# TD E-Series; should they be held in a TFSA/RRSP or not?



## Siwash (Sep 1, 2013)

My understanding is that these "buy and hold" index funds are tax efficient as they stand so is it advisable to hold them in a registered savings account or RSP?


----------



## Spudd (Oct 11, 2011)

Yes, it's advisable. Even though they may be tax-efficient, by putting them in a registered account you will shelter your gains from tax. In non-registered, you will need to pay capital gains tax when you sell, plus tax on dividends received.


----------



## Siwash (Sep 1, 2013)

Spudd said:


> Yes, it's advisable. Even though they may be tax-efficient, by putting them in a registered account you will shelter your gains from tax. In non-registered, you will need to pay capital gains tax when you sell, plus tax on dividends received.


Okay, thanks.. Now, say I buy $5000 of an e-Series today split between $2,500 Cdn index and $2,500 US index. Then, I hold this investment within an TFSA or RRSP. Then every month thereafter, I contribute $250. I am assuming that if I want to shelter the additional contributions ($3000 after 12 months) there would have to be contribution room in one of the said registered accounts, correct? 

thanks!


----------



## none (Jan 15, 2013)

no, no no.

Read this: http://canadiancouchpotato.com/2012/09/20/foreign-withholding-tax-which-fund-goes-where/


----------



## Spudd (Oct 11, 2011)

Siwash said:


> Okay, thanks.. Now, say I buy $5000 of an e-Series today split between $2,500 Cdn index and $2,500 US index. Then, I hold this investment within an TFSA or RRSP. Then every month thereafter, I contribute $250. I am assuming that if I want to shelter the additional contributions ($3000 after 12 months) there would have to be contribution room in one of the said registered accounts, correct?
> 
> thanks!


You got it! Once you run out of contribution room and start investing in non-registered, then you'll need to read the article provided by none regarding which types of investments go best in which accounts.


----------



## Siwash (Sep 1, 2013)

none said:


> no, no no.
> 
> Read this: http://canadiancouchpotato.com/2012/09/20/foreign-withholding-tax-which-fund-goes-where/


Thank you!


----------



## My Own Advisor (Sep 24, 2012)

Registered first, non-registered after registered filled up or very close to it.


----------



## Synergy (Mar 18, 2013)

My Own Advisor said:


> Registered first, non-registered after registered filled up or very close to it.


Wouldnt this depend somewhat on ones current income level / tax bracket, ones future earnings potential, and the average tax bracket one expects to be in during retirement? RRSP first may not be the best option for everyone. Once the TFSA is maxed some may benefit from investing in a non-reg account rather than an RRSP - accumulate contribution room for higher earning years.


----------



## Siwash (Sep 1, 2013)

It's getting confusing! Geez!! This stuff can drive ya crazy!


----------



## Synergy (Mar 18, 2013)

Siwash said:


> It's getting confusing! Geez!! This stuff can drive ya crazy!


This may help you understand a little



> Low tax rate: Claiming a deduction for an RRSP contribution at a low tax rate, piling up a stash of cash, and then paying more in tax when you cash out at retirement makes no sense. If you think you’ll likely always be at the lowest tax rates, go with the TFSA. But if you think that over time your income and tax rates will increase – Imma talkin’ to you young’uns – then go ahead and make your RRSP contribution and hold the deduction for when your taxes are higher and you’ll get a bigger refund. You can then use the taxes you save to pay down your mortgage or fund your TFSA contribution.


----------



## My Own Advisor (Sep 24, 2012)

"Wouldnt this depend somewhat on ones current income level / tax bracket, ones future earnings potential, and the average tax bracket one expects to be in during retirement?"

Somewhat.

I'm talking about your contribution years. How you manage your investment accounts in your contribution years is very different that your withdrawal years.

This is why I think RRSP contributions, now the TFSA is here/has been here, may not be needed let alone the best option for everyone. 

Depending upon your working income, maximizing TFSA contributions come first in my opinion, then RRSP, then non-registered. If you have a high income, then contributing or maximizing RRSPs come first, then TFSA, then non-registered.


----------



## Eclectic12 (Oct 20, 2010)

Siwash said:


> It's getting confusing! Geez!! This stuff can drive ya crazy!


Take your time to learn at your pace ... remember that doing nothing is the only really bad option. 
Paying a bit of extra tax by doing using a lessor option sure beats buying e-waste or junk!



Cheers


----------



## Eclectic12 (Oct 20, 2010)

My Own Advisor said:


> ... This is why I think RRSP contributions, now the TFSA is here/has been here, may not be needed let alone the best option for everyone.


You'll have to explain this one ... I can see "can't make use of due to lack of funds" but other than business owners who are better off paying themselves dividends (which won't generate RRSP contribution room), I'm having difficulty thinking of any situation where one who has cash couldn't benefit from RRSP contributions.


Cheers


----------



## Synergy (Mar 18, 2013)

^ a few reasons someone may consider to invest outside an RRSP - tax efficiency, claw backs, etc.

-low tax rate
-low income
-age
-pension

Source: http://gailvazoxlade.com/blog/archives/4501

Personally I've maxed out my TFSA every year, contributed a small monthly portion of my savings to my RRSP, and invested fairly heavily into a non-registered account. I'm a good saver despite a modest income. I expect to be in the top tax bracket over the 3-5 yrs and expect to retire on an income greater then what I'm currently making. So I've decided to save the majority of my yearly RRSP contribution room for future years. Carryover deductions for tuition, books, etc. also helped keep my tax bracket down and somewhat negated the need to contribute to an RRSP for my first few years in business.


----------



## Guban (Jul 5, 2011)

^ You could still make RRSP contributions now, and just not deduct them. You don't have to "save the majority of my yearly RRSP contribution room for future years", just save the deduction!


----------



## Synergy (Mar 18, 2013)

Guban said:


> ^ You could still make RRSP contributions now, and just not deduct them. You don't have to "save the majority of my yearly RRSP contribution room for future years", just save the deduction!


Yes, I noted that up thread in one of my posts and it's mentioned in the Blog I linked to. It was my decision to invest this way for a few reasons, one being liquidity / access to cash. I'll eventually have a company that will be matching my RRSP contributions so I don't think it will be an issue to build up a decent sized RRSP account in the future and I'm still pretty young with a lot of working years left.


----------



## Eclectic12 (Oct 20, 2010)

Synergy said:


> ^ a few reasons someone may consider to invest outside an RRSP - tax efficiency, claw backs, etc ...


The downplaying of the retirement income level and emphasis on TFSA had me thinking the idea was to avoid the RRSP contributions completely (which is not your plan). What I was rolling around in my head was how many are likely to have enough cash to fully fund their TFSA plus have a high enough retirement income that skipping the RRSP would make sense. 

More careful reading of the posts show that I missed parts ... 


As investing outside the RRSP to avoid claw backs - for OAS in 2013, the claw back starts where net income exceeds $70,954 so part of the puzzle is what is the non-registered investments (in addition other income sources such as pension, CPP etc.) contributing & was something done about eligible dividends where $1 in dividends is reported as $1.38 or so of income?


Cheers


----------



## My Own Advisor (Sep 24, 2012)

This was exactly my thinking Synergy...if in low tax rate or low income today and you have lots of debt, why on earth would you invest using an RRSP?

RRSPs are not for everyone although they are a great account for most working Canadians.


----------



## Synergy (Mar 18, 2013)

^ As I'm far away from retirement I haven't given the claw back issues much thought. If I was clawed back completely I don't think I'd be too sad! That's a good point you raise about dividends. I took a quick glance at an article online - "How to avoid the dreaded oas clawbacks".



> One investment you'll want to be careful with when parking excess withdrawals from a registered plan is dividend-paying stocks. In calculating the favourable tax rate on dividends, you must "gross up" the amount of dividends you received in a way that increases your taxable income.
> 
> Here's an example from Mr. Diamond: You receive $10,000 of dividends from a blue-chip Canadian stock, which requires you to gross up that amount by $4,100. Thus $14,100 would be added to your total income for the year, potentially cutting into your OAS benefits.
> 
> Avoiding an OAS clawback will take some doing, but Mr. Diamond's view is that many people will find the effort worthwhile. "Every time somebody ends up losing some of that OAS benefit, it's like the worst thing in the world."


Source: http://www.theglobeandmail.com/glob...void-the-dreaded-oas-clawback/article4192451/


----------



## My Own Advisor (Sep 24, 2012)

Solution: put dividend-paying stocks in the TFSA and max that puppy out


----------



## Synergy (Mar 18, 2013)

^That could work if they'd only increase the yearly contribution limit another 5-10K! Wishful thinking.


----------



## Siwash (Sep 1, 2013)

My income is approaching 80K and will top out at 95K in 5 years… teacher salary… and wife in the same boat. Pensions are pretty good in our field (right now). 

How will this impact your advice?


----------



## My Own Advisor (Sep 24, 2012)

No problem in contributing to your RRSP, but maxing it out, every year _and should_ you keep your teaching jobs and retire from them....you might find you'll pay more in tax in retirement than in your working years.


----------



## Eclectic12 (Oct 20, 2010)

Synergy said:


> As I'm far away from retirement I haven't given the claw back issues much thought. If I was clawed back completely I don't think I'd be too sad!
> 
> That's a good point you raise about dividends.


With the 2013 rates - I wouldn't be said either ... that would mean despite whatever steps have been taken, a retirement income of $109,764! A good "problem" to have IMO.

I suspect a large part of it is keeping informed, remembering that there are a lot of variables & having a flexible plan but getting stressed out by losing perspective .... some in the world have to try to make a living including their older years on a lot less. 




My Own Advisor said:


> Solution: put dividend-paying stocks in the TFSA and max that puppy out


For what the TFSA will cover - yes 


Cheers


----------



## My Own Advisor (Sep 24, 2012)

"...some in the world have to try to make a living including their older years on a lot less."

For sure!


----------



## Synergy (Mar 18, 2013)

Siwash said:


> My income is approaching 80K and will top out at 95K in 5 years… teacher salary… and wife in the same boat. Pensions are pretty good in our field (right now).
> 
> How will this impact your advice?


Assuming teachers continue to have an excellent pension upon retirement, I'd max out the TFSA every year first, then I'd contribute to my RRSP (you should be able to max them out with your salaries & benefits), and with your additional savings or rebates I'd pay off debts and invest inside a non-registered account. As you get closer to retirement you may want to scale back your RRSP contributions - contribute more with the TFSA and non-registered accounts. At this point you'll have to do the math or get some professional advice to ensure you're not paying more tax in retirement then during your working years. Not a huge issue to worry about in your early working years, just keep saving!

Back to your original questions - e-series funds will work great for you in both your TFSA and RRSP (small regular contributions). Once you get sums of 50K plus invested you could consider purchasing some ETF's in order to save a little on the fees (MER's). At this point you could continue to contribute new money to the e-series funds as there are no transaction fees. Once you build up 5-10K again within the e-series funds you could consider purchase more ETF's, and repeat. ETF's will be a little cheaper over the long haul.


----------



## Eclectic12 (Oct 20, 2010)

Synergy said:


> Assuming teachers continue to have an excellent pension upon retirement, I'd max out the TFSA every year first, then I'd contribute to my RRSP (you should be able to max them out with your salaries & benefits), and with your additional savings or rebates I'd pay off debts and invest inside a non-registered account. As you get closer to retirement you may want to scale back your RRSP contributions - contribute more with the TFSA and non-registered accounts ...


Then there's also the question of whether there's periods of lower income when RRSP withdrawals would make sense (ex. maturnity leave or deferring collecting the pension).


Cheers


----------



## Synergy (Mar 18, 2013)

Eclectic12 said:


> Then there's also the question of whether there's periods of lower income when RRSP withdrawals would make sense (ex. maturnity leave or deferring collecting the pension).


good point! The art of investing


----------



## Guban (Jul 5, 2011)

Eclectic12 said:


> Then there's also the question of whether there's periods of lower income when RRSP withdrawals would make sense (ex. maturnity leave or deferring collecting the pension).


Unpaid leave such as extended mat leave or going back to school makes sense, as you point out, however, could you expand on the idea of deferring of a defined benefit pension? When would this be a desirable thing to happen? I haven't done the math, but while I understand that starting a pension at a later age results in a higher monthly payment, it seems that giving up the payments will be counter productive in the long run. Have you seen this scenerio?


----------



## Siwash (Sep 1, 2013)

Thanks folks.. going to mull this over..


----------

