Investing

Question for the rich, LOL....

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  • Nov 18th, 2020 9:14 pm
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Deal Addict
Jan 3, 2013
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Sidney

Question for the rich, LOL....

Question for those already there, as it is my short term goal...Once you've maxed out your TFSA as well as RRSP for that year (and RESP if applicable), where does money go after that? Assuming mortgage is paid off, what does one do with the cash if all those contributions are maxed? Regular investing account? GIC?

I'm sort of lost on this because for the longest time I was striving to max all the registered accounts possible...but when that happens, I never considered what was next. Thanks in advance...
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Dec 14, 2010
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My setup is to maximize TFSA, then RRSP, then money goes to margin. I use my TFSA for large purchases, this way I gain the room back next year, where I move funds from margin to TFSA again, so that TFSA is always maximized.


Rod
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Sep 13, 2003
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i think the same as the others tfsa > rrsp > margin
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Dec 4, 2011
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regular margin account, only tax efficiency is Canadian dividends which get lower rate
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May 22, 2003
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For those prioritizing TFSA, shouldn't you be using rrsp first to get a larger tax refund and then put that into tfsa?


Edit: meant for those prioritizing TFSA
Last edited by notenoughsleep on Oct 4th, 2020 2:22 am, edited 1 time in total.
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notenoughsleep wrote: For those prioritizing RRSP, shouldn't you be using rrsp first to get a larger tax refund and then put that into tfsa?
I like TFSA first better. Tax free beats tax deferred. Plus TFSA is available to withdraw anytime. Then, when RRSP gets populated, tax refund can go on TFSA or margin.


Rod
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Feb 26, 2017
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notenoughsleep wrote: For those prioritizing RRSP, shouldn't you be using rrsp first to get a larger tax refund and then put that into tfsa?
Eventually with that strategy you can get where too much of your portfolio is in your RRSP. I know its a good problem to have but I'm starting to think of my taxes more when I retire. This year I'm just doing my work RRSP matching and then contributing to my TFSA and unregistered account. For full disclosure my income is also lower this year than its been in the past.

Another idea is to max out your RRSP if you have the funds and then once you know what your tax return will be, borrow that amount from your LOC to invest in your unregistered account. You can then pay it off the LOC with your tax return. This can make sense if your in a higher income bracket as it let you write off the interest from the LOC. I did this a couple times as a way to buy stocks 6 months before I had the funds from the tax return.
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Feb 1, 2012
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notenoughsleep wrote: For those prioritizing RRSP, shouldn't you be using rrsp first to get a larger tax refund and then put that into tfsa?
TFSA and RRSP are both tax exempt accounts, meaning you never pay tax on investment income earned within the account, including interest, dividends and capital gains. This is in contrast to a non-registered account (including margin accounts) where you pay tax every year on interest and dividends, and capital gains tax when you sell investments at a gain.

Now comparing TFSA to RRSP, RRSP is also a tax deferred account, meaning you defer paying income tax from when you earn the income to when you withdraw funds from the RRSP (or RRIF). The tax deferral is in the form of a tax refund, or in the case of an employer sponsored group RRSP, the employer never deducts tax on income contributed to the group plan. So if your marginal tax rate (MTR) when you withdraw is the same as when you contributed, then TFSA and RRSP will have approximately the same after-tax return.* If your MTR when withdrawing is higher then TFSA has higher after-tax return. If your MTR when withdrawing is lower then RRSP has higher after-tax return. Since many people, perhaps even most people will have a lower income when retired, the RRSP will have a better return.

But if you are young and low in your income progression, then TFSA is a better choice since your tax rate when you retire may be higher. That's why it is often recommended to maximize your TFSA first, then contribute to RRSP when you have used up all TFSA room.

TFSAs are also more flexible. If you withdraw from a TFSA (say for and emergency expense), you get that contribution room back the next year. With an RRSP if you withdraw you lose that contribution room forever.

Also for people that have lifetime low income, then RRSPs withdrawals are considered income, which may result in reduction of income-tested benefits like Guaranteed Income supplement. In this case TFSA is preferable.

So generally the order of investment accounts is TFSA, then RRSP, then non-registered. But each investor should look at their own income projections and tax rates to decide.

Here are a couple if informative links:
Finiki: TFSAs versus RRSPs
Finiki: Tax-efficient investing
Taxtips.ca: 2020 & 2019 Tax Brackets and Tax Rates

*I say approximately since foreign withholding taxes may be saved by holding US domiciled securities in your RRSP rather than TFSA.
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GoPDemon1 wrote: Margin as in borrowing to invest? Why?
You can write off your interest and make higher returns than the interest on what you invest in. In theory anyway...
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GoPDemon1 wrote: Margin as in borrowing to invest? Why?
With some brokers, like Questrade, the only available non-registered account is a margin account. Having a margin account does not mean you need to borrow.
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May 11, 2014
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Mostly non-registered. But I do make a point of separating out my investments. For instance I keep a trading account separate from a buy-and-hold dividend portfolio. Canadian corporate dividends allows one to earn dividend tax credits.

Not mentioned here is the use of a Universal Life Insurance product. This is more for those with property, corporations or land, but it also works as a way to grow money somewhat tax-free, however it does come with the cost of insurance and risk whether you can borrow from a bank later utilizing the insured retirement plan. In my case, I do have a dependant with a disability, so using permanent insurance makes even more sense, but again, should be after maxing everything and having substantial non-registered assets IMO.

Not available to everyone but in consideration for some people, especially those who have corporations as their main income and dual citizenship, is utilizing foreign pension plans with the ability to contribute voluntarily. I can speak for myself in that having Japanese citizenship allows me to buy into the Japanese pension plan. For me it isn't really tax efficient, and more so for me a currency hedge (having future pension income in Canadian and Japanese Yen), but for those that have say a professional corporation who doesn't necessarily have annual income (eg. paid in dividends etc.), it may be worthwhile if they are eligible to voluntarily contribute in a foreign pension to do so, so that they can use the pension income credit (upto $2000) per year. I know for a fact, British pension allows voluntary contributions. So does Korean pension. In my case, Japan allows for the use of credit cards to contribute to my pension. Whether the return is worth it is somewhat debatable, however you could look at it as tax deferred growth in some form.

If you believe a home purchased will appreciate, buying a more valuable home might also be a way to increase wealth tax free when the property is your main residence.

And finally, I guess the big thing has been to spend more money. I've come to realize while being frugal is important, using money is also important. This comes with trying to be charitable, buying things one can enjoy, or taking experiences. Although this hasn't worked out this year for me (was trying to travel more haha), there comes a point where why accumulate more? I save more than enough money and I am still frugal, but I've been trying to spend more money in general.
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Sr. Member
Nov 16, 2013
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GTA
rodbarc wrote: I use my TFSA for large purchases, this way I gain the room back next year, where I move funds from margin to TFSA again, so that TFSA is always maximized.
@rodbarc Can you explain this line? If you have maximized your TFSA in previous years then how making large purchases within TFSA how you gain room back? You may be able to add the next year limit if you already maximized the previous year limits and not taking out the money, may be I am missing something here
Jr. Member
Nov 27, 2019
157 posts
119 upvotes
Here is my 2 cents... If you are in higher tax bracket, fill up first RRSP, than use tax refund to fill up TFSA. Then start adding money on a margin acc. but put there canadian staffs that have tax benefits (e.g. preferrds).

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