Author Topic: Maxed out my TFSA and RRSP contribution room, now what?  (Read 5564 times)

IngaB

  • 5 O'Clock Shadow
  • *
  • Posts: 23
Maxed out my TFSA and RRSP contribution room, now what?
« on: January 04, 2022, 10:37:38 AM »
Hello,

What do families in Canada do when they have maxed out on their TSFA and RRSP room, but still wish to continue putting aside funds for retirement?

About our family: 42F earning $115k and 45M earning $100K. Own a townhouse in Toronto (mortgage paid off). Own one car (paid off). Take one vacation a year. 5-year old child. Save approximately 60-65% of take home pay (use Excel to track all revenues and spending).

About our investments: Use passive investing and re-balance all accounts once a year. Mostly use Canadian Couch Potato investment strategy. Most of our funds are in ETFs. To take we put aside about $550K, all through RRSP and TFSA.

Questions:
1) We finally reached a point where RRSP/TFSA room for both adults cannot accommodate our annual retirement contributions. In 2022, we have about $40K in available RRSP/TFSA room but plan to set aside about $140K towards retirement. How do we do this in a most income tax-efficient matter?

2) We are also contemplating finding a CPA who specialize in income tax matters and getting some independent professional advice (fee for service CPA). How do we find such a professional in Toronto? Any referrals from members of this forum?

Thank you in advance.

cdn5cents

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #1 on: January 04, 2022, 10:55:44 AM »
Congrats!

1.  RESP ... 20% Government match up to $500/child/year subject to a $7200 lifetime benefit..Total contribution allowed to this account is 50K/child....Topping up this account will potentially facilitate more cap gains realized in your child's name if he/she should pursue Post secondary education 

2. Investment Account.... Consider Tax Efficient investment products that align with your Portfolio Risk Objectives.

IngaB

  • 5 O'Clock Shadow
  • *
  • Posts: 23
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #2 on: January 04, 2022, 10:58:16 AM »
forgot to mention: fully contribute to RESP account as well ($2500 a year)

Novik

  • Pencil Stache
  • ****
  • Posts: 973
  • Age: 30
  • Location: Ottawa, ON, Canada
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #3 on: January 04, 2022, 11:21:15 AM »
Here's a directory of Canadian fee based financial planners etc: https://www.valueofsimple.ca/links/directory-of-fee-only-planners/ I have not used but have perused. There's a wide variety in what they offer, cost and even fee model, so you should be able to find a decent fit.

If you have 140k to save this year and are looking to reduce your income taxes, may I suggest making some charitable donations? It will cost you but not as much as you'd think after the tax savings.

Other than that, you're looking at a taxable investment account. Asset location (which kinds of things you hold where) is something to do some reading on.


daverobev

  • Magnum Stache
  • ******
  • Posts: 3961
  • Location: France
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #4 on: January 04, 2022, 03:08:13 PM »
Canadian 'eligible' dividends in your unregistered account. US domiciled stuff in RRSP. Canadian-domiciled non 'wrapper' ETFs in the TFSA. Bonds most likely unregistered as well due to the low rates.

Go and play with a tax calculator and see what adding $10k of eligible divis does.. not much!

erp

  • Stubble
  • **
  • Posts: 153
  • Location: Alberta, Canada
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #5 on: January 05, 2022, 10:53:21 AM »
Congratulations! This is a big step and it means you're basically set.

Honestly, I think that the emphasis on which savings vehicle stores which asset is a little overblown - especially at relatively small values (under 2 million or so?). It's undeniably true that there are more and less tax efficient ways to hold assets in Canada, but at my net worth it seems like it's about a 0.2-0.3% drag. I'm willing to eat that cost for simplicity, and just keep the same indexes in my TFSA, RRSP and non-registered accounts.

At some point, it definitely makes sense to migrate to a model where you're holding the components of the index directly, but I suspect that's once you're holding assets in excess of several million.

Do look at things like RESPs, RDSPs, and any other vehicle you can though - that's just a bargain.

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1612
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #6 on: January 05, 2022, 06:38:14 PM »
Canadian ETFs to taxable non-registered, rebalance to your asset allocation in your other accounts by selling off Canada to prop up bonds or international.  (it's tough to sell off high flying equities to buy stagnant bonds though, trust me)

Build up your cash emergency fund/first years FU money in savings accounts and regret not seeing it grow.

Be careful about your RSP limits, they're easy to blow over at this point and be subject to 1% overcontribution taxes (let me know if you know what I need to do about this now, either remove the funds for a $50 de-registrations fee, or suck up the 1% tax till next years contribution room? - I'm leaning to the latter)

Treat all your accounts as one wrt to asset allocation.

That's what we're working on.

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1612
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #7 on: January 05, 2022, 06:43:10 PM »
I'm willing to eat that cost for simplicity, and just keep the same indexes in my TFSA, RRSP and non-registered accounts.



my spouse is currently paying negative income tax (-9.6%) on Canadian eligible dividends.   well worth it for me as a tax bonus.

erp

  • Stubble
  • **
  • Posts: 153
  • Location: Alberta, Canada
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #8 on: January 06, 2022, 10:08:19 AM »
my spouse is currently paying negative income tax (-9.6%) on Canadian eligible dividends.   well worth it for me as a tax bonus.

Nice - that'd make a difference for sure. I'm spouseless, so it's all my income anyways.

Furthermore, while I do collect some eligible dividends, it's a pretty small fraction of my overall gains. If you've optimized for eligible dividends, then it definitely makes sense to try to lower the tax burden. Looking back over the last year though, I made less than $1000 in taxable dividends, and I'm not that concerned about optimizing taxes on that small an amount (at -10% is still $100, so that's a nice bonus, it's just enough added complexity that I'm happy to let it go).

Do you select a particular index to seek out eligible dividends, or are you selecting particularly promising companies on an individual basis?

snacky

  • Senior Mustachian
  • ********
  • Posts: 10871
  • Location: Hoth
  • Forum Dignitary
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #9 on: January 06, 2022, 10:23:40 AM »
I've opted for swap-based ETFs in my taxable account so I don't have any earnings or dividends to declare until I sell. I got the idea from this forum and Canadian Couch Potato.

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1612
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #10 on: January 06, 2022, 01:20:34 PM »

Do you select a particular index to seek out eligible dividends, or are you selecting particularly promising companies on an individual basis?

VCN, as per my AA.  Not seeking out divi's specifically, just growth and diversification.  I've got too many examples of individual companies (even massive ones like Nortel and Blackberry) going bust to ever want to stock-pick.

highflyingstache

  • 5 O'Clock Shadow
  • *
  • Posts: 49
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #11 on: January 07, 2022, 11:34:49 AM »
You may want to look into Justin Bender, Canadian Portfolio Manager Blog. He's a coworker of Dan's (Couch Potato fame) and goes really into the weeds of asset allocation, foreign withholding taxes and whatnot. Well worth looking into as you consider taxes and efficiency (and different "levels" of difficulty) in building your non-tax deferred/protected accounts.

Missy B

  • Pencil Stache
  • ****
  • Posts: 607
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #12 on: March 27, 2022, 11:04:34 PM »

Do you select a particular index to seek out eligible dividends, or are you selecting particularly promising companies on an individual basis?

VCN, as per my AA.  Not seeking out divi's specifically, just growth and diversification.  I've got too many examples of individual companies (even massive ones like Nortel and Blackberry) going bust to ever want to stock-pick.

No argument with using a div index fund like VCN - simplest and safest. You can get into individual stocks at low risk and with better returns if you're willing to do the research, which isn't long or complicated.

My criteria is simple:
-Canadian eligible dividends
-with a 20+ yr history of dividends
-4.5% or better yield
-recent and forecasted future growth of 5% or better
-continued paying through Black Swan events (never suspended)

I use https://dividendhistory.org

I have stocks with div lower than 5% that I bought for capital appreciation; all these have growth rates of 10-15%. It does take a shockingly long time for a 2.5% dividend with a 15% growth rate to catch up to the compound return of a 5%/5% stock, about 20 years.

The dividend tax credit actually reduces my tax payable. More income, less tax payable. If I ever get to the point where I have no other income (rental property, self-employment) then my income will be entirely tax free. (Varies by province, but this year its about 60K).

I wish to hell I'd figured out this simple strategy when I was a young lass, frugal but without benefit of internet and the ease of looking at stock performance history online. And of course there was no online trading then, and it was much more expensive to trade.

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 7062
  • Location: BC
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #13 on: November 29, 2022, 03:42:22 PM »
Just a reminder about two more tax deferred vehicles like the RRSP / TFSA

1)  RESP -- if you plan to take more education, you can contribute to this.  As an adult, you don't get the government match, but it grows tax free and the year(s) you are a student with low income, it is taxed on your personal income rate when withdrawn (but not the whole thing, just the growth is taxed later).  So this is a tax deferral growth strategy for up to $50k per person.

2) Disability DRSP account -- but if you have a disability that qualifies, you already know about this viable alternative / complement to the RRSP.

Lastly, the other investments
1. Taxable account (CDN dividends, foreign stocks, or stock porfolios that you might sometimes lose money on).  This is a good one, the one I chose.

2. ) Segregated funds..ok, lots of fees, lower returns, think "universal life" (blech), so not recommended unless you are small business owner because of business risk sheltering options...

3.)  Real estate -- some people put more $$ onto their mortgage to pay it down, maybe a good idea now that interest rates are going up and you have extra money?

4) Annuities may be on the rise again with better interest rates.  People over 60 should at least investigate if this could form the basis of a self made "guarnateed pension plan" for your base retirement needs.

K-ice

  • Pencil Stache
  • ****
  • Posts: 982
  • Location: Canada
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #14 on: December 25, 2022, 05:02:58 PM »
You can “front load” your RESP. $14,000 at any time and then still $2500/year to get the max grant money. Just don’t exceed the $50K lifetime limit.

It would be more of a mid-load in your case with a 5y old but still better than waiting.

c-kat

  • Stubble
  • **
  • Posts: 162
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #15 on: January 02, 2023, 07:51:48 AM »
You can “front load” your RESP. $14,000 at any time and then still $2500/year to get the max grant money. Just don’t exceed the $50K lifetime limit.

It would be more of a mid-load in your case with a 5y old but still better than waiting.

I don't understand how this works. I thought if you put the money in all at once you wouldn't get the grant money each year?

OttawaNeal

  • CM*MW 2023 Attendees
  • Bristles
  • *
  • Posts: 295
  • Age: 43
  • Location: Ottawa, Canada
  • The journey is the adventure.
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #16 on: January 03, 2023, 02:33:09 PM »
You can “front load” your RESP. $14,000 at any time and then still $2500/year to get the max grant money. Just don’t exceed the $50K lifetime limit.

It would be more of a mid-load in your case with a 5y old but still better than waiting.

I don't understand how this works. I thought if you put the money in all at once you wouldn't get the grant money each year?

RESPs are kind of confusing...😂

The government only provides a match of up to $7200 per kid, which at 20% of what you put in means they'll only match you for up to $36K you contribute as long as you put that money in slowly, $2.5K per year. (There is a way to catch-up for years where you didn't contribute the full amount...again, for some reason you have to catch up slowly to get the full match 😂).

At anytime you could contribute more than the $2.5K in a year, without government matching the excess (except when doing a catch-up), but the maximum you can contribute to an RESP per kid is $50K, so if you want to get the full $7200 match you wouldn't want to over-contribute by more than $14K over the years.

What some people do (not I) is front-load the whole $14K (plus $2.5K more really) at the very beginning, and then make sure to only ever put in $2.5K (or less, then catch-up) after that to still get the full $7200 match eventually ($500 per year).

Make some sense?

daverobev

  • Magnum Stache
  • ******
  • Posts: 3961
  • Location: France
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #17 on: January 03, 2023, 03:00:10 PM »
Why would you want to do that though... well I guess it's tax sheltered growth, but the money you're putting in is after tax and then it'd be taxed on withdrawal. I know in theory the student will be low tax but... even if they earn $10k at a part time or summer job won't they then end up paying more tax than is saved...?

Or is it just that doing it at birth gives it 20 years to grow tax free?

OttawaNeal

  • CM*MW 2023 Attendees
  • Bristles
  • *
  • Posts: 295
  • Age: 43
  • Location: Ottawa, Canada
  • The journey is the adventure.
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #18 on: January 03, 2023, 08:16:36 PM »
Or is it just that doing it at birth gives it 20 years to grow tax free?

It’s for that reason.

Here’s a thorough blog post on the idea:
https://www.looniedoctor.ca/2017/12/31/optimizing-resp-tips/

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1612
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #19 on: March 05, 2023, 03:39:44 PM »
I'm willing to eat that cost for simplicity, and just keep the same indexes in my TFSA, RRSP and non-registered accounts.



my spouse is currently paying negative income tax (-9.6%) on Canadian-eligible dividends.   well worth it for me as a tax bonus.

Did our 2022 taxes, turns out there's a difference between tax credits and tax deductions.  What I understood as a tax bonus is actually non-refundable tax credits.  Which means no income tax refund once income taxes owing are already $0.    Now working to get a balance of taxable income (increasing interest income) to be able to use up the full tax credit from eligible dividends.


OttawaNeal

  • CM*MW 2023 Attendees
  • Bristles
  • *
  • Posts: 295
  • Age: 43
  • Location: Ottawa, Canada
  • The journey is the adventure.
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #20 on: March 05, 2023, 06:26:21 PM »
Now working to get a balance of taxable income (increasing interest income) to be able to use up the full tax credit from eligible dividends.
RRSP withdrawals would work - and then reinvest the withdrawn amount in a non-registered account.

Mighty Eyebrows

  • Stubble
  • **
  • Posts: 238
  • Location: Vancouver Island, Canada
Re: Maxed out my TFSA and RRSP contribution room, now what?
« Reply #21 on: March 13, 2023, 09:09:20 PM »
Or is it just that doing it at birth gives it 20 years to grow tax free?

As mentioned above, don't underestimate the value of tax-sheltered compounding! You can do a quick and dirty spreadsheet to see the value, if you are inclined.


(Sorry to jump in 3 months late)

 

Wow, a phone plan for fifteen bucks!