# How to rebalance across multiple RRSP and TFSAs/etc?



## Chris Boar (Mar 25, 2011)

So my wife and I are investing the proceeds from a recent house sale into a 'Couch Potato' type portfolio for our retirement. So we will both have a RRSP, TFSA, and a non-registered account. RSP/TFSA's will be maxed out. I'd like to treat all of these accounts as 'one portfolio' with asset allocation in the appropriate account.

But how on earth do we rebalance across these without incurring tax hits? E.g. I can't sell and pull funds of the RSP into the TFSA.

The only way I can think of doing is to not use DRIP, and use the saved dividend payouts once a year to try and rebalance as best we can within each account?


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## gardner (Feb 13, 2014)

Its hard. I have been trying to balance my holdings that are spread across $US and $CAN, in RRSP, TFSA and unregistered, along with a DC pension RRSP that I can't fully control. Throw in tax efficiency constraints and it's a bear to figure out how to balance things. It took me a week to just figure out what I had where-all when I last went to collect the numbers. I made a spreadsheet showing my actual aggregate allocations and then worked out my target allocations and since then I have been chiseling away converging on my target allocations a bit at a time -- mainly by allocating new cash where it is low.

You can't move funds from RSP to TFSA, no. But if you decide you want to swap VUN in your TFSA for XQB in your RSP you can do offsetting transactions via cash in each account. It's a new year with new contribution room, so new cash might help with balancing too.


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## GreatLaker (Mar 23, 2014)

I recently switched all my long term investments to ETFs and creating a tax effective asset allocation that still enables me to rebalance to stay within my target asset allocations is something I spent a lot of time on.

My strategy is to keep equities in non-registered (for dividend tax credits) and TFSA (for tax-free compounding) accounts and put fixed income in my RRSP and LIRA. I keep a little of everything in my RRSP so I can rebalancee if needed without incurring taxable capital gains.

My target asset allocation is 35% FI / 65% Equity (20% Can, 20% US, 15% International developed, 5% Emerging mrkts and 5% REIT). I ended up with the following:

-Non-Registered account: 100% equities, split roughly equally among Canada, US and Int'l
-TFSA: 100% Canadian equity
-LIRA: 100% Fixed Income, roughly 85% of that in GICs, balance in an ETF
-RRSP: this contains all of my emerging Market and REIT ETFs, plus whatever is left of the other asset classes. It ended up about 40% fixed income an 60% equity. The fixed income is 80% GICs and 20% ETFs. I calculated the fixed income ETF/GIC split so that in the event of a major stock market decline I could sell the bond ETFs and buy equities to rebalance.

It's a peripheral issue to this discussion, but all my ETFs are Canadian domiciled. I considered using US ETFs to avoid withholding taxes, but since the dream of the perfect plan the enemy of a good plan, I decided to use Canadian ETFs now and look at switching to US ETFs at some time in the future.

To implement the above allocations I created a spreadsheet with columns for accounts and rows for asset classes. It has 2 tables, one for $ and one for % to enable me to balance assets across accounts to get my desired allocation.

CCP has a multiple account rebalancing spreadsheet here: http://canadiancouchpotato.com/2012/03/15/a-spreadsheet-to-manage-multiple-accounts/
and Moneysense has a simpler one here: http://www.moneysense.ca/invest/portfolio-rebalancing-tool 
With my 4 accounts I find it easier to use the simple version.

I try to keep balanced with new contributions, but if necessary I can rebalance in my RRSP without incurring capital gains taxes. I can see a time in the future I may need to put some fixed income in a non-registered account, but for now my plan seems to be working.


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## Chris Boar (Mar 25, 2011)

Thanks for this guys. Lots to think about.


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## My Own Advisor (Sep 24, 2012)

FWIW,

I also keep CDN equities in non-registered (for dividend tax credits) and TFSA (for tax-free compounding).

I keep all U.S. equities in RRSP.

No 'tax hits' to worry about inside TFSA this way, CDN content, and I'll worry about RRSP when I start taking stuff out of it.

I might eventually put U.S. stocks inside USD $$ TFSA. Sure, 15% withholding tax but then again, I get some tax-free US $$ to travel with every year.


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## Chris Boar (Mar 25, 2011)

My Own Advisor said:


> FWIW,
> 
> I also keep CDN equities in non-registered (for dividend tax credits) and TFSA (for tax-free compounding).
> 
> ...



This is another issue I have to deal with. I'm currently transferring significant funds from frozen UK pensions to my RSP. This will put about 60% of our liquid assets in the RSP. I don't have any choice on this as the funds must be transferred direct between pension providers. So I think I'm going to be forced to buy non-ideal assets into my RSP to maintain the asset allocation balance.

So beyond bonds/reits, what would be the next asset to place in an RSP, US ETF's?


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## RBull (Jan 20, 2013)

Chris Boar said:


> This is another issue I have to deal with. I'm currently transferring significant funds from frozen UK pensions to my RSP. This will put about 60% of our liquid assets in the RSP. I don't have any choice on this as the funds must be transferred direct between pension providers. So I think I'm going to be forced to buy non-ideal assets into my RSP to maintain the asset allocation balance.
> 
> So beyond bonds/reits, what would be the next asset to place in an RSP, US ETF's?


What non ideal assets and liquid assets from a pension are you referring to? An RSP is great for everything aside from needing cash, unless you are ready to make cash withdrawals; as long as your current tax rate is higher than it will be in retirement

We have 6 accounts. I treat them as one account but then I also don't treat them all like one account. What I mean is I maintain an asset allocation balance overall but the different accounts hold different assets primarily for tax reasons. It takes some work to manage especially when we're also making withdrawals but certainly possible.

RSP - FI, international equity, cdn equity/reit if needed (also helps rebalancing if some held here)
Lira- as above but I have only FI here
Non Reg-CDN equity, cash 
TFSA CDN equity/reit


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## My Own Advisor (Sep 24, 2012)

That's what I do Chris, use RRSP for mostly U.S. ETFs and U.S. dividend paying stocks.

Hope that helps?


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## Chris Boar (Mar 25, 2011)

RBull said:


> What non ideal assets and liquid assets from a pension are you referring to? A


Anything that would outside of an RRSP would be taxed at lower rates than income, i.e. Capital Gains and dividends.


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## juniperpansy (Jan 5, 2013)

The easiest way is to have all etfs in all accounts.Eg Lets say you have 5 etfs. You would hold all of these in each account. If you have nonreg, tfa and rrsp that means you would have 15 funds.


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## GreatLaker (Mar 23, 2014)

juniperpansy said:


> The easiest way is to have all etfs in all accounts.Eg Lets say you have 5 etfs. You would hold all of these in each account. If you have nonreg, tfa and rrsp that means you would have 15 funds.


That's a simple way to look at it, but not the most tax efficient. Interest paying investments in non-registered accounts will get charged tax at your marginal rate. Dividends and capital gains on equities in tax-sheltered accounts will eventually be taxed as income instead of at lower capital gains and dividend tax rates. 

If you search on tax-effective investing you will find several resources including these:
http://www.finiki.org/wiki/Tax-efficient_investing
http://www.moneysense.ca/invest/asset-ocation-everything-in-its-place


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## RBull (Jan 20, 2013)

Chris Boar said:


> Anything that would outside of an RRSP would be taxed at lower rates than income, i.e. Capital Gains and dividends.


Since reading this I've seen your other post with all the detailed analysis. I chose the other route mostly since my working income tax rate was far higher than in retirement. YMMV


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## wendi1 (Oct 2, 2013)

This is the hardest one of my investing decisions - I have 3 RSP accounts (mine, a spousal, and my spouse's), 2 TFSAs, 2 investment accounts, and a corporate account that all have to be balanced as one.

I have a fancy spreadsheet, designed by a friend of mine that allows me to run scenarios when rebalancing time comes. But it has worked out that the US, international and bond part of the portfolio are in RRSPs, cash and GICs in the corporate account, dividends and capital gains in the non-reg, and REITs and whatever is left in the TFSAs works best for me.

Since I am in the accumulation phase, usually rebalancing is done without selling (I only had to sell some stuff once).

This is a pain, but it is worth the trouble to avoid paying excess taxes.


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## juniperpansy (Jan 5, 2013)

GreatLaker said:


> That's a simple way to look at it, but not the most tax efficient. Interest paying investments in non-registered accounts will get charged tax at your marginal rate. Dividends and capital gains on equities in tax-sheltered accounts will eventually be taxed as income instead of at lower capital gains and dividend tax rates.


Have you thought through the whole process?

Lets say for argument sake you have have $15k in rrsps (maxed), 40k in tfsa(maxed), and 40k in non-reg, What magic are you going to use to change the limits of your of your registered accounts so they fit your ideal allocation percentages?


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## marina628 (Dec 14, 2010)

For first 25 years my husband and I had only high fee mutual funds in our RSP ,every year we would go into our bank or for 5 years Investors Group and they had us buy the same stuff without even discussing any tax implications.It was not until 2008/2009 that I heard of the self Directed RSP that we moved everything over to TD Waterhouse and I started studying that I feel we actually had a clue and a plan. So 5-6 years later I am still balancing and I know we made some costly mistakes in the early years.My husband's RSP has 25% Canadian dividend stocks ,36.5% mix of tdb900,tdb902 and tdb911 ,10% GIC and remainder in US stocks.My RSP HAS 14.6% US stocks rest are all Canadian Dividend Stocks. The Non Registered are only Canadian Dividend Stocks and Cash/GIC .TFSA probably 50/50 Cad/US Stocks .Basically still a mess lol


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## GreatLaker (Mar 23, 2014)

juniperpansy said:


> Have you thought through the whole process?
> 
> Lets say for argument sake you have have $15k in rrsps (maxed), 40k in tfsa(maxed), and 40k in non-reg, What magic are you going to use to change the limits of your of your registered accounts so they fit your ideal allocation percentages?


You can't change the limits of your registered accounts, but you can develop a tax efficient allocation within those limits. I provided two links above that explain why and how to do it. Here is another link. It is American, but the principles of allocating investments in an efficient way across taxable, tax deferred and tax exempt accounts are the same.
https://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement


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## juniperpansy (Jan 5, 2013)

GreatLaker said:


> you can develop a tax efficient allocation within those limits.


That's true GreatLaker but read the OP again. Maybe I'm stupid, but that does not appear to be what he was asking about all!



Chris Boar said:


> S
> But how on earth do we rebalance across these without incurring tax hits? E.g. I can't sell and pull funds of the RSP into the TFSA.


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## Chris Boar (Mar 25, 2011)

Well according to this article, tax-efficient asset allocation between registered and non-registered is just a myth. The maths demonstrates you don't lose out by putting certain assets in registered accounts. Basically just stuff everything in RRSP's and TFSA's, and non-registered if registered acct's are maxed out.

http://www.michaeljamesonmoney.com/2014/03/debunking-rrsp-myths-with-pictures.html

And yet I can't count the # of articles I've read that espouse the 'tax-efficiencies' of non-registered accounts....is this guy wrong with his maths?


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## Spudd (Oct 11, 2011)

I think that once registered is maxed, then you can start worrying about tax-efficient asset allocation. Until then, maxing registered is normally the best thing you can do.


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## gardner (Feb 13, 2014)

Chris Boar said:


> according to this article, tax-efficient asset allocation between registered and non-registered is just a myth


That article does not address tax-efficiency at all, only the basic mechanics of the taxation of RRSP, TFSA and non-registered.

A discussion of tax-efficiency would have to deal with the effects of American and other foreign withholding taxes, Premium bonds different classes of dividends and probably other arcane topics. The thrust of this article is that you want to fill up your RRSP -- fine. But most folks have more to invest than their RRSP can hold -- so there are decisions about what to hold where, and that is where tax efficiency helps drive the choices.


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## GreatLaker (Mar 23, 2014)

Hi Chris,
This is maddeningly complex isn't it?

The article you referred to by Michael James on Money is good as far as it goes, but *it does not address tax on interest bearing investments at all*. Myth number 1 only considers tax on capital gains. Myth number 2 only considers tax on dividends. Investors with a mix of dividends, capital gains and interest that have maxed out their RSP and TFSA need a different analysis. You indicated that you have a Couch Potato type portfolio, and all good couch spud investors have fixed income investments, so I think other articles like the ones I linked to on Finiki, Moneysense and Bogleheads give a more useful and comprehensive answer.

Bruce


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## Chris Boar (Mar 25, 2011)

GreatLaker said:


> Hi Chris,
> This is maddeningly complex isn't it?
> 
> The article you referred to by Michael James on Money is good as far as it goes, but *it does not address tax on interest bearing investments at all*.
> ...


Well I think from what i understand from that article, the type of growth is irrelevant in terms of the 'tax' you end up paying. As i mentioned in the retirement thread I've got going, the maths appears to demonstrate that the 'tax' you pay on withdrawal is effectively a repayment of the CRA loan (tax refund) you got originally, plus it's own growth. Your own investments when withdrawn from a RRSP are mathematically tax free be it capital gains, interest, or dividends...WHEN YOU TAKE INTO ACCOUNT THE CRA REFUND THAT WAS REINIVESTED.

The only tax issue I can think of that does affect asset allocation is with-holding taxes.

So if I understand RRSP's correctly, the following is the reality :-

1) The CRA tax refunds you get on RRSP contributions are really loans. When you withdraw from an RRSP the 'tax' you pay is really that loan being paid back plus it's own growth.
2) The maths shows that your own RRSP contributions and their growth are allowed to grow tax free and can be withdrawn tax free. This is the fallacy of talking about 'tax deferred growth' that confused people. It's not tax deferred, you don't pay any tax on your own contributions or their growth.
3) If your contribution and withdrawal tax rates are the same then the RRSP benefits are the same as a TFSA.
4) Additionally you can also get a bonus if your withdrawal tax rates are lower than contribution, and alternatively you take a hit if withdrawal tax rates are higher than contribution.
5) The one assert allocation you do need to be aware of is with holding tax, so place US assets in RRSP's rather than TFSA's. 

Are those points above incorrect?


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## gardner (Feb 13, 2014)

Chris Boar said:


> Are those points above incorrect?


Not substantially, no. But I think you are missing a critical point.

Let's say you want to save 50K. 25K into the RRSP with all the good things you mention apply. 6K into the TFSA. Now I have 19K that will be unregistered.

Asset allocation and tax efficiency will affect how I handle ALL of my 50K, not just the bit in the RRSP. Just because I am fully utilizing my RRSP doesn't automatically guaranty that my overall portfolio is maximally tax-efficient. In general, your investments will not all FIT in allowed registered contribution room, so some MUST be unregistered and taxable. And at this point you want to plan what is taxed where, how.

Holding premium bonds unregistered, canadian dividend payers in RRSP and US dividend payers in TFSA would be a rotten mix for tax-efficiency, even if RRSP and TFSAs are maxed-out, since you would be paying more tax than you have to.


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## Chris Boar (Mar 25, 2011)

gardner said:


> Not substantially, no. But I think you are missing a critical point.
> 
> Let's say you want to save 50K. 25K into the RRSP with all the good things you mention apply. 6K into the TFSA. Now I have 19K that will be unregistered.
> 
> ...


Yes I agree you still need to be aware of issues like withholding tax on US stocks, but as I mentioned on my retirement thread, the standard advice seems to be to hold Canadian dividend stocks outside of an RRSP even if it's not maxed out as you would lose the benefit of the lower dividend tax rate. This appears to be a complete myth not supported by the maths.


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