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Discussion Starter · #1 ·
Hello All,

I wanted to get some advice on how I should proceed with a family member's RRSP account. My dad is 61 and has two RRSP accounts. He has one with manulife and around 6k is in there. I have not checked which mutual fund it is but I think it would be reasonable to think that the MER is high. Also, he has another mutual fund in an RRSP account with TD. This account has around 9k in the account. I wanted to take the money out of both RRSP accounts and open a TD self directed RRSP account. From there I was thinking of loading up on something like VRE (my dad is not interested in investments that provide interest payments). Or something else that just provides some sort of monthly yield with a low MER.

The question i had is regarding his age and also taking the money out of the RRSP accounts. Will he get dinged on his next tax assessment for taking all that money out of the RRSP? If I take the money out and put it all back into a self directed RRSP will that take away the additional income on his yearly income? Also, part of me is thinking I may leave it the way it is since he is 61 and I believe you have to start withdrawing from it soon.

Any feedback would be appreciated.
 

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Firstly, you do not take the RRSP funds out. You first open a new RRSP account and then have the institutions transfer to the new account. You never take funds OUT of an RRSP without it being fully taxable and losing the contribution room (its not like a TFSA).

An RRSP does not have to be converted to a RRIF until age 71 with the first minimum annual withdrawal the following year (the year he turns 72).

$15k is not much to have in a DIY discount brokerage account. It is possible TDDI may have minimum account charges at that small account level. What does your Dad want? Is he willing to self-manage his 'portfolio'?
 

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Does he have any RSP contribution room? IF he takes the 12K out of his RRSPs he will be taxed. BUT...if he has 12K of contribution room he can easily make an RSP contribution to the fund of his choice. He could also simply transfer into a new program. It may not matter to him either way.

The only downside....he will loose 12K on contribution room but that may not matter to him given his age and/or financial situation.

You can withdraw RRSP money at any time. Depending on his taxable income, his incremental tax rate, it may be a good idea to do so. My understanding is that any RRSP withdrawals over $5K are subject to a 30percent withholding.
 

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... I wanted to take the money out of both RRSP accounts and open a TD self directed RRSP account ...

The question i had is regarding his age and also taking the money out of the RRSP accounts. Will he get dinged on his next tax assessment for taking all that money out of the RRSP?
If he makes an RRSP withdrawal, a couple of things likely will reduce what he ends up with. The first is if the FI charges a fee anywhere from $25 to $150 for making an RRSP withdrawal. The second is that the FI is required to take withholding tax as a pre-payment on the final tax bill. TaxTips.ca - What tax is deducted from RRSP or RRIF withdrawals?

I believe it's a T4RSP he will get to document the amount withdrawn that has to be reported as income as well as the withholding tax deducted. Depending on how it all adds up, either more taxes will be owing or a refund might be issued.

OTOH, if he/you talk to the brokerage - they can help fill out the paperwork to transfer the assets and/or cash from the source RRSP to a newly opened brokerage one. If asked in advance, some FIs will rebate the withdrawal fee.

I doube the ManuLife funds are allowed by the brokerage so likely it would need to be sold within the RRSP for cash then the cash transferred (no tax implications as long as it is a transfer).

You'll probably want to check what the minimum amount balances are as there can be fees for small accounts.


... If I take the money out and put it all back into a self directed RRSP will that take away the additional income on his yearly income?
Assuming he has the RRSP contribution room needed, it would but it would also destroy the RRSP contribution room. YMMV as to whether one cares but if there are non-registered investments, having some RRSP contribution room might be useful to reduce capital gains.


Cheers
 

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As Spudd suggested, it is not worth it to do anything with $15k but to leave things the way they are. Two mutual funds with 2 different banks. If the father hasn't got anything else in RRSPs, it is not worth the trouble.
 

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Your general idea is sound, but as Spudd and AR pointed out the small amounts probably make any change other than consolidation unhelpful.

$15,000 invested in VRIF, for instance, figures to yield $600 a year, or $50 a month. I can't say whether $50 a month is meaningful to your dad, but any costs to set this up will clobber the return.

Note that if your dad does want to withdraw from the accounts, he will certainly want to convert them to RRIF accounts to avoid the withdrawal fee Eclectic highlighted.

One further thought: It sounds like your father may have modest assets and income. If this is the case, it could be beneficial to drain the RRSPs before he turns 65 so that it doesn't affect GIS calculations.
 

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From a pure switching cost perspective, ditching the mutual funds for a balanced ETF has a fast payback. Banks and investment companies typically charge about $150 to deregister an RRSP (even if it is done via registered transfer to another financial institution). You did not say what the MER of the mutual funds is, but typical bank MERs are in the 2-3% range. So for his $15k investment, the MER could be costing $300 per year. He has 2 RRSPs, so total cost to switch to a discount broker will be $150 x 2 = $300. So switching to a discount broker would have a 1 year payback.

But on the other hand, mutual funds are easy. You can purchase or redeem them usually for free, right down to the penny. If he does not want to withdraw portfolio income for living expenses, mutual fund distributions can automatically be reinvested, right down to the penny. ETFs via discount brokers are more complex. You can't just buy a set dollar value, say $100. You need to buy units, and submit a bid, then wait for another investor to sell what you want to buy. You need to worry about bid/ask spreads, and limit orders since the price constantly fluctuates. Many brokers charge $5 or $10 per trade (although Questrade and WealthSimple have free trades). Reinvesting distributions with ETFs is more complex, since they usually only reinvest full units, the account will have some cash building up with each distribution.

Has your dad asked for your help? Has he expressed interest in changing his investments? Is he concerned about the cost of the mutual funds? Would the $300 or so of cost reduction be material to his finances? Would he be willing to manage this, or would you? If not, I'd say it's not worth the effort, and let sleeping dogs lie. As much as the ongoing fees may irk you, is it really worth the current and future hassles for a $15k account?
 

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Discussion Starter · #9 ·
@AltaRed :I see. Thanks for the info as I did not think of it at all. The TD mutual fund RRSP to a TD self directed RRSP seems like it should be straightforward but are you aware of doing a transfer from manulife to TD?
That is a good point about the RRIF.
That is a good question and am not sure about the min balance charge on TDDI accounts. He already has 9k in a TD TFSA account. I think my dad just wants to leave his money as is but I am trying to help out a little by trying to let him know about low cost options as opposed to mutual funds. However, I am not picking individual stocks for him as I feel that would be too risky.

@ian : I know contribution room does not come back like it does in the TFSA but I think his total lifetime contribution into RRSP is around 20k. Should he not have a lot more contributing room from the years he did not contribute fully?

@Spudd :Yes part of me threw this question out there because I was weighing the pros and cons and thinking about how much effort it takes. Yes that is a very good point about if the new investments do lose money then he will blame me and things could get messy. Yes that is good advice. I will look into it and see how much effort it will take to just have one RRSP account.

@Eclectic21 : Good information. Yes I was going to point that out that manulife has a weird RRSP account and am having a hard time thinking it can directly be transferred over to TD. However, I never thought about selling the units in the manulife account and then transferring the money that is in the account which makes more sense.

@fireseeker :That is a good point about the potential work outweighing the benefit. In terms of RRSP there is not too much there but there is a lot of assets in home equity but your last line is something good to consider.

@GreatLaker : Thanks for laying out the math like that. Yes that makes sense that we need to compare the ease of use of mutual funds vs ETFs.
Since the pandemic started I have been learning quite a lot about investing. I let my dad know that if he is interested in help then I can take a look and give some recommendations. He was interested and I did take a look. He just took whatever investments were offered to him. I thought I could help to choose passive ETFs over mutual funds to save on fees. Once I told him about the fees he seemed more concerned about changing them.
I want to set it up in such a way that he can take a look at it and know what is going on but I would be around to help as well as I don't want to be managing his investments full time as I do not have the energy for that.
 

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It's not so much the ManuLife RRSP is weird but that it is restricted as to what investments can be bought. Similar to setting up an big 5 bank RRSP that only allows buying GICs or that bank's mutual funds.

The RRSP transfer form has a line to identify whether the investment is sold for cash then transferred or if it is transferred as-is (which is limited to what the receiving RRSP allows).

Is there a work related RRSP?

If so, double check the MF details as some employers make sure the work one will have a lower fee MF than someone walking off the street typically has available to them. For example, my work's optional pension plan had ManuLife MFs with something like a MER of 0.6% where many moons ago, it would have been more like a 2.6% fee.

With a small amount and possibly a better than expected fee, it might make more sense to drain these RRSPs or convert to a RRIF then drain them first.


As usual, YMMV.

Cheers
 

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Hello All,

I wanted to get some advice on how I should proceed with a family member's RRSP account. My dad is 61 and has two RRSP accounts. He has one with manulife and around 6k is in there. I have not checked which mutual fund it is but I think it would be reasonable to think that the MER is high. Also, he has another mutual fund in an RRSP account with TD. This account has around 9k in the account. I wanted to take the money out of both RRSP accounts and open a TD self directed RRSP account. From there I was thinking of loading up on something like VRE (my dad is not interested in investments that provide interest payments). Or something else that just provides some sort of monthly yield with a low MER.

The question i had is regarding his age and also taking the money out of the RRSP accounts. Will he get dinged on his next tax assessment for taking all that money out of the RRSP? If I take the money out and put it all back into a self directed RRSP will that take away the additional income on his yearly income? Also, part of me is thinking I may leave it the way it is since he is 61 and I believe you have to start withdrawing from it soon.

Any feedback would be appreciated.
... reading from your first post, first question I would ask before doing anything is "how bad are those mutual funds over at MFC doing"? As compared to VRE or whatever investments you're considering for your dad will do better.

Remember ETFs performances are not guaranteed as with mutual funds and stocks.

Add: Forgot (almost) to add - the tips, commentaries and/or advice from all the other posters here are excellent.
 

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TDDI has a maintenance fee of $25 per quarter for account balances <$15k. So assuming the total is now just over $15k, as soon as he starts withdrawing there will likely be a maintenance fee. Withdrawals must start no later than age 71 when the RRSP must be converted to a RRIF. (There are other options including purchasing an annuity, but RRIF conversion is the most common.)
TD Direct Investing Commission Schedule and Statement of Disclosure of Rates and Fees

A suggestion to simplify is to transfer the Manulife RRSP in cash to the existing TD RRSP account. That will give only one account to manage, not two. You did not mention what the TD mutual fund RRSP holds, or what the fees and performance have been like (not that I am asking). If you want lower fees at TD, but don't want the complexities of ETFs, you could consider the TD Balanced Index Fund. It has an MER about 0.9%, about half of typical actively managed funds. Not a real low fee compared to ETFs, but simpler for you to manage and no account maintenance fee at TD Canada Trust.
TDAM | Balanced Index Fund
Another 5 Underrated Index Funds | Canadian Couch Potato

It would not hurt to take several months to consider what to do. Considering that the fee impacts are not huge the urgency to do anything is low, IMO.
 

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These are not significant sums. I would be tempted to take the easiest route with the lowest possible fees/mers, etc. KISS.

I do not think you should assume a MER is high unless you have verified it.

I have always been interested in the MER, but my real interest lies in the NET. Return less MER. That is what I get to keep and re-invest.
 

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Discussion Starter · #14 ·
@Eclectic21 :Yes that is what I meant as there are those accounts that can only buy certain types of investments. I see. That is good info.
Yes the manulife RRSP is an old work RRSP but my dad still has it. Ahh that is an interesting point you make. I just assumed since it was manulife and mutual funds that it would be high. I will check first

@Beaver101 :The mutual fund at TD is not doing too well. I think in the 6-7 years he had it it only increase 1 or 2k. I do need to look at the details of the manulife fund as I have not seen them too clearly.
You are correct but the lower MER is set so my thinking is to take an average return with a low fee rather than take a average return with a high fee.

@GreatLaker :I see. That is good to know. My dad has a TFSA as well so I think the total sum should stay above 15k for a while but will look into this. Thanks will look into the balanced fund and will take some time.

@ian : Yes for sure. You are right I will look at all the details. Mutual funds historically do have pretty high MERs. TD has something called eseries mutual fund which has an MER of about .25% but other than that most seem like they start at 1%. Yes for sure I am interested in that as well. The bigger the MER the less money you end up with unless the returns justify it.

Thanks everyone for the feedback. I think I will take some time and look through all the details of the mutual funds and then make a decision. As some of you have stated maybe I will leave it as is if it is too complicated or just simplify into one RRSP for simplicity.
 

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@ JUGGERNAUT
All good comments here on how to transfer.
What you have not mentioned is if he is still working, retired or semi retired.
Also is his TFSA maxed out?
If he were not working then just withdraw the $15K and put it in to the TFSA where it is tax sheltered. You'll pay the taxes but they would be minimal. If he is working then figure out his tax bracket and see if he has any room left before a tax bracket change.
You want to try to keep his income as low as possible once retired so that the OAS is not clawed back

RICARDO
 

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When I quit work I transferred all my holdings from the employer sponsored RRSP at Manulife over to my TDDI RRSP. It was a painless process, but one thing was that the MFC based funds could not be transferred in kind but only as cash. It was no big deal for me -- I just went into VUN, XIC and ZAG with only a few days lost.

I initiated the process by (1) talking to Manulife on the phone and telling them what I was up to, and (2) walking into a TD branch with the MFC statement in hand and telling them what I wanted to do. Even (1) is optional, but its how I learned that the MFC funds couldn't be transferred in kind. It is important to be clear that you are transferring an RRSP, NOT withdrawing anything. TD knows what to do and will initiate the transfer mechanism with Manulife behind the scenes.
 
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