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Unsure where to park $50k. TFSA is maxed out. RRSP?

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  • Jul 9th, 2018 12:31 pm
[OP]
Member
Jan 29, 2008
427 posts
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Unsure where to park $50k. TFSA is maxed out. RRSP?

Hey gang. I am in my mid twenties and since December 2016 I have been making money online. I have maxed out my TFSA with investments (mostly weed and bank stocks) and now don't know what to do with $50k sitting in my EQbank savings account earning 2.3%. I think I could get more somewhere else. I've never dealt with RRSP's, or even know what they are to be honest but I believe they are a big deal?

I make about $40,000 a year running an online retail store. I am open to risk on my investment, but I would prefer a more safer and steady type of investment as I will am looking to purchase a house and hopefully will be buying one within the next year.

What do you suggest someone in my position to do? Acquiring a house soon is a big goal of mine.

Thank you very much for your time.
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14 replies
Jr. Member
Feb 8, 2018
126 posts
42 upvotes
Save rrsp room when you income will be > 80K
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May 11, 2014
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Im assuming you have no debts or mortgage, plans for home/vehicle purchase or post-secondary education. Any plans for these, do not invest the money and either keep it saved or pay down said debt.

RRSP would be an alright place to put your money especially if you think your income will grow overtime in the future. Because you are at a moderate level of income, deducting the RRSP at this point might not be ideal. If you will be earning more money in the future, defering your RRSP deductiom in later tax years is something you should consider. Just remember, when you withdraw from your RRSP/RRIF, each withdrawal is counted as income. RRSP is an income tax deferral account, not tax free account, hence why you will hear to wait on investing in your RRSP.

Since you were looking at purchasing a home, $25K toward your RRSP would give you some tax return, and you can then withdraw $25K toward your home's downpayment. This should increase your downpayment by a bit. However, keep in mind, you have to make RRSP contributions going toward this $25K.

Another thing is RRSPs can protect you from creditors in some cases, and are not counted against as assets when it comes to provincial student loans etc.

All else fails, there is nothing wrong with non-registered investments.

If anything, I would consider diversifying your investments. You are way too invested in the same industries.
amal1595 wrote: Save rrsp room when you income will be > 80K
That is bad advice as a blanket statement. You can still make a contribution and not deduct it from income until the OP makes better income. Meanwhile, the money can grow tax sheltered.
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Jr. Member
Feb 8, 2018
126 posts
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xgbsSS wrote: That is bad advice as a blanket statement. You can still make a contribution and not deduct it from income until the OP makes better income. Meanwhile, the money can grow tax sheltered.
the money will grow the same way in rrsp and non-reg account unless you are an active trader.

only 50% of realized capital gains will be taxed in non-reg account (e.g. 7.5% from 50% for OP) while rrsp at 100% as income (eg. 15% from 100%). Canadian dividends also have preferred taxation in not-reg, in rrsp they are just income. You can claim capital loss on non-reg account, you cannot on rrsp. You can do margin on non-reg and deduct interest from taxes, you cant with rrsp.
Only interest based instruments are taxed equally (eg GIC etc).

As you said, "RRSP is an income tax deferral account, not tax free account".

if I were OP I would go with dividend portfolio and enjoy Negative Marginal Tax Rate for Eligible Dividends (https://www.taxtips.ca/dtc/enhanceddtc/negtaxrate.htm). Obviously in non-reg account.
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Jul 27, 2017
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amal1595 wrote: Save rrsp room when you income will be > 80K
does passive on-line income qualify as 'earned income' for RRSP contributions?
Jr. Member
Feb 8, 2018
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porticoman wrote: does passive on-line income qualify as 'earned income' for RRSP contributions?
does passive income from a hight interest saving account from an online bank counts as 'earned income'?
;-)
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May 11, 2014
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amal1595 wrote: the money will grow the same way in rrsp and non-reg account unless you are an active trader.

only 50% of realized capital gains will be taxed in non-reg account (e.g. 7.5% from 50% for OP) while rrsp at 100% as income (eg. 15% from 100%). Canadian dividends also have preferred taxation in not-reg, in rrsp they are just income. You can claim capital loss on non-reg account, you cannot on rrsp. You can do margin on non-reg and deduct interest from taxes, you cant with rrsp.
Only interest based instruments are taxed equally (eg GIC etc).

As you said, "RRSP is an income tax deferral account, not tax free account".

if I were OP I would go with dividend portfolio and enjoy Negative Marginal Tax Rate for Eligible Dividends (https://www.taxtips.ca/dtc/enhanceddtc/negtaxrate.htm). Obviously in non-reg account.
In the case where OP is considering purchasing a house, he/she can use $25K toward Homebuyer's plan. So even if he/she is deferring income tax and still paying income tax in the end, he/she can still reduce his interest cost by increasing his/her effective downpayment. And it isn't the same as this reduces taxable investment potentially improving tax flow, where OP can then apply the saved taxes toward a mortgage.

So my point still stands. OP should not avoid RRSP contributions just because he doesn't make a higher income. Besides if he/she truly wants to purchase a home, he/she would likely need to avoid equity investment anyway.
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Feb 5, 2017
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I would park it in a HISA.

I am myself sitting on 1.5M cash at the moment, 200K in equities and 300K in bonds

and I am waiting for the next market crash, doing some day trading in the meanwhile..

I am not timing the market. Just listening to my gut instinct. I am 25 years til 'normal age' of retirement. And I bet that I am going to see a 50% crash in the meanwhile.

When that period will come, I will be all in and double my money then get out of the market for good once again.
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Jul 3, 2006
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alexcalvado wrote: I would park it in a HISA.

I am myself sitting on 1.5M cash at the moment, 200K in equities and 300K in bonds

and I am waiting for the next market crash, doing some day trading in the meanwhile..

I am not timing the market. Just listening to my gut instinct. I am 25 years til 'normal age' of retirement. And I bet that I am going to see a 50% crash in the meanwhile.

When that period will come, I will be all in and double my money then get out of the market for good once again.
Whats your rate on HISA? Why not move the 300k into HISA to?
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Feb 5, 2017
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300K in ZAG.. will sell soon. HISA is TD DI rate (1.1% at the moment). If I stop day trading, I will buy instead 100K 1 year GICs every month so that within a period of one year I will have 1.2M still available for trade and will benefit at the same time from a higher rate than the typical HISA.

Now I am not saying that my current strategy is for everyone but in my case, it is. I will double down the road one day and have no problem waiting til that day.

I have 2M available right now in total. If we predict a +8% yearly total return over the next 7 years and I stay invested, I should be at 3.5M at that time, providing no additional income (which is not the case but let us simplify the calculation).

Now if we have a crash in 3 years (50% downturn for example) and money was returning me 3% yearly, I will stand at 2.2M at the beginning of the crash. Lets say that I start to reenter the market progressively and market takes 4 years to recover, I will be at 4.4M down the road.

However If I stay in the market till the crash and ride the storm, I will have 2.5M at the beginning of the crash (3 years from now) and still 2.5M after recovery, 7 years from now.

Yes I can not predict the bottom of the crash but I can follow a simple plan : buy with 25% of my cash at index -30%, another 25% at -40% etc.

so holding and riding the storm is not for everyone. Of course, maybe we will never get a crash in the next decade but my gut tells me otherwise.. I am bearish while I was very bullish at the beginning of 2017.
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Feb 28, 2006
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If you are buying a house soon, better to do just put into HISA or 1-year GIC (EQ bank has 3.5% I think) as 1 year horizon is quite short.
Banned
Jul 6, 2018
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Why don't you invest in crypto mining ? it will yield good returns to you if you start your own little mining farm
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Feb 8, 2018
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xgbsSS wrote: In the case where OP is considering purchasing a house, he/she can use $25K toward Homebuyer's plan. So even if he/she is deferring income tax and still paying income tax in the end, he/she can still reduce his interest cost by increasing his/her effective downpayment. And it isn't the same as this reduces taxable investment potentially improving tax flow, where OP can then apply the saved taxes toward a mortgage.
the only problem with Homebuyer's plan is that OP will need to return the 25K over 15(?) years.
My assumption is that OP will earn more in future. In this case OP will need to pay more taxes and any deductions from RRSP will put OP into higher tax brackets. So we are talking about saving a couple of hundreds today and paying a couple thousands in taxes tomorrow. Does not look good to me.
xgbsSS wrote: Besides if he/she truly wants to purchase a home, he/she would likely need to avoid equity investment anyway.
yes, thats another topic.
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Jun 3, 2009
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Johnnyblaze666 wrote: Why don't you invest in crypto mining ? it will yield good returns to you if you start your own little mining farm
LOL
I am not sure if you are serious.
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Johnnyblaze666 wrote: Why don't you invest in crypto mining ? it will yield good returns to you if you start your own little mining farm
2017 called, they want their memes back.

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