Author Topic: Where to put stuff (TFSA and RRSP)  (Read 2660 times)

human

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Where to put stuff (TFSA and RRSP)
« on: May 25, 2015, 05:46:40 PM »
I finally opened a BMO investorline account and split 11k between VUN and VCN in an RRSP for 2014 at the last minute to get some taxes back.

I've read a bunch at ccp, bogleheads and here. I'd like to go with an easy CCP type plan but not the big focus on CDN stocks some seem to have.

My plan is VUN, VDU, VCN and VAB with more of a focus on VDU and VUN (30-40% each). Maybe add VEE later down the road.

Even though I've read a bunch I'm still confused about which etf should go in which account. I'm looking for some comments/help.

Here are my details:

37 working for the gov;
90k salary (2015 first year at this salary) to hit 100k in 3-4 years;
Pension adjustment was 10k last year when I made 75k but because I haven't invested anything before 2014 my RRSP room right now is 40k;
Not sure what pension adjustment will be this year but I think once I fill in the 40k I won't be able to put more than 3k a year in an RRSP.
Nothing in a TFSA;
No mortgage (rent), no debts, no kids, no other savings;
At 55 eligible for a lifetime pension of just under 51K or thereabouts and a bridge benefit of 10k until 65.
No real goals with this money, If I could have over a million in investments when I retire I'd be happy though so I suppose that's a goal.

I plan on working until 55 (not very mustachian I know).

I plan on investing about 20-25k in 2015 and hopefully keep that up until i retire.

Questions:

From what I understand I can put 5,500 in a TFSA this year but can also go all the way back to 2006 to invest in a TFSA. To do this, do I ask BMO to set up different accounts? How do I separate this? Should I just call BMO and ask them?

My next investments will most likely be 10k each in VDU and VUN, should this be in a TFSA or RRSP? Most likely won't invest in bonds until next year.

In general should equities be in the TFSA or RRSP or does it matter at all (this is where I get confused, I've read some on this topic and seem to get to a good understanding on the subject until someone chimes in on a thread and says " . . . well it depends on your circumstance" so here I am I suppose)?

From what I understand stocks in TFSA and or RRSP and Bonds in taxable accounts. Is this correct?

For me right now when I have all this room in RRSP and TFSA should I just put everything (bonds and equities) into TFSA and RRSPs until I max out? Or should I keep as much room as I can for equities as I go for the next couple of years? That is to say always keep bonds in taxable accounts?

Lost of questions I know any help is appreciated . . .

Edit: should probably add that in retirement I do not plan on spending more than my actual yearly pension every year, most likely less. I have no idea what this means for RRSPs . . .

« Last Edit: May 25, 2015, 06:05:14 PM by human »

The Fake Cheap

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Re: Where to put stuff (TFSA and RRSP)
« Reply #1 on: May 25, 2015, 06:15:54 PM »

I'll answer one of your questions about the past TFSA room.  Remember it is a contribution amount, and it is up to YOU to keep track of it.  The bank has no idea how much TFSA (or RRSP) room you have.  You can put it in all one TFSA account, or open up a few different accounts, but be aware of fees.

As to if you should invest in RRSP vs TFSA go RRSP if your tax rate will be lower in retirement than wile you are working.  This is the case for most people, and if it works out to be nearly the same or higher, then that is a good problem to have.  Note this future potential "problem" could be easily avoided by keeping an eye on your investments and retiring a few years earlier.  If the idea off paying taxes on your RRSP on top of your pension frightens you in the slightest, then go for the TFSA.

I really don't like giving detailed investment advice, and I'm not a professional, but why bonds?  It appears you have at least 18 years to invest, so there is a very high chance equities will out perform bonds over that period.  Also in general and for tax purposes, you want interest paying investments (bonds) inside your TFSA/RRSP, as interest is fully taxable ie. if you earn $500 of interest, you are taxed on that $500, whereas in general, capital gains and dividends (stocks and mutual funds) have different taxation rules so you don't pay on the full amount of gains or dividends earned.  There is probably an argument out there that due to the higher compounding of returns in stocks/mutual funds in a tax free environment, then these should be held in your RRSP/TFSA accounts. 

I'm sure others will chime in on this. 

plainjane

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Re: Where to put stuff (TFSA and RRSP)
« Reply #2 on: May 25, 2015, 06:22:56 PM »
You do not need a separate account for each year you are catching up your tfsa, you can just put it all into the same account.  The first few years was $5000 space, so it isn't just multiplying 5500 for each year since it started.

There are a lot of disagreements on where to put taxable investments.  Some people would say to have Canadian equities because dividends are taxed less than income, while bonds would be taxed at the same level as your marginal income tax (probably ~43% for you).  Others say that you should keep the equities in TFSA because all growth is tax free, not just tax deferred like in an rrsp.  Tax now vs tax later.

IMO you should probably fill your TFSA first, then RRSP because you'll have so much pension income once you do retire (you'll still be at a lower tax rate, so rrsp would still make sense).

human

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Re: Where to put stuff (TFSA and RRSP)
« Reply #3 on: May 25, 2015, 06:30:13 PM »
Thanks fake cheap and plain jane. I don't think I'll invest bonds for another year or so. I'm actually thinking of waiting until I hit 100k in investments and then getting 10% or 10k in bonds. So I suppose right now the question is moot, all equities right now and they should all just go in the TFSA and RRSP. In the future I would put bonds in the TFSA.

Thanks for the TFSA clarification. I'll have to calculate what my total room is there but I can see myself maxing out the 10k every year (if the max contribution stays that high).

Any other comments welcome.

PharmaStache

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Re: Where to put stuff (TFSA and RRSP)
« Reply #4 on: May 25, 2015, 06:57:24 PM »
A few things:
-TFSAs started in 2009, not 2006.  Go log into your CRA account- your TFSA limit, past contributions and withdrawals are there.  I'm not sure if it's been updated to change 2015's limit from 5.5k to 10k though- you'll have to double check.
-definitely fill up your TFSA before working on your RRSP since you have a pension.  You have a few years to fill those up before you need to worry about non-registered accounts. 
-I am putting bonds in my RRSP as I also have a pension and am going on the theory of "bonds go in my RRSP because I don't want my RRSP to get too big".  They're terribly tax inefficient, so they shouldn't go in non-registered (according to CCP).

human

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Re: Where to put stuff (TFSA and RRSP)
« Reply #5 on: May 25, 2015, 07:07:55 PM »
Thanks pharma stache for even more info. I'm not sure where I read that bonds should go in registered accounts but here's one guy's take: http://www.moneygeek.ca/weblog/2014/08/07/should-you-always-hold-bonds-inside-your-tfsa-or-rrsp/


RichMoose

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Re: Where to put stuff (TFSA and RRSP)
« Reply #6 on: May 25, 2015, 08:06:34 PM »
You might be one of the people that would be best off just avoiding RRSPs because you are planning to work until you collect a full pension and your spending needs are not that high.

In your situation it would be best to fill your TFSA first and then just invest in a taxable (sometimes called "cash") investment account. Another big boost would be owning a house and making sure your mortgage is completely paid off before retirement as this would help significantly reduce your after-tax expenses.

If you haven't made any contributions to a TFSA and you were at least 18 years old in 2009, your total contribution room is now $41,000. You can invest this all in one account. I would register for account access with the CRA so you can find out all your information including tax returns etc. It takes about 5 minutes, your last Notice of Assessment, and then about a week to wait for the secure code to come in the mail.

You can invest in bonds if you like, but think of your pension as a bond. It is 99% guaranteed and pays out monthly just like a good bond.

If you invest in just a TFSA and taxable account, I would place the US stocks in your taxable so you can claim back the withholding tax on dividends on your tax return. The TFSA is a good spot for VDU and VEE because most of these countries don't have tax agreements on investments with Canada anyways. TFSA is also a good spot to hold REITs if that's something you're interested in.

If you invest with US stocks in taxable, you may need to open 2 taxable investment accounts: 1 that uses CAD and 1 that uses USD. Use the CAD account for purchase of Canadian index and the USD to purchase US index that is traded on the US exchange such as VTI.

human

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Re: Where to put stuff (TFSA and RRSP)
« Reply #7 on: May 25, 2015, 08:23:53 PM »
Thanks Tuxedo, that's good info regarding withholding taxes. I don't plan on using USD to invest, just VUN . . .

RichMoose

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Re: Where to put stuff (TFSA and RRSP)
« Reply #8 on: May 25, 2015, 08:44:56 PM »
Thanks Tuxedo, that's good info regarding withholding taxes. I don't plan on using USD to invest, just VUN . . .

That is definitely the easiest way to go. Just remember you can't claim back the withholding taxes on dividends unless its in USD. It means that you annual loss on VUN, which pays about a 2% dividend, will be just under 0.3%. Not a big deal if your US allocation is not worth that much. Starts to matter more when it gets to a couple hundred thousand bucks.

human

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Re: Where to put stuff (TFSA and RRSP)
« Reply #9 on: May 25, 2015, 08:55:19 PM »
Ah I see! I'm glad I posted here. Lots of info all over the place was getting tob a bit much.