Canadian Money Forum banner

1 - 4 of 4 Posts

·
Registered
Joined
·
4 Posts
Discussion Starter · #1 ·
Hi there!

I'm looking to buy mutual funds at either TD or CIBC; however I already own tax-deferred accounts at RBC (1 TFSA and 1 RRSP). How should I go about setting my funds within either of these accounts? Will I be able to combine them or will I have to start a new tax-deferred account at other bank (i.e. wherever I decide to buy funds)? What's the best way to go about doing this?

My long-term goal is not to get too hammered with taxes when I decide to pull out my investments.

Thanks!
 

·
Registered
Joined
·
6,024 Posts
^ Hi there too!

Looks like you got 2 different main objectives there (with some concepts mixed inbetween) based on your questions.

First (main objective) is to buy (or transfer some mutual funds) from (or to) TD / CIBC but you already have registered accounts (one is tax deferred=RRSP, the other is tax-free=TFSA) at RBC.

Presuming you've available contribution room(s) in your RRSP and TFSA (seperate accounts/concepts), you can either open new accounts at TD/CIBC to make those mutual funds purchases. OR transfer your existing mutual funds (no contribution room assumption) from RBC over to new accounts (to be) set up at TD / CIBC.

The first option should be the easiest, quickest, and possibly the cheapest (walk into the bank and have the happy rep. do the paper work for you, just as you first opened RBC accounts) but the downside is you have additional accounts to monitor if you don't close the RBC accounts. The second option (transfer of funds) is not as cheap as there may be transfer fees charged by RBC (which you can negotiate with TD/CIBC to cover). [This freebie is dependent on how much you're transferring.] And the transfer may take abit longer.

Your second objective which is your long-term goal of not getting hammered by taxes when you decide to cash in. As said above, the TFSA is tax-free so all profits from your investments are "tax-free" on withdrawals. [Though there's the rule of "withdraw in the current year and only re-contribute in the "next" - simplified version here.]

As for the RRSP, unfortunately, all profits which are considered income are taxable at withdrawals. Hence, the tax-deferral definition for RRSP and not the tax-free one for T.F.SA.

Hope this help (and others can chime in) or wasn't so lengthy.
 

·
Registered
Joined
·
4 Posts
Discussion Starter · #3 ·
Thank you for the prompt response!

This definitely clarifies a lot. I figured starting at new TFSA/RSP would be the easiest way to go but I also had no idea you could negotiate a transfer. I'll definitely look into both these options before I make a decision. And thanks for clarifying on the tax free VS tax deferred bit!
 

·
Registered
Joined
·
1,103 Posts
This definitely clarifies a lot. I figured starting at new TFSA/RSP would be the easiest way to go but I also had no idea you could negotiate a transfer. I'll definitely look into both these options before I make a decision. And thanks for clarifying on the tax free VS tax deferred bit!
To transfer your investments to another broker, open accounts with your new broker, then they will complete and submit a registered transfer form to your old broker on your behalf. You can choose to transfer in-cash or in-kind. In-kind means transfer the existing shares or units, so you don't get hit with capital gains taxes and be out of the market during the transfer. You can also specify some assets in-kind and some in-cash.

If your marginal tax rate when you withdraw is the same as when you contribute, then TFSAs (tax exempt) and RRSPs (tax exempt and tax-deferred) will have approximately the same after-tax return. If your marginal tax rate is higher when you withdraw then a TFSA will have a higher after-tax return. If your marginal tax rate is lower when you withdraw then a RRSP will have higher after-tax return. That's why it is often recommended that young investors with low income save in a TFSA first, then later when their income is higher they start RRSP contributions. You can see the various tax rates at www.taxtips.ca. TFSAs are also more flexible and have fewer rules so can be better for younger investors that may need to use their TFSA as an emergency fund. Ideally maximize both but that's a tough goal for most people.
 
1 - 4 of 4 Posts
Top