# Sell or wait til 2015?



## Siwash (Sep 1, 2013)

Some of you may be familiar with my predicament as I posted it in the taxation forum. We bought a house with a closing in March, and I need to sell off my index funds (TD e-series) in order to help with the downpayment (so as to avoid the CMHC hit). 

I'm concerned that my funds are going to keep dropping for the remainder of 2014. I don't have a large amount (initial investment of $15000 last year and it's sitting at $15500 this morning after dropping from $16200). If I sell all now, then I will get a tax hit in the spring, which I'd obviously like to avoid. But if I wait another 3 weeks, I'm worried that the funds are going to drop further. Maybe even collapse? Who knows? But it's all pointing to a bleak picture. Would you sell now and take the tax hit in the spring (perhaps a few thousand added to my tax bill?) or wait and take a chance. Doesn't trading slow from this point on? Perhaps the slide will abate? 

What would you do? Thanks in advance.


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## Soon Forget (Mar 25, 2014)

So your capital gain is $500 ? This would only add about $60-$100 to your tax bill if you sold it all since only the gain is taxed, at half your marginal rate.

It's impossible to know what the value will be if you hang on to it for a while longer, but if you need the money that soon i would definitely be moving it all into a HISA until needed.


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## Soon Forget (Mar 25, 2014)

Just looked up your initial posting in the other section, and I see now that this money is coming out of your RRSP. I think the advice you got there is the best - sell the e-series funds and move them into a HISA without removing them from the RRSP. This is just to protect the capital since you need it so soon. Sure, it may go up between now and March if you hang on, but it could just as easily go down and that would bother you more since you're currently in a gain position.

For how to remove it from the RRSP most efficiently, you'd have to look at your tax bracket for this year and next. Probably removing some in 2014 and most in 2015 would play to your advantage to delay most of the taxes until when you file for 2015.


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## My Own Advisor (Sep 24, 2012)

That's a very small cap hit on $15,000 or $15,500. Just keep that in perspective. 

FWIW, when my wife and I bought our house, our entire down payment was in cash. This way I didn't worry about what the market did or didn't do in the short-term. Slept much better. 

Since then, I've learned anything I need to spend, small home renos, intend to buy, travel, etc. within a year or so I keep in cash only. It works for us but I can appreciate this doesn't work for others...


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## moisimplementmoi (Oct 20, 2014)

i well sell now for sure.

Any point in spreading withdrawal over 2 years, or are you so far into a tax bracket that it makes no difference?


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## gardner (Feb 13, 2014)

moisimplementmoi said:


> withdrawal


Is this registered holdings? You never said and I think most folks assume non-registered. In that case a capital gain of $500 is hardly going to move the needle on taxes. You'd be taxed on the equivalent of $250 of income or a worst case of $125.


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## tygrus (Mar 13, 2012)

Forgive my bluntness, but you are really missing the big picture. You are going to lose all that money one way or another if you continue on this course. Your are worrying about it losing a few % in value before you sell it out of the fund, but then you are putting it against an asset class that is 100% guaranteed to lose 10-25% in value so your downpayment will be up in smoke either way. You are looking at things in a strange way. Money in a fund is at risk to you but money in a house is not and its the same thing. And worrying about a few hundred bucks in a tax hit. You are really looking at a double digit loss in your net worth on this.

Keep your fund and walk on the house deal.


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## lightcycle (Mar 24, 2012)

Siwash said:


> If I sell all now, then I will get a tax hit in the spring, which I'd obviously like to avoid.


I read your other thread. If the index funds are in the RSP, then selling now will not trigger a tax hit on April 2015. It's only when you withdraw the proceeds out of the RSP (presumably in March 2015) that you'll be hit with the withholding tax/income tax which is payable on April 2016.

This was already covered by Eclectic12 in your original thread. Is this a different question for non-RSP investments?


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## Siwash (Sep 1, 2013)

lightcycle said:


> I read your other thread. If the index funds are in the RSP, then selling now will not trigger a tax hit on April 2015. It's only when you withdraw the proceeds out of the RSP (presumably in March 2015) that you'll be hit with the withholding tax/income tax which is payable on April 2016.
> 
> This was already covered by Eclectic12 in your original thread. Is this a different question for non-RSP investments?


Ok this clarifies it. I was a little confused by the other posts. This is what I wanted to know/clarify. If I don't have to pay witholding tax and any other income tax until 2016, then I would have deferred these costs til then, which is what I need to do. That gives us some cash flow relief.

So to clarify further, If I sell the index funds, the proceeds will not be withdrawn from the RSP? This is the part I am confused about. If I sell all the index funds, doesn't this constitute the cesastion of said RSP? Sorry, I am new to RSPs and DIY investing. 

I suppose I can contact the CRA to assist me with this further. Either way, it seems like the consnesus is to sell the funds now if I need to secure that cash for March, 2015. I will put it in an HISA or similar.


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## lightcycle (Mar 24, 2012)

Siwash said:


> So to clarify further, If I sell the index funds, the proceeds will not be withdrawn from the RSP? This is the part I am confused about. If I sell all the index funds, doesn't this constitute the cesastion of said RSP?


An RSP is just an account that can hold dollars, stocks, mutual funds, index funds, etc. You can buy and sell whatever you want within the RSP account without any tax implications, but the moment you take money out of the account then that's when the taxman becomes interested.


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## MoreMiles (Apr 20, 2011)

lightcycle said:


> An RSP is just an account that can hold dollars, stocks, mutual funds, index funds, etc. You can buy and sell whatever you want within the RSP account without any tax implications, but the moment you take money out of the account then that's when the taxman becomes interested.


The tax will be calculated on the "entire" amount and not just the capital gain... so really $500 difference is not a difference since you are losing a lot more already.

You are losing an irreversible contribution room so even if your income doubles or triples in a few years, that retirement saving quota is gone forever. You cannot replenish it.

That to me, is more worrisome than the tax obligation you will face next year.


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## Siwash (Sep 1, 2013)

MoreMiles said:


> The tax will be calculated on the "entire" amount and not just the capital gain... so really $500 difference is not a difference since you are losing a lot more already.
> 
> You are losing an irreversible contribution room so even if your income doubles or triples in a few years, that retirement saving quota is gone forever. You cannot replenish it.
> 
> That to me, is more worrisome than the tax obligation you will face next year.




Well, I will not be contributing to RSPs again b/c I realized they are not for us. As teachers, with DB pensions, they seem pretty pointless to me now.. Being inexperienced at investing, I really didn't know what I was getting into... But I'm learning as I go along and TFSAs is where will will park investments from now on (we have those as well already). 

Thanks for your insights, folks. Much appreciated..

As far as the index funds go, I haven't sold them yet and funny thing, they've gone up $1000 since I first posted! Crazy past two weeks in the world of investing...

Will wait til Jan 1 to unload this stuff then park cash in a People's Trust 3% TFSA - nice and safe there! 

Cheers..


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## OnlyMyOpinion (Sep 1, 2013)

That's why the Forum is such a good place to see the range of opinions and approaches to financial issues. A book or single article is unlikely to cover all of the permutations that people face.

One of our kids is a (new) teacher and has decided to contribute to a SDRRSP for now. Contribution room is much reduced because of the pension contributions but they still figure it is worth it to have an independent and flexible alternate source of 'retirement' funds. This may/can change easily in the future, and it pre-supposes that they have already max'd out their (more flexible) TSFA contributions. Potential family and house are still ahead of them, so they may find it useful to draw from their RRSP during a maternity leave, early retirement, etc. They settled on MAW104 as a diversified, hands off solution with a MER that is acceptable for now (~1%).


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## Eclectic12 (Oct 20, 2010)

My Own Advisor said:


> That's a very small cap hit on $15,000 or $15,500...


Unfortunately, a few details are missing ... if one refers to the taxation threat - the index funds are in an RRSP where the HBP is not an option.

Selling then re-investing the proceeds in a HISA to keep the capital won't have any tax implications.

When the funds are withdrawn from the RRSP, the full withdrawal amount will be subject to the RRSP withdrawal withholding tax for CRA which the financial institution will deduct (same as an employer withholding income tax on a pay cheque). It will also need to be included in that year's income when the tax return is filed.




lightCycle said:


> An RSP is just an account that can hold dollars, stocks, mutual funds, index funds, etc. You can buy and sell whatever you want within the RSP account without any tax implications, but the moment you take money out of the account then that's when the taxman becomes interested.


+1 ... I've bought/sold/moved the proceeds into other investments many times over the years and as I have yet to withdraw any funds/investments - I can confirm there are no tax implications for what happens in the RRSP account.




Siwash said:


> ... As far as the index funds go, I haven't sold them yet and funny thing, they've gone up $1000 since I first posted! Crazy past two weeks in the world of investing...
> 
> Will wait til Jan 1 to unload this stuff then park cash in a People's Trust 3% TFSA - nice and safe there! ...


Good new that it's recovered ... something you may want to consider is a stop loss order which will automatically sell the funds if it hits a certain price.
http://www.investopedia.com/articles/stocks/09/use-stop-loss.asp

The benefit is you don't have to keep monitoring the prices and react if prices drop. The risk is that these are strange trading days with lots of fluctuation that could result in a sale when you are not expecting it. Just a thought for you to consider ...


Cheers


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