no extra income in the future other than the investments. (which is why there is no point in putting more money into RRSPs)3


Enjoy not knowing how to spend the piles of money that will only continue to accumulate even larger.

Cannot Wait!

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Re: {Canada}It's really happening!
« Reply #9 on: April 02, 2021, 04:03:41 PM »
Thank you everyone for commenting and especially Lews Therin for the details!
Thinking about since our call yesterday...would it make sense to put $300,000 into VDY so that I'm not getting taxed on the dividends that are being paid out when I don't need that money?  Dividends on $300,000 plus my withdrawals from my RRSP will be more than enough to live on and then maybe put the other half in VGRO?


Lews Therin

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Re: {Canada}It's really happening!
« Reply #10 on: April 02, 2021, 07:36:21 PM »
Thank you everyone for commenting and especially Lews Therin for the details!
Thinking about since our call yesterday...would it make sense to put $300,000 into VDY so that I'm not getting taxed on the dividends that are being paid out when I don't need that money?  Dividends on $300,000 plus my withdrawals from my RRSP will be more than enough to live on and then maybe put the other half in VGRO?

It would diversify you more, but is slightly less optimal tax-wise.

That said, if it helps you sleep better to be less dependent on the canadian economy, go for it! (Taxes on capital gains is 10% instead of the -10% for canadian dividends, same thing for non-Canadian dividends 10%)

You could probably aim for a bit lower VGRO, and be 50-50 world - canadian dividends (450k VDY - 450k - RRSP; TFSA ; VGRO)

kenmoremmm

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Re: {Canada}It's really happening!
« Reply #11 on: April 19, 2021, 09:52:47 AM »
Posting a follow up question on the recommendation to VDY: Are there any alternatives, with similar dividend performance, to VDY? I see that VDY is a PFIC if you are a US Citizen.
https://www.vanguardcanada.ca/individual/etfs/passive-foreign-investment-company.htm

I may be in a similar position (sitting on a large pile of $$$) depending on what the purchase price is for a house when we move to Canada. I will be in a high income bracket at the time of the move, but my wife will not be working for at least a year as we get settled, thus the idea of the -10% dividend tax rate sounds pretty nice. I had been thinking that investing in a taxable account would be tolerable (not ideal, but there doesn't seem to be many options for our situation).

Lews Therin

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Re: {Canada}It's really happening!
« Reply #12 on: April 19, 2021, 09:58:18 AM »
Can you simply buy the stocks that are within VDY, thereby creating your own ETF?

daverobev

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Re: {Canada}It's really happening!
« Reply #13 on: April 19, 2021, 10:41:40 AM »
You're basically stuck if you're reporting to the IRS - can't have it both ways, getting the divi tax credit AND being US domiciled.

Closest you can get would be buying conglomerates, but yeah as LT says you're really going to have to roll your own ETF.

Good news is even ETFs use 'selective sampling' - if you want 20% 'banks' say, you don't need to own RY, TD, BNS, BMO, CM, NA, CWB, LB...- you can probably just pick three (RY, TD, BNS, say).

kenmoremmm

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Re: {Canada}It's really happening!
« Reply #14 on: April 19, 2021, 12:23:01 PM »
You're basically stuck if you're reporting to the IRS - can't have it both ways, getting the divi tax credit AND being US domiciled.

Can you confirm: there is no tax credit, even if a non-PFIC, if you're a US citizen and Canadian tax resident?

Lews Therin

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Re: {Canada}It's really happening!
« Reply #15 on: April 19, 2021, 01:24:57 PM »
You're basically stuck if you're reporting to the IRS - can't have it both ways, getting the divi tax credit AND being US domiciled.

Can you confirm: there is no tax credit, even if a non-PFIC, if you're a US citizen and Canadian tax resident?

I'd confirm outside the forum.

There doesn't seem to be a well-versed member here that we could batcall. @FLBiker

daverobev

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Re: {Canada}It's really happening!
« Reply #16 on: April 19, 2021, 03:50:11 PM »
You're basically stuck if you're reporting to the IRS - can't have it both ways, getting the divi tax credit AND being US domiciled.

Can you confirm: there is no tax credit, even if a non-PFIC, if you're a US citizen and Canadian tax resident?

Eh? Oh sorry, I meant in terms of ETFs.

If you own stocks that pay (Canadian) eligible dividends you'll get the tax credit on your Canadian return.

FLBiker

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Re: {Canada}It's really happening!
« Reply #17 on: April 21, 2021, 09:01:23 AM »
You're basically stuck if you're reporting to the IRS - can't have it both ways, getting the divi tax credit AND being US domiciled.

Can you confirm: there is no tax credit, even if a non-PFIC, if you're a US citizen and Canadian tax resident?

I'd confirm outside the forum.

There doesn't seem to be a well-versed member here that we could batcall. @FLBiker

This is something I have on my "to learn more about" list.  My understanding is the same as @daverobev -- you'll get the tax credit on your Canadian taxes, but could theoretically owe on your US ones if the rest of your Canadian taxes didn't offset (but I think they would).  To this point, I haven't brought any dividend focused Canadian stocks into our taxable account, but I'd like to better understand the potential benefits.  Our taxable is mostly VXUS (to get the foreign taxes paid credit).