# Difference between a non-registered TD e-series account vs an RRSP e-series account?



## globe3 (May 15, 2011)

Hi all,

I recently started learning about RRSP accounts and the tax benefits associated with them. 

One question I have is concerning TD e-Series accounts (or any mutual fund). My plan is just to contribute regular payments into the e-series funds without cashing the funds in over a long period of time (i.e. many years). 

What's the main difference between investing e-Series funds into an RRSP account versus in a non-registered account? I understand that the main benefits of RRSP's is the tax deduction, but also tax-deferred growth (i.e. capital gains are tax-deferred). However, since I don't plan on cashing any of my e-series funds out any time soon, what tax-deferred growth benefit will I have of putting my e-series funds into an RRSP account versus into a non-registered account, since I won't be incurring capital gains anyways? The only benefit I can really see is the tax-deduction from my RRSP contributions. 

Can someone help clarify this for me? Thanks!


----------



## Xoron (Jun 22, 2010)

globe3 said:


> Hi all,
> What's the main difference between investing e-Series funds into an RRSP account versus in a non-registered account?
> Can someone help clarify this for me? Thanks!


A couple of things:
1. In non registered account, any dividends will be taxed yearly (you should get a T slip from TD with the amounts)

2. You'll have to track your investment purchases for a long time. It might be difficult to determine you ACB (adjusted cost base) when it comes time to sell. That could be a nightmare when purchasing additional units over a long period of time. It's even worse if you have your dividends put back into more units of the mutual fund.

3. The tax implications when you sell the mutual funds / withdraw the money from the RRSP is important. Things to consider are: What will your other income be when you start redeeming your funds? Will you still be working? Will you have other sources of income? All of these things will help determine if its more tax advantaged to withdraw funds from an RRSP or sell Mutual Funds in a Cash account.

Why not use a TFSA account? Sounds like a good fit (assuming the 5k/year rule isn't too low for what you're looking to invest). No keeping track of your buys / sells. Dividends etc... are all tax free. No penalty in withdrawing the funds from your TFSA account (unlike withdrawing funds from your RRSP)


----------



## Kaitlyn (May 13, 2011)

Xoron said:


> It's even worse if you have your dividends put back into more units of the mutual fund.


Isn't that same as just BUYing more units? Except that it happens on the dividend's schedule, not yours...

Or am I missing something?


----------



## globe3 (May 15, 2011)

Thanks Xoron.

I've already maxed out my TFSA, and will likely continue maxing it out going forward into my discount brokerage account.

To answer your question - let's say for example that I decide to cash out my RRSP (or sell my mutual funds in a cash account) in a year when I'm not working, so with minimal income (say I'm going back to school for that year).

If it's an RRSP, upon withdrawal, all of my contributions and capital appreciation will be taxed as regular income - i.e. at my marginal tax rate (which will be very low).

If it's in a non-registered mutual fund account, selling my funds will result in capital gains, which is 50% taxed. Of course, I will be taxed on dividends as well as they're paid out but that will not be a huge amount I'm assuming.

So wouldn't it make more sense to cash out from a non-registered account versus an RRSP? And wouldn't this be the case at any other income level as well? Will the deductions I receive in RRSP contributions really offset my earnings that much?


----------



## Xoron (Jun 22, 2010)

Kaitlyn said:


> Isn't that same as just BUYing more units? Except that it happens on the dividend's schedule, not yours...
> 
> Or am I missing something?


No, your not missing anything. But if you have a mutual fund with monthly dividend payments (say a bond fund) then that would be 12 transactions a year, plus other purchases, time X years. That could be hundreds of purchases to track. 

If you just have the dividends paid out in cash, you could just roll the dividend purchases into your quarterly / yearly re balancing of the fund(s). Of course this takes some discipline whereas the DRIP is automatic. 

Advantages and disadvantages with either option.


----------



## Xoron (Jun 22, 2010)

globe3 said:


> Thanks Xoron.
> 
> To answer your question - let's say for example that I decide to cash out my RRSP (or sell my mutual funds in a cash account) in a year when I'm not working, so with minimal income (say I'm going back to school for that year).
> 
> ...


I'm no tax expert, but I'm unsure whether you can recontribute RRSP withdrawls like you can with a TFSA. Something to find out before you decide to go the RRSP route then withdraw the funds. What are you planning on using the funds for? Home purchase? School? Take a year off of work and travel?

If you're really planning on going back to school, then why not setup an RESP for yourself? Again, I'm no expert, but I think adults can setup an RESP for themselves, just the time to collapse the RESP is shorter than with young children. Something to think about


----------

