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Hi folks,

I am hoping someone can help me out or point me in the right direction. Here's my financial snapshot:

RRSP: $40k
TFSA: $10k
Non-Reg: $12k
Saving: $20k
Rainy day fund: $10k

My question is what should I do with the $20k in saving? Right now it's sitting with PCF. Normally I will drop it into my RRSP to lower my tax payable, however whats throwing me off is I am thinking of buying a place so I will need that for downpayment and locking it in RRSP might not be the best idea. If I do buy, it will be about 4+ years away. I pull in $90k annually and at the moment I am renting obviously.

From all the financial literature I read, most suggest to leave the money in a non-reg account since I already have the $25k in my RRSP for the First time home buyer program. However would it be wise to dump some of that $20k into RRSP and then deposit the tax return into the non-reg account? I am thinking of contributing half of that into the RRSP, so based on my income I will get back around $5500 - $6000. So instead of $20k in the non-reg account, it will be around $15.5k. I lose $4.5k in downpayment but gain $10k in RRSP. Is this a wise move? The $10k is just an arbitrary figure I plucked from thin air. Is there any calculator out there that can help me determine at what point will the benefit of tax-free compounding return within an RRSP overweights the interest saved from a lower mortgage?

Any input is greatly appreciated.

P.S: All my investments are held in low cost index funds.
 

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I think I'm in a similar boat. My RRSP and TFSA are already maxed out. Where should I keep cash? Sounds like this is what the TFSA is designed for, but it currently holds a REIT.

I am considering putting the cash in GIC's in my TFSA, and place the REIT or other ETF in my taxable account...
 

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Hi folks,

RRSP: $40k
TFSA: $10k
Non-Reg: $12k
Saving: $20k
Rainy day fund: $10k
OK well first of all, I would like everyone to take a good look at this. This is tremendous and shows the OP has his act together when it comes to managing money. Well done!

How's your car? Do you think you'll need to replace it soon? Any big trips planned?

Secondly, I am looking at your savings + rainy day fund and you've got $30K combined. I personally see no reason why you need to put any of this money in RRSP. Here's what I would do:

1-1-11 take $5K of that savings amount and put into TFSA. But what is your intention with that TFSA money? Are you treating that as some sort of investment? Can it be used for rainy days?

Owning and buying a home are very expensive things. I think you should continue on your present path of savings and put that money you're not sure about into non-sheltered 1 or 2 year GIC's, shop around for best rate. When comes time to buy the house you will need all of this money, not only for the actual down payment but also for all the other stupid fees like closing costs, lawyers, movers and capital improvements. Then the roof may spring a leak within a short time of you moving in.

I actually think it's you who should be giving us advice about money. Wow. What an amazing saver you are. Really, A1.
 

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And to answer your other points, I wouldn't bother with using RRSP money to make your home downpayment. Just use the cash you have saved for that. And in fact, if you save enough cash you might be able to save the CHMC fee.

As for RRSP compounding, while I think you should leave the $ you have in that account intact, I think with interest rates as they are you are far better off using your non-RRSP cash for your future down payment. Don't worry about lost RRSP growth. These days, returns suck.

Use your cash, adopt a simple approach.
 

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I'm not sure if it makes a huge difference in the long run, if you keep $10k in a non-reg account for the down payment or put it in the RRSP and use the refund for the down payment.

However, it seems like having more money for the downpayment is better than having less money. You can't do everything all at once - if you are gunning for a house, then I would just keep the extra money outside the RRSP.

You will get more TFSA contribution room over time, so I would just make use of that.
 

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I think (one of) the question(s) he's asking is slightly different than the ones that Royal answered already. Here's my understanding of what he's asking:

Is the optimal path to take my available cash and continue to hold it in a fully-taxable account, or to take available cash, deposit in an RRSP, generate a 46% tax refund, and then hold the REFUND as cash in a taxable account - and then to add to my "house downpayment" fund over time in this way?

The variables in this case are not about investment return (he could simply hold cash in his RRSP). This is a form of tax arbitrage.

You could build a model (just using Excel) which will allow you to model different outcomes based on varying levels of interest (both for your cash holdings and for your mortgage) and varying levels of downpayment.

However, at a basic level, what you are able to do in your circumstance is take $10,000 (using your sample figure) and turn it into $14,600. That's a pretty compelling path of action for a simple human like me. In addition, this is a course of action that is immediately available and does not depend on future outcomes or random variables.

If you want to understand the impact of having a lower downpayment, just use a regular mortgage calculator like those at dinkytown.net. You don't need to find a breakeven point for the compounding in an RRSP vs. having a larger downpayment - you can't build a robust enough model to provide good guidance because you have too many random variables to consider.

Hope that is helpful. We should all be in such an enviable position. :)
 

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Discussion Starter #7
...

How's your car? Do you think you'll need to replace it soon? Any big trips planned?
...
1-1-11 take $5K of that savings amount and put into TFSA. But what is your intention with that TFSA money? Are you treating that as some sort of investment? Can it be used for rainy days?
...
Thank you. Honestly I don't have a secret, I just spent less than I make. I guess having a decent paying job helps too.

I bought my car less than a year ago, it's new and paid for. I don't foresee myself buying a new one for awhile.

I suppose I can looking at the saving + rainy day fund as my emergency fund, and those $30k are spread across ING, PCF, and my CHQ account. The $10k in TFSA is invested in index fund. I am not too worried about contribution for next year TFSA. Keep in mind that I am continuously saving and my monthly cashflow is pretty good. On average I save about $2500 a month, on a good month it's about $3000. So really I am not too worry about closing cost, fees, or housing carrying cost. As for yield, lets not focus on that because whatever securities I can buy in non-reg, I can also buy in RRSP/TFSA. The question is more about should I dump some of the $30k into my RRSP?
 

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I'm not sure if it makes a huge difference in the long run, if you keep $10k in a non-reg account for the down payment or put it in the RRSP and use the refund for the down payment.

However, it seems like having more money for the downpayment is better than having less money. You can't do everything all at once - if you are gunning for a house, then I would just keep the extra money outside the RRSP.

You will get more TFSA contribution room over time, so I would just make use of that.
That's what I want to find out, how much of a difference is it in the long run keeping excess money in a non-reg for downpayment vs RRSP. Keep in mind that $10k is just an arbitrary figure. It will grow over time and the longer I take to buy a place, the bigger it will get. At what point will it be worthwhile?
 

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I think (one of) the question(s) he's asking is slightly different than the ones that Royal answered already. Here's my understanding of what he's asking:

Is the optimal path to take my available cash and continue to hold it in a fully-taxable account, or to take available cash, deposit in an RRSP, generate a 46% tax refund, and then hold the REFUND as cash in a taxable account - and then to add to my "house downpayment" fund over time in this way?

The variables in this case are not about investment return (he could simply hold cash in his RRSP). This is a form of tax arbitrage.

You could build a model (just using Excel) which will allow you to model different outcomes based on varying levels of interest (both for your cash holdings and for your mortgage) and varying levels of downpayment.

However, at a basic level, what you are able to do in your circumstance is take $10,000 (using your sample figure) and turn it into $14,600. That's a pretty compelling path of action for a simple human like me. In addition, this is a course of action that is immediately available and does not depend on future outcomes or random variables.

If you want to understand the impact of having a lower downpayment, just use a regular mortgage calculator like those at dinkytown.net. You don't need to find a breakeven point for the compounding in an RRSP vs. having a larger downpayment - you can't build a robust enough model to provide good guidance because you have too many random variables to consider.

Hope that is helpful. We should all be in such an enviable position. :)
You understood very well!! In all honestly, you explained it better than I ever could. :)

Yes, investment return is irrelevant (well it is, but not for my question). Tax arbitrage? I am not familiar with this concept. Do you know where I can read up more about it?

Thanks for the suggestion about the mortgage calculator, I will definitely check it out. A spreadsheet for this will be perfect!! Do you know where I can download a template or can you point me to the right direction? I know it will be complicated to model something with too many random variables, however if I can eliminate some of those variables, at least it will give me a general idea.
 

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Honestly I am not sure how enviable my position is because I been struggling with this for some time now. I suppose this is a good kind of problem to have.

Thanks everyone for their much welcome inputs. Feel free to chime in. :)
 
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