# RRSP or Investing Via TD E- Series + RRSP Contribution Limit Question HELP



## Westerncanada (Nov 11, 2013)

Hello Everyone.. 

I apologize if this has been covered here before, but I have two semi-related questions that i'm hoping you can help with: 

RRSP's : 
To date, i've contributed virtually nothing to RRSP's (Currently 30 now, shame on me). The way I read the CRA's website is essentially if I have never used my limits from 1991-2012 they would roll over. 

That said.. assuming my Max Contribution Limit was $20,000K a year (an estimation) would I be able to buy as follow's this year: 

Purchase $60,000K of RRSP's in Feb 2014.. thereby lowering my taxable income from $105,000 to $45,000 and also triggered a very large tax return (as i've paid tax on $105,000 income all year). 

If this is the case, i'd like to put 100% of my Bonus, and a large chunk of my savings into RRSPs to trigger the tax savings by lowering my income accordingly. 


If anyone would clarify i would greatly appreciate it. 


My Second part of this question is as follows: In addition to this large RRSP contribution, by my calculation I should have (18yr Old to 30yr old) $240,000 of RRSP Contribution Limit (assuming an average of $20K per year in Contribution Limits since the age of 18 until now....

That said, I also have about $1000 a month extra i'd like to invest and if this is the case above clearly it makes the most sense for me to catch up on my RRSP contributions.. if not, I'd like to continue to Invest in TD E-Series investments in addition to my company stock plan, pension Plan etc. 

Any thoughts and comments would be greatly appreciated!

Thank You in advance, 

WC


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## wendi1 (Oct 2, 2013)

When they sent you your income tax refund cheque last year (I think it's called your Notice of Assessment), your RRSP contribution limit for this year was spelled out for you. If you don't have that form, you can call CRA and find out (or get it on-line, but that is more complex process - worth doing, but not quick). 

For me, the important thing with large RSP contribution is not to reduce your marginal tax rate too much. Since you will still have $45K of income, this looks okay to me. Remember you will have to pay tax on this when you take it out, so you don't want to reduce your marginal tax rate to say, zero.

How is your TFSA? You could squirrel away some money in there - and your marginal tax rate is not an issue because it is funded with after-tax dollars.

Your RSP contribution limit may be less than you think because of your pension. Get the scoop from CRA before you start incurring penalties.


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## Spudd (Oct 11, 2011)

Westerncanada said:


> That said, I also have about $1000 a month extra i'd like to invest and if this is the case above clearly it makes the most sense for me to catch up on my RRSP contributions.. if not, I'd like to continue to Invest in TD E-Series investments in addition to my company stock plan, pension Plan etc.


This is confusing to me, do you think that e-series is only possible outside an RRSP? Because you can certainly invest in e-series inside an RRSP too (as long as that RRSP is at TD). It's not either/or.


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## Westerncanada (Nov 11, 2013)

Hi Wendi.. and thank you for your advice! 

MY TFSA Is close to it's limit and will be at the max next year.. 

I will definitely look into the limit but I guess If I still had a large window of space my taxable return (ie the ROI) would be greater by funding my RRSP every year to the maximum of my ability vs continueing to invest in TD E-Series?


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## Westerncanada (Nov 11, 2013)

Spudd said:


> This is confusing to me, do you think that e-series is only possible outside an RRSP? Because you can certainly invest in e-series inside an RRSP too (as long as that RRSP is at TD). It's not either/or.




My apologies for the confusion.. as I understand it now, I could create a TD Mutual Fund RSP account and purchase E-Series with that account.. but I guess the portion on this im not clear on, is can I place $60,000 into this account, purchase E-Series as an example thereby lowering my income for the year 2013 by $60K (using my Contribution Space from years prior)? 

Based on my quick calculation, doing so would give me an approximate $18K Tax Return for 2013..


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## wendi1 (Oct 2, 2013)

You can open an RSP account at TD (but be careful here - make sure they know you want to buy e-series MFs). There have been some reports of bank tellers "not aware" of e-series, and putting people into a kind of RSP that does not permit their purchase.

You deposit the 60K before the end of February, and when the cheque has cleared, buy the e-series within the account.

You declare the 60K RSP contribution on your income tax, get back a big cheque, which you use to top up your TFSA and open an unregistered investment account (and have a nice bottle of wine to celebrate).


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## Eclectic12 (Oct 20, 2010)

Westerncanada said:


> ... RRSP's :
> To date, i've contributed virtually nothing to RRSP's (Currently 30 now, shame on me). The way I read the CRA's website is essentially if I have never used my limits from 1991-2012 they would roll over.
> 
> That said.. assuming my Max Contribution Limit was $20,000K a year (an estimation) would I be able to buy as follow's this year ...


I'm concerned that you might not understand RRSPs by the way your are talking about the RRSP contribution limit.
The TFSA grants contribution room to those that qualify on a yearly basis. 

The RRSP grants contribution room based on past year income, which is then added to already earned but unused RRSP contribution room. The formula is "earned income" times 18% to a maximum - pension adjustment (for 2012, the cap was $22,970).
http://www.retirementadvisor.ca/retadv/apps/articles/primer6.jsp?learningMenu=primer

So your estimate might be $20K but if you have a pension, this yearly RRSP room will be reduced by the pension adjustment. 

Then too, if the pension is a defined contribution plan then the PA will be dollar for doller (i.e. $1 employee contribution + $1 employer contribution = $2 PA reducing the RRSP room earned). If it is a defined benefit plan, then the PA will be much larger (ex. $1 employee contribution + $2 employer = $6 PA).

So unless you have a fair amount of info easily available to you, as others have indicated - the best place to start is last year's notice of assessment, which will include information about the update to the RRSP contribution room based on the tax return files (see section 8 of the sample in the link).
http://freeat33.com/what-is-a-notice-of-assessment-or-notice-of-re-assessment/

Note that I've had CRA make mistakes that took away RRSP contribution room so I'd recommending checking the totals.


To illustrate why I'm concerned about your RRSP room estimates, consider that you are estimating $20K a year RRSP room yet you say:



Westerncanada said:


> ... thereby lowering my taxable income from $105,000 ...


If we assume the taxable income = earned income (I forget the differences at the moment) - the RRSP contribution room earned on $105K -= .18 x $105K = $18,900 before considering:

a) reductions due to the pension adjustment.

or 

b) have you been making $105k since 1991?

Both factors suggest your estimates could be high.

Then too, you say:


Westerncanada said:


> ... assuming an average of $20K per year in Contribution Limits since the age of 18 until now ...


My hats off to you if you've been making $111K since you were 18, with no PA to reduce the earned RRSP contribution room but somehow I doubt it.

It's rather moot anyway as according to this link, in the early 2000's, the cap for maximum RRSP contribution room earned was only $13,500 - well under the $20K you are assuming.

http://blog.taxresource.ca/annual-rrsp-contribution-limits/ 


Note that if you over-contribute by over $2K, the penalty is 1% per month until you do something about it.
http://business.financialpost.com/2012/01/11/did-you-over-contribute/




Westerncanada said:


> ... If this is the case, i'd like to put 100% of my Bonus, and a large chunk of my savings into RRSPs to trigger the tax savings by lowering my income accordingly.
> 
> If anyone would clarify i would greatly appreciate it ...


In theory, this is fine if you have the available RRSP contribution room.
Hopefully it is clear why I'm thinking that when you check your 2012 NOA - there is likely a lot less available to you than your estimate.




Westerncanada said:


> ... That said, I also have about $1000 a month extra i'd like to invest and if this is the case above clearly it makes the most sense for me to catch up on my RRSP contributions.. if not, I'd like to continue to Invest in TD E-Series investments in addition to my company stock plan, pension Plan etc ...


Like the TFSA, RRSP accounts are a container - if the one you setup allows TD eSeries investments, you can invest in these in your RRSP. You may not have to make a choice between the two.


Cheers


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## Westerncanada (Nov 11, 2013)

I really appreciate the detailed responses.. definitely provided a lot more clarity for me to do some more digging on this! 

Lol.. When I was 18 I prob made about 22K per year! 

I'll round back with the CRA and make sure i've done my homework.. thanks again!


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## Eclectic12 (Oct 20, 2010)

Note that I was focused on the $60K coming from the last few years ... the $60K since 18 is certainly possible.


Cheers


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## Eclectic12 (Oct 20, 2010)

Westerncanada said:


> I really appreciate the detailed responses.. definitely provided a lot more clarity for me to do some more digging on this!


 ... no problem.



Westerncanada said:


> Lol.. When I was 18 I prob made about 22K per year!


At $22K a year - then 0.18 x $22K = $3960 RRSP contribution room earned, assuming no pension adjustment to reduce this.


Note that some posters around CMF prefer to spread out their RRSP deductions so that most of the tax refund is at the higher tax rates.


Also note that as long as you have the RRSP contribution room, you can contribute this year and split the deduction across two tax years (i.e. use half against the 2013 tax return and the other half against the 2014 tax return). 

This lets the contribution grow tax deferred for longer - only the timing of the refund is changing.


Finally - bear in mind that the RRSP is tax deferred not tax free. The aim is to hopefully be in a equal or lower tax level when withdrawing. The refund is coming from having already paid a higher tax level when the RRSP contribution removes the contribution amount from your income.

When retired, you will have to withdraw and it will be income again.

Some forget that unlike the TFSA, the RRSP is deferring income into the future and then comment it's not fair to be paying tax in the future.


Cheers


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## GoldStone (Mar 6, 2011)

Westerncanada said:


> That said.. assuming my Max Contribution Limit was $20,000K a year (an estimation) would I be able to buy as follow's this year:
> 
> Purchase $60,000K of RRSP's in Feb 2014.. thereby lowering my taxable income from $105,000 to $45,000 and also triggered a very large tax return (as i've paid tax on $105,000 income all year).


Two points.

1. You can contribute 60K in one shot, but you don't have to deduct the entire 60K in one year. It may be to your advantage to deduct a smaller amount that brings your taxable income to the bottom boundary of your current tax bracket. You can defer the rest into the future. Next year, do the same trick again. Deduct just enough to drop to the bottom of your current tax bracket. The goal is to maximize the refund percentage that you get for each contributed dollar.

Here's a previous thread where we discussed this strategy:
http://canadianmoneyforum.com/showt...ribution-room-How-much-should-I-use-this-year

2. With 60K to contribute, you can open a self-directed RRSP brokerage account at TD Direct Investing (previously known as TD Waterhouse). The brokerage RRSP account will give you more flexibility in the future, compared to a mutual funds only account at TD Bank. You can buy e-funds in the brokerage account without fees.

http://www.tdwaterhouse.ca/products...ting/accounts/self-directed-rsp-rif/index.jsp


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## MrMatt (Dec 21, 2011)

wendi1 said:


> You can open an RSP account at TD (but be careful here - make sure they know you want to buy e-series MFs). There have been some reports of bank tellers "not aware" of e-series, and putting people into a kind of RSP that does not permit their purchase.


e-series funds are only available for e-series fund accounts or through TD waterhouse.

The branch staff can't access e-series because they are supposed to be electronic only, that's why they're much cheaper than normal mutual funds.

You have to open it "electronically", ie print out the form and mail it in, then access it through online and telebanking.


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## Guban (Jul 5, 2011)

I am not sure if this applies to the OP, but If you plan on deferring your RRSP deduction, make sure that your TFSA is maxed out. You can always take money out of your TFSA after it has grown a bit tax free and put it in your RRSP when you will use the full deduction.

For example, instead of putting in $60k and deducting $40k (deferring the remaining $20k), it is probably better to contribute $40k and take the full deduction while putting $20k in your TFSA. In the next year, you can always pull out the $20k plus growth and make a larger RRSP contribution.


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## Eclectic12 (Oct 20, 2010)

Guban said:


> I am not sure if this applies to the OP, but If you plan on deferring your RRSP deduction, make sure that your TFSA is maxed out ...


While it's a good point ... post # 4 by the OP says:



> ... MY TFSA Is close to it's limit and will be at the max next year..


So it would appear that the TFSA is the first priority and is a factor in why the OP has not used any RRSP contribution room yet.


Cheers


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