Author Topic: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement  (Read 7017 times)

gonkman

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Hello,

First off thanks to all of you Folks who have all these great Blogs and Forums.   I have learned a lot in the past few weeks.

I still have questions in regards to where to put my funds going forward in regards to Witholding Taxes etc..etc.

I have just opened a Mutual Fund TFSA and a Mutual Fund RRSP account with TD as I am already a TD Customer.   I also had them send in the conversion forms to E-Series and did the Risk Assesment (HIGH) in order to buy the E-Series TD Funds in the TFSA and RRSP accounts.

I have approx $4500 being transfered from my 1.6% (Ick) TFSA Savings account elsewhere into my new TFSA Account at TD.

I will opening accounts later this week for my wife at TD (TFSA/RRSP) as well so that she can invest at TD in the E-Series funds.

I also have $14K with another company in a 3.09% MER (Grrrr.) Fund in a LIRA Account which I want to transfer to TD in a LIRA account and invest into E-Series Funds.

We will have our Mortgage Killed Dead by end of this year (Yay!) and plan on using the mortgage payment money portion from our budget to build up the RRSP and TFSA's.

So we plan on making larger deposits into our new TD accounts in the new year. Focusing on RRSP first to the max with a little in the TFSA as we are both above $70K in salary each.  Then once RRSP are Maxed (6 years) then put max RRSP per year and rest in TFSA.

I have tried to find the answer to the following but I have gotten mixed answers in my head.

I plan on purchasing the following 4 funds as per the Couch Potato strategy. (75%Equity/25%Bonds ratio)


Canadian equity - TD Canadian Index – e (TDB900) 
US equity -  TD US Index – e (TDB902) 
International equity -  TD International Index – e (TDB911) 
Canadian bonds -  TD Canadian Bond Index – e (TDB909)


From what I read it is not advisable to put US/International Equity in a TFSA because of Witholding Taxes?

If this is true would the follow allocations allow me to build my investments without being hit with any "taxes" etc from good old CRA?

We have more than enough room in my TFSA/RRSP and I have worked out future contribution rates until retirement and will have room all the way for the next 12 years until we retire. 

RRSP
25% - Canadian equity - TD Canadian Index – e (TDB900) 
25% - US equity -  TD US Index – e (TDB902) 
25% - International equity -  TD International Index – e (TDB911) 
25% - Canadian bonds -  TD Canadian Bond Index – e (TDB909)

TFSA
75% - Canadian equity - TD Canadian Index – e (TDB900) 
25% - Canadian bonds -  TD Canadian Bond Index – e (TDB909)

And Assuming a LIRA is treated like an RRSP Account

LIRA Account
25% - Canadian equity - TD Canadian Index – e (TDB900) 
25% - US equity -  TD US Index – e (TDB902) 
25% - International equity -  TD International Index – e (TDB911) 
25% - Canadian bonds -  TD Canadian Bond Index – e (TDB909)

Does this work?  ie: With purchasing these funds in these accounts above avoid all the Taxes/Capital Gains etc..etc..


Thanks!

RichMoose

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #1 on: August 14, 2014, 10:49:27 AM »
Gonkman,

You have the right idea. With your income levels, I'm guessing you would get somewhere around $13,000 each for RRSP room each year. Plus $5500 for TFSA. If you're planning to max both out, it would be most tax efficient to put 100% of your TFSA in TDB909 and then your RRSP spread evenly between the three equity funds. And yes, the LIRA works the same as your RRSP for tax purposes. The only major difference is withdrawal limitations.

strider3700

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #2 on: August 14, 2014, 11:03:53 AM »
I keep US and international in my RRSP and CDN in my TFSA.  I've not had to do it yet but there is a form of some sort you can use to get a chunk of the taxes that were taken off for the US investments specifically back if they went into your RRSP.

gonkman

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #3 on: August 14, 2014, 12:16:17 PM »

Tuxedo... Deposits won't be balanced if I just put Bond in TFSA...

First 6 Years -  $1800 a month to RRSP and $400 a month to TFSA  (This will Max both our RRSPs at the end of year 6)
Next 6 years - $600 a month to RRSP and $1600 a month to TFSA  (This will Max RRSP's each year and Grow the TFSA until we Retire)
Until 65 - $1800 a month to TFSA to Max Each Year (Using Extra contribution room)

So I want to mix the Contents in each 75%/25% in both.

My was if there are any Tax Implications in buying the funds I listed into those Savings Vehicles.

Is there something better about Bonds in a TFSA as opposed to an RRSP/LIRA?



RichMoose

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #4 on: August 14, 2014, 03:39:48 PM »

Tuxedo... Deposits won't be balanced if I just put Bond in TFSA...

First 6 Years -  $1800 a month to RRSP and $400 a month to TFSA  (This will Max both our RRSPs at the end of year 6)
Next 6 years - $600 a month to RRSP and $1600 a month to TFSA  (This will Max RRSP's each year and Grow the TFSA until we Retire)
Until 65 - $1800 a month to TFSA to Max Each Year (Using Extra contribution room)

So I want to mix the Contents in each 75%/25% in both.

My was if there are any Tax Implications in buying the funds I listed into those Savings Vehicles.

Is there something better about Bonds in a TFSA as opposed to an RRSP/LIRA?

Sorry Gonkman, I don't think I was understanding your first post right, I should've read it twice. Withholding taxes can be more complicated that what I explained in my first reply. Your example is good from an income tax / capital gains tax perspective, but may not  be the best for withholding tax efficiency. In TDB902, withholding taxes are not recoverable when held in an RRSP.

daverobev

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #5 on: August 14, 2014, 05:21:19 PM »
I keep US and international in my RRSP and CDN in my TFSA.  I've not had to do it yet but there is a form of some sort you can use to get a chunk of the taxes that were taken off for the US investments specifically back if they went into your RRSP.

W-8BEN? Not appliccable in an RRSP. For US stuff you don't need to do anything in an RRSP.

gonkman

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #6 on: August 14, 2014, 05:52:46 PM »

Now I am all confused again. 

So is my Fund Placement above correct for the 3 Accounts.  Keep the TFSA Just CDN Funds and RRSP/LIRA Accounts are for CDN/US and International?

ie: I am good to go with this plan?

Investment room is not an issue...  I have no problems with the space nor will I run out based on my calculations.

RichMoose

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #7 on: August 14, 2014, 06:48:01 PM »

Now I am all confused again. 

So is my Fund Placement above correct for the 3 Accounts.  Keep the TFSA Just CDN Funds and RRSP/LIRA Accounts are for CDN/US and International?

ie: I am good to go with this plan?

Investment room is not an issue...  I have no problems with the space nor will I run out based on my calculations.

Basically if you use TD-e, there is really not any true advantage from a withholding tax perspective between RRSP and TFSA. With mutual funds like TD-e that hold foreign stocks directly, the withholding tax is not recoverable in a RRSP. In this setup, it shows as a slight tracking error to the index. So yes you are good to go with this plan if you're willing to accept a small tracking error.

The only easy (self-directed) way to avoid this is to purchase ETF's instead of TD-e.

Hopefully this helps?

Kaspian

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #8 on: August 19, 2014, 03:07:36 PM »
Hello!

No, no, this is all wrong.  However you can always adjust later.  I use the TD e-series in all three accounts as well.  I use bonds 40%, and 20% for the rest.

Order of preference:

Bonds:   Always put in RRSP, TFSA (these are taxed highest so should be sheltered).
International:   Put in RRSP, TFSA after bond allocation space is all used up.  If there isn't room in those, put it in a non-registered.
Canadian and US:  Into non-registered account.  These two are the most tax friendly.

**Please note:  I do hold a tiny bit of all 4 investments in each account which I like to use for simple rebalancing.


Please read the following article:

http://www.moneysense.ca/invest/asset-ocation-everything-in-its-place

Assuming your portfolio holds all the asset classes listed below, place them in your non-registered account using this order of preference. (If your investment plan doesn’t include one of these asset classes, just move to the next one in the list: never choose an investment solely for its tax characteristics.)

Canadian stocks TDB900

U.S. stocks TDB902

International stocks TDB911

Canadian preferred shares

Real estate investment trusts (REITs)

GICs

Bonds (avoid if possible)  TDB909

daverobev

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #9 on: August 19, 2014, 03:20:38 PM »

Canadian and US:  Into non-registered account.  These two are the most tax friendly.

Unregistered, US is no different than 'international'.

You can buy UK stocks and pay no foreign withholding tax, where you'll pay 15% to the US.

Canadian is much preferred unreg over anything else due to the tax credit.

There was some talk about bonds, being so expensive at the moment, actually being better unreg - treated as income, you'll lose some of the 2-3% yield, but actually if stocks grow decently you'll avoid more in capital gains etc.

RichMoose

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #10 on: August 19, 2014, 06:24:32 PM »
Hello!

No, no, this is all wrong.  However you can always adjust later.  I use the TD e-series in all three accounts as well.  I use bonds 40%, and 20% for the rest.

Order of preference:

Bonds:   Always put in RRSP, TFSA (these are taxed highest so should be sheltered).
International:   Put in RRSP, TFSA after bond allocation space is all used up.  If there isn't room in those, put it in a non-registered.
Canadian and US:  Into non-registered account.  These two are the most tax friendly.

**Please note:  I do hold a tiny bit of all 4 investments in each account which I like to use for simple rebalancing.


Please read the following article:

http://www.moneysense.ca/invest/asset-ocation-everything-in-its-place

Assuming your portfolio holds all the asset classes listed below, place them in your non-registered account using this order of preference. (If your investment plan doesn’t include one of these asset classes, just move to the next one in the list: never choose an investment solely for its tax characteristics.)

Canadian stocks TDB900

U.S. stocks TDB902

International stocks TDB911

Canadian preferred shares

Real estate investment trusts (REITs)

GICs

Bonds (avoid if possible)  TDB909


What's all wrong?

U.S. stocks are tax advantaged if held in an RRSP because you avoid US withholding tax. However, you have to be careful as this generally only applies to directly holding U.S. listed ETF's or U.S. listed stocks. You still pay (indirectly) withholding taxes if you hold TDB902 or TDB904 in your RRSP because you are then holding a Canadian mutual fund that holds U.S. stocks, you are not directly holding U.S. listed stocks.

RRSP's and TFSA's are the best places to hold all investments because both dividends and capital gains benefit from tax exemption or tax deferral.

Canadian stocks that pay dividends "should" be the only stocks you hold outside of a tax-sheltered account because you benefit from the dividend tax credits. You still pay full taxes on capital gains.

Kaspian

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #11 on: August 20, 2014, 11:33:54 AM »
I dunno... I'm also following Canadian Couch Potato's allocation model.  (Historically, we should consider the current bond thing as a bit of a blip on the radar.)

http://canadiancouchpotato.com/2010/03/05/put-your-assets-in-their-place/

And yes--things should really only go in the non-registered account after all RRSP/TFSA room is used up.

However, Dan puts out some very good points regarding why US in TFSA isn't great:

international withholding tax applies equally to Canadian-domiciled funds held in RRSPs or TFSAs. But with VEA, there are two levels of withholding tax: one US and one international. You are exempt from the US portion if you hold VEA in an RRSP. You pay both levels of tax if you hold it in a TFSA.

Therefore, if you have no more room in your RRSP, you should hold the US portion in your taxable account (only if you have no room let in your RRSP) so you can use the space in your TFSA for other things.

And:

foreign equities with the highest dividends are best held in an RRSP. Global REITs are particularly tax-inefficient outside an RRSP. Canadian equities and foreign equities with lower yields can be held in the non-registered account. The bonds, of course, should be tax-sheltered.

Getting there!

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #12 on: August 27, 2014, 10:58:42 PM »
I too am appreciating and benefiting from all the comments as I am in the process of setting up the  TD accounts to purchase e-series funds for RRSP, TFSA and non-registered.  I also have a Registered Disability Savings Plan (like a TFSA), that I only have until next year to max out.  I have a Reader's Case Study posted, but I have had no replies as of yet.

Kaspian

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #13 on: August 28, 2014, 11:24:35 AM »
... the  TD accounts to purchase e-series funds for RRSP, TFSA and non-registered.

This is exactly what I have set up.  The three main accounts.  I rebalance within the TFSA to save the grief  of paying (dealing with) capital gains/losses.

Sorry, I don't know anything about disability payments or condo sales.  But anyway, regarding the accounts--as Dan
Bortolotti often says in "Canadian Couch Potato", don't overly fret about taxes and account allocations and all that stuff trying to get it 100% perfect, just get the darn thing up and running.  Shelters come second to the actual investing.  You can always tweak things later.  Analyzing the hell out of things to the point of paralysis doesn't do anybody any good.  It took me a couple of years to get things aligned into the proper accounts, but the gains I made during that time were fantastic.  If I had've sat on the fence until things were perfect, I really would have missed out.

Stasher

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #14 on: September 01, 2014, 06:11:46 PM »
How old are you?, Why so heavy on the bonds?
Max that RRSP out until you have used up your carry forward amounts. Why use up the TFSA while you can get the tax return from CRA. I have my TFSA maxed but that's my emergency fund allocation, this would be the reason to deposit in there. As for CND Couch Potato, I did the bond and international but dumped them both. The bonds were making as much as a savings account and there is so much international ownership in the US and CND markets no sense to me to double up. The only thing I added to the mix was Dan Bartolli's reccomendation of a REIT and that is working out well with a nice dividend every month also.
This is just a random guys thoughts but may help you in some way or another, good luck.

Heckler

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #15 on: November 16, 2014, 10:03:02 PM »
How old are you?, Why so heavy on the bonds?
 I have my TFSA maxed but that's my emergency fund allocation, this would be the reason to deposit in there.

I'm in a similar boat as the OP and would love some advise on my TFSA, which I treat as our emergency fund (2 DINKS in Vancouver).

Currently we have a ~$20K TFSA in BMO Selectrust 2.22% MER fund for the past 11 months.  Annual return is looking like it will be ~6%, and it has 28% Eq/ 53% Bonds/ 18% cash.  Only the high MER is bugging me, as I just got started on my Vanguardization of my RRSPs.  I discovered MMM this year and already have my first $23K in VCN and VUN RRSP account - happily transferred from a 2.7% MER Invesco fund.


Since it's our "emergency" fund and possibly a near term "pay for our first Europe trip in 41 years" fund, I'm starting to wonder if I should have our TFSA in safer, lower cost options such as VAB or VSB.   Thoughts?

RichMoose

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #16 on: November 16, 2014, 10:42:28 PM »
VAB is a great choice for a short-term investment. You can't go wrong dumping a fund with a 2.2% MER.

drewdeezee

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #17 on: November 17, 2014, 06:54:53 AM »
This is exactly what I have set up.  The three main accounts.  I rebalance within the TFSA to save the grief  of paying (dealing with) capital gains/losses.

Sorry, I don't know anything about disability payments or condo sales.  But anyway, regarding the accounts--as Dan
Bortolotti often says in "Canadian Couch Potato", don't overly fret about taxes and account allocations and all that stuff trying to get it 100% perfect, just get the darn thing up and running.  Shelters come second to the actual investing.  You can always tweak things later.  Analyzing the hell out of things to the point of paralysis doesn't do anybody any good.  It took me a couple of years to get things aligned into the proper accounts, but the gains I made during that time were fantastic.  If I had've sat on the fence until things were perfect, I really would have missed out.

Great point about "paralysis by analysis" Kaspian and thank you TuxedoEagle for clarifying that only US-listed stocks/ETFs within RRSPs are exempt from the IRS 15% withholding tax.

What do you all think of this plan?

Open a Questrade RRSP to accumulate VUN (Vanguard Total US Stock Market CAD$ ETF).

Once VUN balance is CAD $50k or greater, use Norbert's Gambit which is to sell VUN, buy DLR.TO, have Questrade journal the DLR.TO into DLR.U.TO, sell DLR.U.TO, buy VTI (Vanguard Total US Stock Market USD$ ETF)

Then accumulate VUN again and repeat the steps above once it's sizable enough to do Norbert's Gambit.

VTI within an RRSP is exempt from the IRS 15% withholding taxes for dividends, correct?

My TFSA and unregistered account would hold Canadian ETFs such as VCN and VAB.

RichMoose

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Re: Cannuck needs Help With TFSA/RRSP/LIRA E-Series Fund Placement
« Reply #18 on: November 17, 2014, 10:01:40 PM »
Quote
Great point about "paralysis by analysis" Kaspian and thank you TuxedoEagle for clarifying that only US-listed stocks/ETFs within RRSPs are exempt from the IRS 15% withholding tax.

What do you all think of this plan?

Open a Questrade RRSP to accumulate VUN (Vanguard Total US Stock Market CAD$ ETF).

Once VUN balance is CAD $50k or greater, use Norbert's Gambit which is to sell VUN, buy DLR.TO, have Questrade journal the DLR.TO into DLR.U.TO, sell DLR.U.TO, buy VTI (Vanguard Total US Stock Market USD$ ETF)

Then accumulate VUN again and repeat the steps above once it's sizable enough to do Norbert's Gambit.

VTI within an RRSP is exempt from the IRS 15% withholding taxes for dividends, correct?

My TFSA and unregistered account would hold Canadian ETFs such as VCN and VAB.

You're bang on, using the DLR trick is probably the best way to convert CAD to USD. And yes, VTI will be exempt from withholding taxes within your RRSP. Don't forget that from a tax perspective your highest growth potential should be invested in your TFSA.