Personal Finance

What to do with my small RRSP

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  • Jan 26th, 2015 3:12 pm
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Deal Addict
Dec 8, 2008
1887 posts
225 upvotes
GTA

What to do with my small RRSP

Facts:

- $16000 currently sitting in a TD RRSP GIC, making next to nothing and maturing at the end of this month. Upon maturity it will not be rolled over but be parked in a so called TD daily interest registered account, which also makes nothing but it isn't locked in.

- <$5000 is the 2014 contribution room, which I haven't used yet. Am pondering right now whether I should or not before the deadline (small contribution room due to DB pension- for now anyway.)

- stopped working some time in the year 2014. currently on a long term leave from my job, during which time I've had and will have zero to menial income (a student now). After this period (approx 2 yrs), will most likely (try to) return to the public sector.

- age: going on 30, plan to retire at 55 with 32 yrs of service IF I buy back the 2 yrs of service where I was on leave, 30 if not.

Question :

While I am a student I will have less than 10k income (mostly a sum of menial interest earned from terribly unattractive, risk free investments, but I am a risk averse female). Should I withdraw my 16k rrsp during the two years when I have <10k income so that I don't have to pay tax on the amount withdrawn (less withholding tax, but I don't mind that so much knowing it's not a huge amount and I will get it back again when I do my taxes, given my low income). What I am a but concerned about is the loss of contribution room.

or, should I move this money to a more attractive RRSP option (not sure what though, any suggestions welcome), and possibly just transfer it to buy back 2 years of service when I return to work? That will be 2 transfers, I guess I will have to absorb some service fees.


Any suggestions welcome, thanks
15 replies
Deal Fanatic
Oct 27, 2009
5755 posts
7939 upvotes
Ontario
You do realize that if your RRSP money goes into a non-RRSP account, you are looking at a tax bill? See if there are other RRSP accounts/promotions that want your money>transfer probably costs a LOT less. Withholding tax is 10% while the lowest personal tax rate is 15% for income tax.

Is this registered account you speak of the Lifelong Learning Plan? http://www.tdcanadatrust.com/products-s ... ps/llp.jsp
[QUOTE]The Lifelong Learning Plan (LLP) allows you to withdraw amounts from your RSP to finance eligible training or education for you, your spouse or your common-law partner. You do not have to include the withdrawn amount in your income, and there is no withholding tax on these amounts.

You may withdraw up to $10,000 each year under this program for qualified education expenses. The maximum lifetime withdrawal amount is $20,000 over a period of no more than four years.[/QUOTE]

Save your money on the matter of using up 2014 RRSP contribution room. If you don't already have a TFSA, maybe put money into one if you can find stock or bonds to apply the money to?
Have new cookbooks but am not cooking anything new yet.
Sr. Member
Aug 17, 2008
513 posts
234 upvotes
Quebec
yes, withdraw and put it back in a tfsa
Jr. Member
Apr 30, 2006
163 posts
20 upvotes
Toronto
How much income you are expecting while at school.
You will have tuition credit, living cost credit, text book credit to be used to reduce tax while at school.
I will think plan your RRSP withdraw amount in ahead, spread it over a few years, so for each year to your income > 10,000, the basic fedex tax exemption limit.
You don't want you income to be lower than that, then you waisted the free tax credit.
$0 income, no tax, and $10,000 income, no tax are different.
Deal Addict
Dec 8, 2008
1887 posts
225 upvotes
GTA
Thanks all for your input. As Alvisblue noted, if I were to withdraw from my RRSP I would spread it over the two years so that I do not go over the $10k (approx.) income limit. If I don't withdraw, I am looking into transferring it to another bank with higher returns (not sure yet where), and then withdrawing it when I go back to work so that I can buy back service. I am just not sure what is the better option. Considering the former, I do like the idea of getting $$$ back when I do my tax returns due to investing into RRSP (last year I got nearly 5k back..), and not having to pay back when I withdraw the money since my income is so low.

I was not able to use the lifelong learning plan because I am studying abroad and CRA said they do not accept schools not on their "list" (in other words, only domestic institutions apparently).

I won't have tuition credit because I did not have to pay for tuition, but I am interested in this "living cost credit".... anyone know if this can be used even though one is studying outside of Canada?
Deal Guru
Aug 5, 2006
10746 posts
7905 upvotes
Global Village
Given you are a conservative investor if you are in Ontario you may want to consider Meridian, currently offering 3.5% 90-day GIC on RSP's, they will cover the $50 rsp transfer fee TD would charge you. After that put them in an RSP savings account (the Meridian 1 is currently paying 1.75%) and withdraw $5,000 or less at a time as needed.

http://www.meridiancu.ca/personal-banki ... fault.aspx
Deal Addict
Dec 8, 2008
1887 posts
225 upvotes
GTA
scoper wrote: Given you are a conservative investor if you are in Ontario you may want to consider Meridian, currently offering 3.5% 90-day GIC on RSP's, they will cover the $50 rsp transfer fee TD would charge you. After that put them in an RSP savings account (the Meridian 1 is currently paying 1.75%) and withdraw $5,000 or less at a time as needed.

http://www.meridiancu.ca/personal-banki ... fault.aspx
hmm thanks! def going to give them a call, as their 90-day GIC fits my needs. Btw, receiving banks covering transfer-out fees.. is this a usual practice?
Deal Guru
Aug 5, 2006
10746 posts
7905 upvotes
Global Village
It would most likely depend on the amount being transferred in. For 16K they should cover it.
Member
Aug 20, 2014
226 posts
89 upvotes
Toronto, ON
BMO covered the fee that RBC charged to transfer my $800 RRSP account. I think it just depends on the person you are talking to. :-)
Deal Addict
Oct 29, 2010
4475 posts
811 upvotes
OP, is there a reason why you're being so conservative with your money? Even a balanced approach should net you around 6% return using ETF's.
Deal Addict
Dec 8, 2008
1887 posts
225 upvotes
GTA
flafson wrote: OP, is there a reason why you're being so conservative with your money? Even a balanced approach should net you around 6% return using ETF's.
do you mean couch potato? i don't know, i was too risk averse to even read up about it.. not sure how to even get started with ETFs

a few years ago i made some mistakes in the stock market and lost quite a lot of money (4 digit.. i still have a waterhouse account but it's not active, aside from a small number of shares i own which is practically worth nothing)
Deal Expert
Oct 6, 2005
16872 posts
2557 upvotes
leoben wrote: - age: going on 30, plan to retire at 55 with 32 yrs of service IF I buy back the 2 yrs of service where I was on leave, 30 if not.
You better get cracking on your savings - if you intend on retiring by 55, you'll need approximately $2.65MM saved for a retirement income of ~$80,000.
Newbie
Jan 27, 2014
27 posts
11 upvotes
coolspot wrote: You better get cracking on your savings - if you intend on retiring by 55, you'll need approximately $2.65MM saved for a retirement income of ~$80,000.
OP seems to have defined benefit pension plan - sorry to make you jealous.
Deal Addict
Oct 29, 2010
4475 posts
811 upvotes
leoben wrote: do you mean couch potato? i don't know, i was too risk averse to even read up about it.. not sure how to even get started with ETFs

a few years ago i made some mistakes in the stock market and lost quite a lot of money (4 digit.. i still have a waterhouse account but it's not active, aside from a small number of shares i own which is practically worth nothing)
Couch potato is more about how to do it in a good way if you want to spend too much time learning what's going on. But in general, yea.
Another thing you could look at is the Mawer mutual funds which i really like, performence wise it's very similar to couch potato only that it's an actual mutual fund so you get the "peace of mind" knowing that it's actively managed, but at the same time it doesn't have any of the usual cons that you get with any other mutual fund. The con is that it takes $5000 to buy into one of their funds but i really like it.
Me personally, i have most of my money in Mawer balanced fund and Mawer global small cap, but my next step would be to diversify a little bit and get some ETF's like in the couch potato.

In terms of risk, a balanced approach like Mawer balanced fund or going with the couch potato has fairly low risk, the reason is, you pretty much invest in everything so if the market as a whole goes up, your money goes up, and vice versa.
So if you look at the history of the market, on average, it does 8% per year. Could your money drop? Yea, but because the average is 8% you should be fine if you leave the money there for at least a year. If you figure that the money can stay there for 5-10+ years, then you should have no problem taking more risk with something like the Mawer global small cap fund, it fluctuates a lot more but it averages 16% per year. So if you have time, you will get a good return.

I hope that helps.
Deal Addict
Dec 8, 2008
1887 posts
225 upvotes
GTA
Thanks flafson, I will definitely look into Mawer balanced funds, that sounds attractive to someone like me who needs the peace of mind and is not up for rebalancing and such on his/her own. Btw I am assuming you meant it takes $50,000 not $5k? .. I actually also sold my place last year and placed the equity temporarily in a 1 year GIC making a meager 2%, when that expires in a few months I will go to mawer and see what can be done.
Deal Fanatic
User avatar
Jun 11, 2001
9475 posts
1610 upvotes
Tangerine funds are good for smaller portfolios, although the MER is 1% (which is much higher than the .25% you could be doing TD eSeries, but you have no trading cost).
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