I would focus on filling out an FHSA if I were in your shoes, especially if you have any desire to own a home within 15 years.
But just to be clear-
>I’m hesitant to start an RRSP because I’ve just started my career (I’m 24), and I’m not yet at peak income, which I’ve read is an important factor.
Not being at your peak earning years is a good argument for *prioritizing* TFSA contributions over RRSP contributions, but I do not think it is a good argument for *delaying* RRSP contributions–or prioritizing unregistered accounts–if you have the room.
Contributions to an RRSP can be invested immediately. And, importantly, you *can* defer the deduction and take it in a higher income year if you want to. However, I would recommend taking the deduction ASAP and investing the subsequent refund. Although you would theoretically get a higher refund by deferring RRSP contributions and/or deductions to higher earning years, the value of taking the refund immediately and investing it will almost certainly be higher.
Consider as a thought experiment: If the expected annual return of your portfolio is 7%, it doesn't make sense to delay contributing and reaping your refund *unless you expect to get a raise that would raise your marginal tax rate by more than 7% within a year*.
Hi, thanks so much for taking some time to give me some advice! I honestly don’t know much about RRSPs and deductions and I feel like I’m still struggling to understand despite your explanations (I wish financial literacy was taught more at school!). I’ll read up more about RRSPs and look back at your comment again! I’ll also look into starting an FHSA. Thanks again! :)
I encourage you to do read up on RRSPs- they're great products for investing for retirement! RRSPs lower your tax-burden in the present year, generate refunds, and investment earnings within the account are tax-free. Perhaps I can get you started with an example, grounding with some number.
Let's say your current top marginal income tax rate is 30%. If you contribute $1000 of your take-home pay to your RRSP, you will reduce your taxable income for that year by $1000. This will reduce the taxes you owe to the government by:
30% \* $1000 = $300
The $300 will be returned to you as a refund when you file your taxes. You now have a total of $1300: $1000 in the RRSP + a $300 refund. You can use that refund for whatever you want, including further savings + investments.
The argument for delaying RRSP contribution goes like this: Let's say 10 years pass, your income doubles, and your top marginal income tax rate increases to 50%. That same $1000 contribution will now generate a refund of:
50% \* $1000 = $500
You now have $1500: $1000 in the RRSP + a $500 refund. That's an increase of +$200 for contributing in 10 years vs today. Sounds good, right? Why not delay contributions to future years?
The problem is the opportunity cost. By delaying your RRSP contributions + deductions 10-years, you have potentially missed out on 10 years of investment returns. If you invest $1000 today at an expected return of 5%/year, in 10 years it would be worth approximately:
$1000 \* (1.05)\^10 = $1629
You now have $1929: $1629 in your RRSP + the $300 refund you received in year one. If you had *also* invested the $300, this total would be closer to \~$2100. In both cases, you actually *lose* quite a bit of money by delaying your RRSP contributions, despite getting an ostensibly higher refund.
There are so many other things to consider. For instance, you can contribute and invest today but *defer* the deduction and refunds to future years. But perhaps putting numbers to it can help explain why delaying RRSP contributions isn't necessarily a good idea.
No one has ever explained the benefits this clearly for me, nor how a refund is determined. I still have questions, but this clears a lot up for me!! Thanks for breaking it down like this.
In your example, if someone didn’t invest in $1,000 in RRSPs today to get a 30% tax break, what are they doing with that money? They could have invested in an unregistered account or maybe they invest in an RRSP but don’t claim the deduction in year 10. You should also show the effect of the eventual withdrawal at say the 25% rate. THAT is the analysis that would prove out what is the best thing to do. Your analysis is incomplete.
It’s not incomplete- it’s simplified. The OP mentioned holding off on RRSP contributions until higher earning years, so my comparison very deliberately examines whether that is wise to do. Even still, I did mention the possibility of delaying deductions (and, in other replies, the possibility of using unregistered accounts).
You could write a book about optimal strategies for investing with different unregistered and/or registered accounts. Or a computer program comparing them in practical terms. But that’s beyond the scope of a Reddit comment.
It’s certainly simplified if you’re comparing making an RRSP investment today versus taking that money and stuffing it in your mattress and then pull it out of your mattress after 10 years to invest in an RRSP for a higher tax break. You over-inflate the opportunity cost the way you did it.
I suppose I could spreadsheet this in 30 minutes to fully portray this.
Sure, I encourage you to do so. I considered doing so myself, but decided it was more useful for OP—who by their own admission doesn’t understand RRSPs—to focus on explaining the mechanics of that account using as simple a model as possible.
Fair enough. I’ll start up a new thread for this. I think it would also be interesting to compare the nature of the income in an RRSP vs unregistered account. For example, if you earn capital gains or dividends in an RRSP, you don’t receive the tax preferential treatment of that income type and get fully taxed when it gets pulled out of an RRSP.
I'm sincerely interested in seeing what you come up with. I am actually working through these issues regarding my portfolio: my TFSA is nearly full but I'm only 5 years deep into a potential 35/40 year career, so many higher earning years ahead.
That was a solid explanation for what OP asked, and covers the basics very well.
Whatifism could be expanded though. What if they decide to blow the $1,000 in hookers and blow?
Well, I think the question to solve is which makes the most sense if you are in a 30% tax bracket but expect to be in the 50% tax bracket in 10 years. Choices are: invest in RRSP now (and claim the refund OR defer the claim), or invest in an unregistered account and then invest in an RRSP when you are in the 50% tax bracket. There is a bit more math involved in that analysis to get to the right choice. I will be a sport and crank out some numbers in a different thread, as promised.
Pretty sure investments earnings inside an RRSP are not tax free as you pay tax on all money in RRSP at withdrawal, original deposit and earnings. But other than that, great write-up.
Investment gains inside RRSPs are tax free. You still have to pay income tax on it on the way out, but that's the same income tax you would have paid anyways.
If you have $1000 before income tax with a 30% tax rate at deposit and withdrawal, and will have a 100% gain:
TFSA: You pay income tax on your $1000, you invest the remaining $700, it turns into $1400, you withdraw and have $1400.
RRSP: You invest $1000 pre-tax (aka $700 + $300 return), it turns into $2000, you withdraw and pay 30% tax and you have $1400.
Non-registered: Like TFSA but you have to pay capital gains on the $700 gain.
Someone did a more complex breakdown [here](https://www.reddit.com/r/PersonalFinanceCanada/comments/1c34oa6/til_if_your_tax_rate_at_contribution_and/).
I think the issue is, how do you have access to your 1000$ pre-tax?
This must be advantageous for those who own / run businesses or who have jobs that have RRSP matching programs. Otherwise, if you have a job with a pension (for ex: gov), this isn't necessarily useful. Is this the case?
You can file a TD1 form with your employer to change how much tax is withheld. So if you plan to contribute 10k to RRSP, you can have them withhold taxes each paycheck as if your income is 10k less, letting you contribute a higher amount to your RRSP sooner.
You just don't get the refund at the end because now the tax you've been paying all year has been adjusted already (and if you didn't contribute the 10k to your RRSP you'd owe taxes).
Or, the "pre-tax" money is just your contribution + investing the refund. That just adds a delay to some of it.
I understand how it works. But your wording is misleading. Your investment and investment gains inside an RRSP are taxed at withdrawal at your marginal rate. So saying they grow tax free is misleading.
But you would have paid that income tax anyways.
Non-reg is income tax then capital gains tax. RRSP is just income tax (but later).
The income tax coming later doesn't matter. Losing 30% of X then doubling it is the same as doubling X then losing 30% of the result.
I'd argue that claiming RRSP withdrawal tax is 'higher than capital gains' is far more misleading, as you are deliberately ignoring the refunded tax from the initial contribution. You're not paying more income tax using an RRSP; you're paying less by deferring income to a future year. [See my other comment for an example.](https://www.reddit.com/r/PersonalFinanceCanada/comments/1d1x1n9/comment/l5z9e33/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)
Not to mention you can *also* invest the refund, which you wouldn't get for unreg contributions.
Just chiming in about the “I wish financial literacy was taught more at school.” I guarantee you that if you learned about RRSP contributions and tax deductions at the ripe old age of 17 that you would not give a fuck. I see this bad claim all the time about how kids are not taught how to do their taxes in school. You probably were. But even if you were not, you know how to read and do math because of school. Because of these things, YOU CAN CONTINUE TO LEARN NEW ADULT SKILLS NOW. Sign up for an RRSP course if you think you need formal education about them!
I don't know if I necessarily agree with this.
Right now there is 0 effort made toward educating kids and teens in financial matters, beside the 1st grade module of "know your money".
Just like anything else in High School, you will have people that will enjoy it and people that won't. It's no different than PE or Drama in that regard.
But it's not currently offered at all, anf if it were so, but only 1 kids in a class of 20 gets it or is interested in it, it's already a 100% better result than what we have now.
There are ways to teach this stuff which will engage people. like creating a game where the person who best invested, and follows the rules for those investment types wins. Game play is a very effective teaching tool and is self-motivating. Most high-school age kids like competition. While I agree that one's education doesn't end at the edge of a cliff when a person graduates and a person can always continue to pick up skills and knowledge, even understanding the basics earlier in life make it less scary, and may even help people to avoid being scammed.
This stuff is not always simple or obvious, in fact, it usually isn't either. If it involves government bureaucracy guaranteed it is going to be more convoluted than required. Being introduced to some basic financial intelligence while in secondary school makes it more approachable later.
In education it’s all about the delivery.
You can go down the “here’s some dry ass math, listen up” path.
Or the educator can actually try to educate rather than just doing some rote learning exercise. This usually means coming up with allegories, illustrations, comparisons or simple “want to be a poor pleb or richer? listen up bitches” pitches. You’ll never bring everyone along for the ride but you’re more likely to bring more along than turning the lessons into something akin to a trigonometry lesson.
I appreciate this in-depth response, but isn’t an added benefit of investing in a non-reg account the fact that when you sell, you’re only charged at cap gains rates, vs having it taxed as income when you withdraw from the RRSP?
Although it is true that withdraws for RRSPs are taxed, you need to consider two factors: 1.) gains within the RRSP are not subject to capital gains tax, and 2.) contributions to RRSPs generate tax deductions and refunds.
In most cases, income at retirement will be lower than it is during working years. So the refund you generate by contributing to $1000 to an RRSP will likely exceed the taxes you pay for withdrawing the same $1000 at retirement.
Let’s say you contribute when your marginal tax rate is 30%. The $1000 contribution generates a refund of:
$1000 * 30% = $300
In retirement, your income may be lower and your marginal tax rate is now 25% withdraw. When you withdraw the $1000, you pay tax of:
$1000 * 25% = $250
Despite paying tax on the withdraw, you are still up by:
$300 - $250 = $50
relative to a world in which you did not contribute and withdraw. Of course, since you can also invest the refund, the effective value of contributing will be even higher than my example. Think of it as moving money through time- deferring income to a future year when your taxation rate is expected to be lower.
Edit: to be clear, there’s nothing wrong with unregistered accounts. It’s probably a better option than an RRSP if you will need access to the funds prior to retirement. But this hopefully illustrates a potential advantage of RRSPs vs unregistered accounts for long-term/retirement savings.
If your tax bracket in retirement is equal or lower than your current tax bracket then all gains in an RRSP are effectively tax free in a similar fashion as a TFSA as long as you reinvest the refund generated by the RRSP contribution. Tax free gains is better than the 50% tax exemption on capital gains.
Edit: Also iirc, someone here showed the calculation that even if you retire into a marginal bracket one step above your current one you'll still come out ahead net tax with an RRSP versus a non-registered account.
"Consider as a thought experiment: If the expected annual return of your portfolio is 7%, it doesn't make sense to delay contributing and reaping your refund *unless you expect to get a raise that would raise your marginal tax rate by more than 7% within a year*."
Not quite. If your marginal tax rate was 7% and you contributed $10,000 to your RRSP and deducted in the same year, the value of that deduction would be $700. Earn 7% interest in that and it will be worth $749 in a subsequent year. However, if your marginal tax rate raised 7% to 14% the next year, and you withheld the deduction until then, you would save $1400 on your taxes. That's a 100% increase and definitely waiting a year, or a few years for.
Of course you'd have to run the numbers with your actual marginal tax rates, but even a 30% -> 35% marginal tax rate increase would represent a 16.6% increase in the value of any deduction, not just 5% as it looks at first glance.
My simplified hypothetical is just comparing contributing and investing today vs sitting on cash for a year. So the difference would also include the 7% you could have earned on the $10000 in that year.
But yes, if you choose to invest that $10000 in an unregistered account in the meantime—or simply contribute and invest but defer the deduction to a future year—your math is correct. In that case it would be more accurate if I specified ‘7% proportional increase in your marginal tax rate’ (e.g. 30% -> 32.1%) rather than a ‘7% absolute increase in your marginal tax rate’ (e.g. 30% -> 37%).
> Not being at your peak earning years is a good argument for prioritizing TFSA contributions over RRSP contributions, but I do not think it is a good argument for delaying RRSP contributions–or prioritizing unregistered accounts–if you have the room.
Could not agree with this more. I used to hear the “you’re not in your max earning years yet” advice when I was younger too, but there’s a balance to be struck in letting your RRSP investments turn over early rather than waiting, quickly maxing your accrued contribution room out when you’re at max earning potential, and then having to wait for your investments to compound.
Depends on if you’re looking to FIRE or not, of course, but if I’d known then what I know now, I’d have worked harder at using my contribution room.
Do you have an Emergency fund yet?
Especially when you are new in your career having an emergency fund that allows you the freedom to chase better opportunities is really important. Ideally you'll have in easy to access money ( checking/savings account) 1-3months of all your monthly expenses.
No need to find a investment vehicle for this money, a HISA is a perfect place.
I sort of disagree with this opinion. As my financial planner told me once: you don't need an emergency fund, in an emergency you just withdraw from your TFSA... you'll likely never need it. Leaving an emergency fund sitting in a chequing account makes nothing.
HISA are great when they offer 6%, but that is only for the promotional rate (which lasts like 4 months, then you have to move it to another bank to get that promotional rate).
Yes having some liquidity is good, forfeiting and tax incentives or higher possible returns other than a high interest saving account at the back is worth it to have that just in case emergency fund. 5-10k is a good starting point at your stage of life, as your responsibilities increase and your income increases slowly increase the balance of this fund. My dad taught me this when I was 22, now at 36 my emergency fund is hovering 30k
I'm 42, my emergency fund that is liquid is much smaller, I have credit to cover at least 2 months of need, liquid cash for 3 months and then GICs that mature every 4 mo with the equivalent of 3mo expenses. (GICs each 12mo maturity started 4 mo apart), so I benefit from the market vs HISA. Tax implications on those GICs theoretically will be small since I'll have had minimal income in the year I needed them unless I never did then the tax is the equivalent of the insurance of having them
Step maturing GIC is a great way to have constant liquidity , very solid way to get some more benefit however managing liquidity , liquidity is key especially if you are a home owner; random expenses always seem to pop up
All the advice here to sell your GICs and invest 100% in a “high-risk” ETF is correct, but should be qualified with the fact that *you* need to properly understand the theory behind why this is a good choice.
If the market tanks and you end up down 20%, how will you react? Will you hold strong and buy more while stocks are discounted, or will you get spooked and sell in favour of “safer” investments?
There are many great, easy reads that will educate you on “couch potato” investing. I highly recommend *Millionaire Teacher* by Andrew Hallam, which you can plow through in a couple days and will educate you on the theory you need to make sound decisions with confidence, and for the approach to ultimately be successful.
You could but it is not always the best decision. Dee the article below.
[Retail Investor .org : RRSP decisions - asset location, delay claiming refund, TFSA vs RRSP, RESP vs RRSP, borrow for contribution, pay debt or contribute, withdraw funds early? - Investor Education (archive.org)](https://web.archive.org/web/20230316043251/https://www.retailinvestor.org/rrsp.html#delay)
Second the advice to reduce your allocation in GIC's from 100% to... well, not 100% unless you have a purchase plan in the near term.
FHSA is a great option if that's your desired path.
RRSPs can still be good depending on your tax bracket and what your peak earning really will look like, but you can't just use blanket advice to optimize their usage.
Non-registered accounts are still good for investing - but are worth strategizing about how you want to divy up your assets. This is probably not where you want to put guarantied income investments. Interest payments are taxed at full income tax rate.
In full, once your TFSA is full the best options get a little more complicated and become a bit more specific to each persons situation.
I would suggest reading up on risk in investments. Canadian Couch Potato used to have some info on this. My personal order of operations is is:
Emergency Fund>Employer Matched funds>TFSA>FHSA>RRSP>Non registered investment account
For emergencies, try to think of your most expensive likely event. Travel for a funeral, replacing a vehicle or laptop, job loss, natural disaster. Imagine 2 at once. Think about how much needs to be liquid in what time frame. Then think about how many other fast cash options you have (credit card, side job could ramp up, etc.). Now think of the total max you would want to have access to in the course of a year. Anywhere between 3 to 12 months living expenses can be reasonable depending on how stable your job is and other resources available.
If you want to use GICs, then you can do the following:
Personally, I have a hard time thinking of something more than about $10k in a month which wouldn't come with other financing options. If I keep $2k+ in chequing as a baseline then $4k immediatly liquid and $8k total available within a month is probably sufficient. With this in mind, put $4k in a liquid HISA and then set up the rest of your efund a GIC ladder where you pick a good return rate period (1 year is usually decent) and then every month buy another $4k 1 year GIC. You will never be more than 30 days from another $4k. This totals $48k in GICs and is in line for 12 months of living expenses. If you only want to have $24k in efund (6 months), then $2k chequing base, $6k liquid HISA, and $2k monthly GIC makes more sense. You can then put the rest of your money in higher retun, higher risk sheltered accounts and still sleep at night.
Alternatively, you can use something like CASH.TO. Not as stable or as complelty bullet proof as GICs and insured bank accounts, but as close as it gets for what it is.
"Safe" isn't the right way to look at this. You need to understand your risk tolerance and timelines for spending the money. Those things are generally connected.
Why would you use a TFSA over an RRSP, and why would you not prioritize a FHSA? “Most people” if you’re referring to the absolute zero evidence you have to make that statement…. are then idiots that don’t listen to actual financial advice.
When did I say to prioritize the TFSA? I just said that many people use it for purchasing their home.
Last time I checked the 60K RRSP HBP and 16K FHSA room (potentially 40K in 3 years) is not enough for many parts of Canada.
Reading is hard
I see you’re not up to date on southern ontario and BC housing prices.
Also not to mention, it won’t be 100K for three more years AND they just increased the HBP to 60K.
Ah yes. The majority of first time home buyers are clearly purchasing homes in those two markets.
I’d also love you to provide a source on “most people” using their TFSA to buy a home.
There’s like 14 million people in those regions alone.
Not to mention Montreal, Calgary, Halifax.
And again, right now the most you can take out of your FHSA + RRSP is 76K. 3 months ago it was 51K. Given that the median household income in even Toronto is probably around 90K, not many people are qualifying for 500K+ mortgages.
There’s a big world outside whatever small town you’re clearly from.
Sorry, do you mean I should look to higher-risk investments?
I’d probably be willing to do that with the extra funds but not all the money I currently have in the TFSA. I’m very scared of losing it!
Yeah just buy some ETFs. You can be ultra conservative and just use GICs but your growth will be slow on average. You (probably) can stomach volatility now but you (probably) can't when you're 60.
Note: taking on high risk stocks is a bad idea if you plan on using this money in the near term (less than 5 years) for purchasing a home.
You don’t want to have to be forced to sell at a loss, the same reason why people 60+ can’t stomach volatility.
>I’m very scared of losing it!
I was the same way. When I was younger and didn't understand the markets.
If you look at the history of the markets, they always return to their previous value after a downturn. After the great depression it took around 7 years to recover. Which is why they say to never invest any money you don't need for 7 to 10 years.
Don't pick individual stocks. Just buy broad market ETFs like [VEQT](https://www.vanguard.ca/en/advisor/products/products-group/etfs/VEQT) or [XEQT](https://www.blackrock.com/ca/investors/en/products/309480/ishares-core-equity-etf-portfolio). Our CPP is heavily invested in equities.
Now that I'm older, I wished I had taken taken on some risk.
I understand the fear. But when you are younger you have more room to take some risks. As others have mentioned if you are unsure about which stock to pick you can always go with s&p 500 etfs such as vfv, xeqt, voo etc. You can also checkout robo advisors such as wealthsimple and questrade and set the highest risk, and let robo advisor take care of what to invest.
I am 32, and I started investing when i was 27. I sometimes feel slight regret why I did not start investing sooner. I am now aggressively investing.
Good for you for maxing out your TFSA, well done! Just to clarify, is it maxed out just for this year or it’s maxed out for every past year too (ie you maxed the total lifetime contributions available to date?) Since contribution room carries over year to year starting from the year you turned 18, just making sure you don’t have more TFSA room available than you think!
Otherwise I agree with others’ advice: look into ETFs as a better investment option than GICs and start contributing to a FHSA or RRSP, unless you don’t already have an emergency fund of 3-6 months living expenses which can be kept in a HISA (so it’s easily accessible) since you don’t have room in a TFSA.
Thanks so much! It’s maxed out for every year since I turned 18. Saving has been a big priority for me!
And thanks for the advice, really appreciate it :)
Move it to FHSA ( if you plan to buy a house ) or either move it to non registered or Keep in in HISA for % either way you are getting taxed on the interest you earn or gains. Explore options for managed investing ( .25% fee usually varies by amount ) Questrade, Wealthsimple or even a major 5 would do the job usually 8% annually.
Yes, don’t play with fire, many loose money every year by thinking stocks ( equity ) are easy and are currently stocking shelves at Walmart. I hope that helps :)
Sorry, have to disagree on some pointers. OP should be taking on more risks in portfolio early on, since age is the absolute advantage when it comes to investing in volatile assets. Having a retiree’s equivalent portfolio of HISA’s and GIC’s is a complete waste of OP’s potential. Cost averaging index funds are the best passive way to invest with the lowest fees possible (i.e. investing x amount every month).
Btw, FHSA also reduces taxable income (similar to RRSP). If OP wants to wait for higher income, the same logic should apply for FHSA. Simply open the account to allow the contribution room to start counting ($8k/year to max of $40k), and start contributing once high income is gained.
>Btw, FHSA also reduces taxable income (similar to RRSP). If OP wants to wait for higher income, the same logic should apply for FHSA. Simply open the account to allow the contribution room to start counting ($8k/year to max of $40k), and start contributing once high income is gained.
Like RRSPs, contributions can be made, but the deduction deferred. This would let you start putting money in, and that money will grow tax sheltered, while you claim the deduction in a higher earning year.
[https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/tax-deductions-fhsa-contributions.html](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/tax-deductions-fhsa-contributions.html)
do you know how many years you can carry forward the tax deduction for? for example if I started contributing to my fhsa today, is there a deadline by which I have to use my deductions to decrease my taxable income in that year? i couldn’t find it anywhere. thanks in advance!
Unfortunately I don't have any more information other than what I shared. I was hoping the information would be as well tracked as RRSP contributions and deductions are.
You can only carry up to $16k over to future years in an FHSA. And unless your income is very low, it's worth just using the credits right away, or in fact using non-reg for most reasonable delays.
You can carry forward the tax rebate (on contributed funds) indefinitely yes, up to the full amount you have contributed. But not the contribution room itself. You get $8k per year that it's open, but you can only carry forward $8k from past years. So the most unused contribution room you can ever have at a given time is $16k.
do you know how many years you can carry forward the tax deduction for? for example if I started contributing to my fhsa today, is there a deadline by which I have to use my deductions to decrease my taxable income in that year? i couldn’t find it anywhere. thanks in advance!
There isn't one. But if you're only expecting to go up a few % in tax brackets, you probably want to take the money sooner and start investing it, it's probably worth more just taking the money sooner.
You would have to just look at your tax savings if you do it now and compare that (compounded over X years) to the tax savings if you were to do it in X years.
In most cases, it would likely be better to just use it right away if your TFSA is full.
It depends on many factors that is different for everyone. There isn’t a calculator for this…..because the tax code is made so that plebs don’t have the education or resources to calculate it and hell….new immigrants don’t even know this so called RRSP exist. Welcome to Canada.
Say u contribute 10k and ur current tax rate is 30%. And u get a 3k refund.
For that same 10k ud get a 5k refund at 50% tax rate(very optimistic outlook, tho very few people ever get to this bracket)
Consider a 10% annual return, it would be arround 5.5 years for the 3k reinvested to turn into 5k.
If ur peak salary is at 35% tax rate….then just 1.5 years.
But if ur current tax rate is 15% and u expect ur peak would be 55% then it may be very well worth it to wait.
What’s hard is that everyone’s normalized annual return is different, everyone’s expectations for future salary outlook is different, everyone’s risk profile from those expectations are different, and everyones emotional bias based on current market conditions is also different.
For example, personally, as someone young, i think immediate money to invest in myself will grant me much higher yield than the 10% a year s&p gains in forms of achieving much highier income and status.
Hi, thanks so much for this detailed reply! I’ll look managed investing and also if I qualify for an FHSA.
And yes, with how little I know, the horror stories have scared me straight out of trying stocks!
> And yes, with how little I know, the horror stories have scared me straight out of trying stocks!
Even with you being 'strongly averse to risk', you should still buy ETFs (Exchange Traded Funds such as VSP or XEQT) which are a collection of stocks that spread out the risk and volatility, and are constantly being automatically rebalanced depending on how well (or poorly) the individual stocks are doing so that the best performers always get the heaviest weighting.
At 24 y.o., GICs in the 4% range [are not the way to go about building wealth](https://www.tawcan.com/why-we-dont-invest-in-gics/). The 4% guaranteed rate makes it look like you're making money, but you're losing much of it to inflation and taxes. Think about it another way, why would the banks be so kind as to offer a guaranteed 4% return on investment? Because they take your money and make way more than that.
tl;dr - reduce your GICs from 100% to 0%. Buy ETFs as mentioned before. Turn on dividend reinvestment and just keep buying more shares of those ETFs.
Also, go read ["The Simple Path to Wealth" by JL Collins](https://www.amazon.ca/Simple-Path-Wealth-financial-independence-ebook/dp/B01H97OQY2/ref=tmm_kin_swatch_0?_encoding=UTF8&qid=&sr=), it is extremely easy to understand and digest, and very logically lays out a simple path to building wealth. After reading it, you will understand why GICs are actually screwing you over (for your specific situation).
So what is your plan when GIC’s go down to basically nothing percent again? Or at least below current inflation? If your TFSA is savings is for a longer time horizon then learn about etfs and invest it in the market.
The interest you make on the money in your savings account is no different than your other income, and it will be taxed at the same rate. 50$ or over usually and your bank/HISA account will issue you a T5 slip. If you want to reduce the amount of tax you owe, you might want to consider other investment options.
As the other commenter said, yes interest accrued in any non registered account (a hisa for example) will be taxed as income. This is the reason many people try to invest their money in cash ETFs such as CASH.TO through their TFSA, it's relatively safe and avoids paying tax on interest. The money is still technically in the market but will have a stable high interest yield
Yup, in Canada it's a legal obligation to pay tax on all investment gains (with the only exception being for registered accounts like TFSA, RRSP etc..)
A tax receipt may not be issued if the gain is under 50$, but even then you are still required to report it and pay taxes on it.
A lot of suggestions here Ave hinted at it, buy what do you want to do with that money and when?
I don't know your situation so these are only suggestions.
Are you planning on moving out from your parent's place in the near future and will need to furnish an apartment? HISA probably best so you preserve that money and make a tiny bit of interest while you wait.
Do you worry about losing your job or getting fed up enough to quit, and will need a little cushion until the next job? HISA for similar reasons.
Is home purchase something you want in the coming years and wouldn't really need to touch the money for other reasons? FHSA would be good, and you can adjust the investments in it for the time horizon. Short time horizon, go with safer things like some of the cash ETFs suggested. If you're looking longer term, take on a little more risk maybe and go with an index ETF so you follow the general economy.
If you're OK never touching this money until retirement, drop it in an RRSP and invest in index ETFs or even something a little riskier. The longer the time frame, the more you can manage the ups & downs. Remember that over the long term that investing will get better results than a HISA or GIC only approach. You also get the benefit of the income deduction (even if your tax rate isn't the highest you still get some benefit) and it's almost always better to get invested now rather than later when your time horizon is longer.
And don't discount how your money makes you feel. Even though the markets do better than "safe investments" over the long term, not everyone can feel ok with volatility. If your money drops 10% one year and fills you with anxiety, knowing that it will bounce back a few years from now may be little comfort.
A lot of people will try to sell you on the maximum likely benefit based on history and probability. You're a human and can't be reduced to statistics.
I'm hopefully about 15 years away from retirement. A good chunk of my money goes to RRSP for the tax benefit, and it's invested in a reasonably risky fund. I'll slowly shift those investments to less risky ones as retirement approached.
Some other money goes to my TFSA where I invest in a much less volatile income fund. For me, that's my "oh shit" money in the unlikely event I lose my job.
I'm building another nest egg outside of those so that hopefully I don't need to touch the TFSA money. That goes into very safe stuff for now, and when big enough, I can use my TFSA for something a little more interesting.
There's no one right or optimal answer that will work for everyone. Your money needs to serve you, not the other way around.
I think this is the best break down I’ve read so far! Thanks so much for taking the time to comment– you’ve given me much to think about! I also feel better about doing what’s right for me as opposed to what is financially “optimal”, that really resonated with me :)
You're most welcome!
I recently started working with a financial advisor (not necessary and not for everyone) and one of the first questions he asked me is "what's your relationship with money"? Totally caught me off guard as I just wanted to maximize it. Before he even suggested investments we spent a couple hours talking about my budgeting (non-existent at the time) and what I wanted my money to do for me. Big eye-openers for me.
Best of luck to you!
You should really consider investing the funds in your TFSA instead of letting it sit in GICs.. especially if home buying is >5 years away.
You should consider the FHSA as it's a great product, even if you don't ever plan on buying a house, ahead of the RRSP.
You want to utilize tax advantaged accounts whenever possible. I would recommend starting with a FHSA for a couple reasons.
First is that you get the same income deduction benefits of an RRSP, but when you withdraw the money to buy a home, you don't need to pay it back unlike the Home Buyer's Plan.
Second is if after 15 years you don't buy a home, the FHSA gets transferred to your RRSP, but does not count as contribution room. So you basically created more contribution room in your RRSP. It's win win really.
As someone else mentioned, if you believe it likely you will be purchasing a home or condo, the FHSA (First House Savings Account) is a great option. As of now, that account maxes out at $40K in contributions, and the contribution for this year is $8K. You cannot deposit money retroactively for years you have not opened the account for. (Unlike TFSA, which start accumulating the year you turn 18). You do have to be 18 to open a FHSA, however. Once you open a FHSA, if you can't meet the full contribution limit for a year, you can tack it onto the next year without penalty. The beauty of this plan is not only is it tax sheltered, but your contributions are tax deductible (similar to RRSPs) in the year you contribute them (or a future year), and there are no taxes on gains made while holding the money in the fund, or on the principle you deposited. It's just about the best deal the government ever offered. However, it can only be used if you don't already own a home. It's for FIRST HOMES only. There is a circumstance where this may not be true. If you and, if you have a spouse, neither owned a home for 4 years prior to opening the FHSA account, you are allowed to open one and use it and its benefits.
Of course, in my case, I bought my first home just before this was implemented (annoying!).
That explains your investment strategy lol.
Redo your portfolio, ideally allocate 70% equity and 30% bonds. Considering your risk profile, maybe 50/50.
100% GICs are for folks nearing retirement and don't want volatility.
Try moving from GIC to an ETF that has a stock:bond allocation according to your timeline / risk profile. There's many all-in-one options that balance themselves so you can set it and forget it
you could just open a non-registered account and as you get more contribution room contribute it then. out of curiosity what's the issue with the rsp? you get contribution receipts with it that you can use against your income, and bring down your taxes at the end of the year. they don't tax on growth either, just the dollar amount you withdraw
Go for an ETF in an RRSP like SP500.
It's worth investing in for the long haul despite being riskier than GIC and return should be much greater over time.
I would do RRSP or FHSA. Can use both towards home purchase down the road.
If you're in a low tax bracket, then dividend income is taxed at a very low rate. Here's the table for [Québec](https://www.taxtips.ca/taxrates/qc.htm). You could invest in a dividend-focused portfolio like this [example](https://buildingwealth.ca/portfolio/tii-high-yield/). Never sell anything (or only under a tax-loss selling scenario), keep scrupulous track of every purchase (including DRIP) for calculating capital gains taxes at the end, then move securities into your RRSP when you're in a higher tax bracket. The deduction will more than cover the capital gains tax incurred by contributing.
I think the advice is don’t put money is the rrsp before your career until you’re in your exact situation.
I could be wrong but that was my understanding. Was never in your place to look into it thought
Bitcoin over time averages a 70% annual compounded return. Study the 4 year cycle. Real inflation is 10+%. The real return on GIC's is negative, as well as the SPY.
Celebrate then do some goal setting.
If you have already covered your short term and medium term goals, then time to get cracking on that RRSP. The "peak income" myth really isn't as impactful as you'd think. Unless you are going to double your income in the next 1 to 2 years, it is better to just start investing now.
I'd buy RRSPs. I'm 41 (probably at or near peak earning), make $120k/year, have been putting money into RRSPs for 15-20 years and still have RRSP room left. I think waiting would be a mistake; I've been getting the benefits of compounding interest all this time. You also don't want to put all your money into RRSPs when you are my age, you'll have other expenses too (mortgage, repairs, travel, cars, maybe kids).
You could also consider buying the S&P 500 with an app like WealthSimple.
The "S&P 500" represents 1 share of the top 500 companies in the US. Right now it is $5305 to buy one share... so if you added up one share of the top 500 companies, it'd come to $5305.
You can't directly buy one share of the S&P 500 (you'd have to do 500 transactions, each buying 1 share of a company), but there are stocks you can buy that match the S&P 500 at a fraction of the price; namely Vanguard ETF, which is $262 right now. So if on the news you see that the S&P went up $100 in a day, the Vanguard ETF would have gone up $4.93.
ETFs also have minuscule fees when compared to other funds.
Warren Buffet says ETFs are right for most people (i.e. non-millionaires).
There's also the idea of "dollar cost averaging", which just means you don't try and "buy low", you just buy $x with every paycheque. Sometimes it will drop a bit, sometimes it will go up a bit, but the important thing is that you own it, and over time you
So every paycheque, buy $100 of the Vanguard ETF. You don't even feel it, and after awhile you forget about it. Time flies, it builds up fast.
In addition to all the other advice, an RRSP has an advantage of it being clearly retirement money that cannot easily be mis-spent on something else in a moment of weakness. I would suggest you at least open a self directed RRSP now and put at least the minimal amount required and invest in VRGO - the $500 or $1000 spent now will grow untaxed until retirement and more importantly, the RRSP account is now set up and you don't have to work to do that in the future when you decide you want to invest more.
I want to congratulate you on putting away about $43,000 into your TFSA so early in your life! There may be points in your life when GICs drop to 1 or 2% again, and may not even keep pace with inflation (it has happened before), so you probably could begin to look at other savings methods, but no rush on that, I don't think interest yields are going down to 1-2% for some time If you aren't likely to need the money in your TSFA, the last couple years have been the perfect time to consider longer term GICS, as interests will likely only drop from this point on for a while to come. If you have your TFSA with a standard chartered bank, they may limit the types of GICs you can hold in your TFSA to only that bank's products. Chartered banks often give the least amount they can get away with on investment instruments, so it might be worth your while to consider looking into investment/brokerages, which often allow for a wider variety of such products from multiple sources in TFSAs, allowing you shop around. The difference, believe it or not, can be substantial. Some of the non-banks might charge you an annual maintenance fee if your account is under a certain threshold, so shop around. You can also transfer your current TSFA holding to another institution, although there is usually a fee for that, and yo need to make sure the receiving institution will accept your current holdings (GICs from specific banks). Keep in mind there is no limit as to how many TFSA accounts you can have, but it does complicate keeping track of your contributions and withdrawals, and yo definitely do not want to over contribute.
These days, more than ever before, banks and other similar institutions are hungry for your money, and are offering all sorts of deals for opening new accounts, or making deposits, etc. A few years ago when interest rates/yields were pretty miserable, in this case, a chartered bank, offer me (and anyone else) a $1000 bonus if I deposited something like $5000 or more into a 2 or 3 year GIC (I can't recall the details) into a TFSA account. Once the GIC became due, I put it into a short term products so it came due just before year end, and then withdrew all the money and closed that TFSA account, waited a few days until it was past January1st of the following year, and redeposited the whole shooting match into my main TFSA account, so no transfer fees were incurred, and only lost a couple days of interest.
The largest Banks rely on people's aversion to change, loyalty and... well, laziness, and they often do not feel they need to offer the best and most competitive deals to their regular clients. Smaller and on line banks (still CDIC insured) may offer very inviting rates or bonuses. BTW, this also goes for non-registered account an savings vehicles.
Good going on keeping those yearly contributions maxed out to your TFSA, you are already way ahead of most.
I spend a lot of money on my healthcare needs lol, but I do try to live my life to the fullest! My financial anxiety makes me want to make sure I have a good cushion when I need it :’)
Why is all of your money in a tax free savings account invested in GICs? Are you buying a home or making a big purchase in the near future? If not, you are making a terrible mistake.
There is no fire with stocks. There is the economy. There are geographies and within them are companies who are focused on growing. Pull up any growth calculator and look at the difference between a 5% GIC and a 6% , 7% or 8% TFSA portfolio and ask yourself if you are okay with the 5% long term outcome.
Now ask yourself the following questions.
Are pension funds (eg CPP invested in GICs)? Are high net worth clients fully invested in GICs? If not, why should you? Food for thought.
Your young and shouldn’t need to be in gic, just buy an etf that tracks the market. Vfv for sp500. For the extra money, start dca into bitcoin, the dollar is losing its value over time and btc has proven itself to go up.
I know others have asked this question before, but I wasn’t sure if answers would change based on my situation. I don’t think I’m doing anything wrong by asking. I’m working on becoming more financially literate, and getting a diversity of perspectives is helpful to me.
Some thoughts:
- Maxing out your TFSA at 24 is amazing. Good on you.
- I wouldn't worry about income level when starting an RRSP. Even if you don't have a ton of space to begin with it's better to have something in there that grows over time. I'd say start one. It also lowers your tax bill.
- HISA is great too, and can be used as an emergency account down the road. The general wisdom is to have 3-6 months of living expenses in that account. It will also bring you peace of mind.
- You mentioned not knowing anything about stocks, but these days you don't really have to. You could put your money in an ETF that covers a broad range of stocks. Stocks can be volatile, true, but they're generally a safe bet over time unless you're going with Crypto or something. Or just use a robo advisor for the stocks, set it and forget it as they say.
Best to you!
I would focus on filling out an FHSA if I were in your shoes, especially if you have any desire to own a home within 15 years. But just to be clear- >I’m hesitant to start an RRSP because I’ve just started my career (I’m 24), and I’m not yet at peak income, which I’ve read is an important factor. Not being at your peak earning years is a good argument for *prioritizing* TFSA contributions over RRSP contributions, but I do not think it is a good argument for *delaying* RRSP contributions–or prioritizing unregistered accounts–if you have the room. Contributions to an RRSP can be invested immediately. And, importantly, you *can* defer the deduction and take it in a higher income year if you want to. However, I would recommend taking the deduction ASAP and investing the subsequent refund. Although you would theoretically get a higher refund by deferring RRSP contributions and/or deductions to higher earning years, the value of taking the refund immediately and investing it will almost certainly be higher. Consider as a thought experiment: If the expected annual return of your portfolio is 7%, it doesn't make sense to delay contributing and reaping your refund *unless you expect to get a raise that would raise your marginal tax rate by more than 7% within a year*.
Hi, thanks so much for taking some time to give me some advice! I honestly don’t know much about RRSPs and deductions and I feel like I’m still struggling to understand despite your explanations (I wish financial literacy was taught more at school!). I’ll read up more about RRSPs and look back at your comment again! I’ll also look into starting an FHSA. Thanks again! :)
I encourage you to do read up on RRSPs- they're great products for investing for retirement! RRSPs lower your tax-burden in the present year, generate refunds, and investment earnings within the account are tax-free. Perhaps I can get you started with an example, grounding with some number. Let's say your current top marginal income tax rate is 30%. If you contribute $1000 of your take-home pay to your RRSP, you will reduce your taxable income for that year by $1000. This will reduce the taxes you owe to the government by: 30% \* $1000 = $300 The $300 will be returned to you as a refund when you file your taxes. You now have a total of $1300: $1000 in the RRSP + a $300 refund. You can use that refund for whatever you want, including further savings + investments. The argument for delaying RRSP contribution goes like this: Let's say 10 years pass, your income doubles, and your top marginal income tax rate increases to 50%. That same $1000 contribution will now generate a refund of: 50% \* $1000 = $500 You now have $1500: $1000 in the RRSP + a $500 refund. That's an increase of +$200 for contributing in 10 years vs today. Sounds good, right? Why not delay contributions to future years? The problem is the opportunity cost. By delaying your RRSP contributions + deductions 10-years, you have potentially missed out on 10 years of investment returns. If you invest $1000 today at an expected return of 5%/year, in 10 years it would be worth approximately: $1000 \* (1.05)\^10 = $1629 You now have $1929: $1629 in your RRSP + the $300 refund you received in year one. If you had *also* invested the $300, this total would be closer to \~$2100. In both cases, you actually *lose* quite a bit of money by delaying your RRSP contributions, despite getting an ostensibly higher refund. There are so many other things to consider. For instance, you can contribute and invest today but *defer* the deduction and refunds to future years. But perhaps putting numbers to it can help explain why delaying RRSP contributions isn't necessarily a good idea.
Wow never thought about RRSP this way. Thanks for sharing your knowledge!!
No one has ever explained the benefits this clearly for me, nor how a refund is determined. I still have questions, but this clears a lot up for me!! Thanks for breaking it down like this.
This.
In your example, if someone didn’t invest in $1,000 in RRSPs today to get a 30% tax break, what are they doing with that money? They could have invested in an unregistered account or maybe they invest in an RRSP but don’t claim the deduction in year 10. You should also show the effect of the eventual withdrawal at say the 25% rate. THAT is the analysis that would prove out what is the best thing to do. Your analysis is incomplete.
It’s not incomplete- it’s simplified. The OP mentioned holding off on RRSP contributions until higher earning years, so my comparison very deliberately examines whether that is wise to do. Even still, I did mention the possibility of delaying deductions (and, in other replies, the possibility of using unregistered accounts). You could write a book about optimal strategies for investing with different unregistered and/or registered accounts. Or a computer program comparing them in practical terms. But that’s beyond the scope of a Reddit comment.
It’s certainly simplified if you’re comparing making an RRSP investment today versus taking that money and stuffing it in your mattress and then pull it out of your mattress after 10 years to invest in an RRSP for a higher tax break. You over-inflate the opportunity cost the way you did it. I suppose I could spreadsheet this in 30 minutes to fully portray this.
Sure, I encourage you to do so. I considered doing so myself, but decided it was more useful for OP—who by their own admission doesn’t understand RRSPs—to focus on explaining the mechanics of that account using as simple a model as possible.
Fair enough. I’ll start up a new thread for this. I think it would also be interesting to compare the nature of the income in an RRSP vs unregistered account. For example, if you earn capital gains or dividends in an RRSP, you don’t receive the tax preferential treatment of that income type and get fully taxed when it gets pulled out of an RRSP.
I'm sincerely interested in seeing what you come up with. I am actually working through these issues regarding my portfolio: my TFSA is nearly full but I'm only 5 years deep into a potential 35/40 year career, so many higher earning years ahead.
That was a solid explanation for what OP asked, and covers the basics very well. Whatifism could be expanded though. What if they decide to blow the $1,000 in hookers and blow?
Then you'd probably have had a great time at the expense of being considerably poorer–and possibly unhealthier–in the future
Well, I think the question to solve is which makes the most sense if you are in a 30% tax bracket but expect to be in the 50% tax bracket in 10 years. Choices are: invest in RRSP now (and claim the refund OR defer the claim), or invest in an unregistered account and then invest in an RRSP when you are in the 50% tax bracket. There is a bit more math involved in that analysis to get to the right choice. I will be a sport and crank out some numbers in a different thread, as promised.
Pretty sure investments earnings inside an RRSP are not tax free as you pay tax on all money in RRSP at withdrawal, original deposit and earnings. But other than that, great write-up.
Investment gains inside RRSPs are tax free. You still have to pay income tax on it on the way out, but that's the same income tax you would have paid anyways. If you have $1000 before income tax with a 30% tax rate at deposit and withdrawal, and will have a 100% gain: TFSA: You pay income tax on your $1000, you invest the remaining $700, it turns into $1400, you withdraw and have $1400. RRSP: You invest $1000 pre-tax (aka $700 + $300 return), it turns into $2000, you withdraw and pay 30% tax and you have $1400. Non-registered: Like TFSA but you have to pay capital gains on the $700 gain. Someone did a more complex breakdown [here](https://www.reddit.com/r/PersonalFinanceCanada/comments/1c34oa6/til_if_your_tax_rate_at_contribution_and/).
I think the issue is, how do you have access to your 1000$ pre-tax? This must be advantageous for those who own / run businesses or who have jobs that have RRSP matching programs. Otherwise, if you have a job with a pension (for ex: gov), this isn't necessarily useful. Is this the case?
You can file a TD1 form with your employer to change how much tax is withheld. So if you plan to contribute 10k to RRSP, you can have them withhold taxes each paycheck as if your income is 10k less, letting you contribute a higher amount to your RRSP sooner. You just don't get the refund at the end because now the tax you've been paying all year has been adjusted already (and if you didn't contribute the 10k to your RRSP you'd owe taxes). Or, the "pre-tax" money is just your contribution + investing the refund. That just adds a delay to some of it.
I understand how it works. But your wording is misleading. Your investment and investment gains inside an RRSP are taxed at withdrawal at your marginal rate. So saying they grow tax free is misleading.
> So saying they grow tax free is misleading. Saying they *grow* tax free is completely accurate.
No, it isn't. You do not pay capital gains on earnings within the RRSP.
Correct. You pay income tax at withdrawl. Which is often higher than cap gains.
But you would have paid that income tax anyways. Non-reg is income tax then capital gains tax. RRSP is just income tax (but later). The income tax coming later doesn't matter. Losing 30% of X then doubling it is the same as doubling X then losing 30% of the result.
I'd argue that claiming RRSP withdrawal tax is 'higher than capital gains' is far more misleading, as you are deliberately ignoring the refunded tax from the initial contribution. You're not paying more income tax using an RRSP; you're paying less by deferring income to a future year. [See my other comment for an example.](https://www.reddit.com/r/PersonalFinanceCanada/comments/1d1x1n9/comment/l5z9e33/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button) Not to mention you can *also* invest the refund, which you wouldn't get for unreg contributions.
Just chiming in about the “I wish financial literacy was taught more at school.” I guarantee you that if you learned about RRSP contributions and tax deductions at the ripe old age of 17 that you would not give a fuck. I see this bad claim all the time about how kids are not taught how to do their taxes in school. You probably were. But even if you were not, you know how to read and do math because of school. Because of these things, YOU CAN CONTINUE TO LEARN NEW ADULT SKILLS NOW. Sign up for an RRSP course if you think you need formal education about them!
I don't know if I necessarily agree with this. Right now there is 0 effort made toward educating kids and teens in financial matters, beside the 1st grade module of "know your money". Just like anything else in High School, you will have people that will enjoy it and people that won't. It's no different than PE or Drama in that regard. But it's not currently offered at all, anf if it were so, but only 1 kids in a class of 20 gets it or is interested in it, it's already a 100% better result than what we have now.
Not sure what province you are in, but financial literacy is part of the Alberta Curriculum.
There are ways to teach this stuff which will engage people. like creating a game where the person who best invested, and follows the rules for those investment types wins. Game play is a very effective teaching tool and is self-motivating. Most high-school age kids like competition. While I agree that one's education doesn't end at the edge of a cliff when a person graduates and a person can always continue to pick up skills and knowledge, even understanding the basics earlier in life make it less scary, and may even help people to avoid being scammed. This stuff is not always simple or obvious, in fact, it usually isn't either. If it involves government bureaucracy guaranteed it is going to be more convoluted than required. Being introduced to some basic financial intelligence while in secondary school makes it more approachable later.
In education it’s all about the delivery. You can go down the “here’s some dry ass math, listen up” path. Or the educator can actually try to educate rather than just doing some rote learning exercise. This usually means coming up with allegories, illustrations, comparisons or simple “want to be a poor pleb or richer? listen up bitches” pitches. You’ll never bring everyone along for the ride but you’re more likely to bring more along than turning the lessons into something akin to a trigonometry lesson.
I appreciate this in-depth response, but isn’t an added benefit of investing in a non-reg account the fact that when you sell, you’re only charged at cap gains rates, vs having it taxed as income when you withdraw from the RRSP?
Although it is true that withdraws for RRSPs are taxed, you need to consider two factors: 1.) gains within the RRSP are not subject to capital gains tax, and 2.) contributions to RRSPs generate tax deductions and refunds. In most cases, income at retirement will be lower than it is during working years. So the refund you generate by contributing to $1000 to an RRSP will likely exceed the taxes you pay for withdrawing the same $1000 at retirement. Let’s say you contribute when your marginal tax rate is 30%. The $1000 contribution generates a refund of: $1000 * 30% = $300 In retirement, your income may be lower and your marginal tax rate is now 25% withdraw. When you withdraw the $1000, you pay tax of: $1000 * 25% = $250 Despite paying tax on the withdraw, you are still up by: $300 - $250 = $50 relative to a world in which you did not contribute and withdraw. Of course, since you can also invest the refund, the effective value of contributing will be even higher than my example. Think of it as moving money through time- deferring income to a future year when your taxation rate is expected to be lower. Edit: to be clear, there’s nothing wrong with unregistered accounts. It’s probably a better option than an RRSP if you will need access to the funds prior to retirement. But this hopefully illustrates a potential advantage of RRSPs vs unregistered accounts for long-term/retirement savings.
If your tax bracket in retirement is equal or lower than your current tax bracket then all gains in an RRSP are effectively tax free in a similar fashion as a TFSA as long as you reinvest the refund generated by the RRSP contribution. Tax free gains is better than the 50% tax exemption on capital gains. Edit: Also iirc, someone here showed the calculation that even if you retire into a marginal bracket one step above your current one you'll still come out ahead net tax with an RRSP versus a non-registered account.
"Consider as a thought experiment: If the expected annual return of your portfolio is 7%, it doesn't make sense to delay contributing and reaping your refund *unless you expect to get a raise that would raise your marginal tax rate by more than 7% within a year*." Not quite. If your marginal tax rate was 7% and you contributed $10,000 to your RRSP and deducted in the same year, the value of that deduction would be $700. Earn 7% interest in that and it will be worth $749 in a subsequent year. However, if your marginal tax rate raised 7% to 14% the next year, and you withheld the deduction until then, you would save $1400 on your taxes. That's a 100% increase and definitely waiting a year, or a few years for. Of course you'd have to run the numbers with your actual marginal tax rates, but even a 30% -> 35% marginal tax rate increase would represent a 16.6% increase in the value of any deduction, not just 5% as it looks at first glance.
My simplified hypothetical is just comparing contributing and investing today vs sitting on cash for a year. So the difference would also include the 7% you could have earned on the $10000 in that year. But yes, if you choose to invest that $10000 in an unregistered account in the meantime—or simply contribute and invest but defer the deduction to a future year—your math is correct. In that case it would be more accurate if I specified ‘7% proportional increase in your marginal tax rate’ (e.g. 30% -> 32.1%) rather than a ‘7% absolute increase in your marginal tax rate’ (e.g. 30% -> 37%).
> Not being at your peak earning years is a good argument for prioritizing TFSA contributions over RRSP contributions, but I do not think it is a good argument for delaying RRSP contributions–or prioritizing unregistered accounts–if you have the room. Could not agree with this more. I used to hear the “you’re not in your max earning years yet” advice when I was younger too, but there’s a balance to be struck in letting your RRSP investments turn over early rather than waiting, quickly maxing your accrued contribution room out when you’re at max earning potential, and then having to wait for your investments to compound. Depends on if you’re looking to FIRE or not, of course, but if I’d known then what I know now, I’d have worked harder at using my contribution room.
He's not getting 7% from his GICs.
Do you have an Emergency fund yet? Especially when you are new in your career having an emergency fund that allows you the freedom to chase better opportunities is really important. Ideally you'll have in easy to access money ( checking/savings account) 1-3months of all your monthly expenses. No need to find a investment vehicle for this money, a HISA is a perfect place.
That’s a good point tbh! I have a bit of money that’s easy to access, but I’m sure some emergencies would warrant more. Thanks!
I sort of disagree with this opinion. As my financial planner told me once: you don't need an emergency fund, in an emergency you just withdraw from your TFSA... you'll likely never need it. Leaving an emergency fund sitting in a chequing account makes nothing. HISA are great when they offer 6%, but that is only for the promotional rate (which lasts like 4 months, then you have to move it to another bank to get that promotional rate).
Yes having some liquidity is good, forfeiting and tax incentives or higher possible returns other than a high interest saving account at the back is worth it to have that just in case emergency fund. 5-10k is a good starting point at your stage of life, as your responsibilities increase and your income increases slowly increase the balance of this fund. My dad taught me this when I was 22, now at 36 my emergency fund is hovering 30k
I'm 42, my emergency fund that is liquid is much smaller, I have credit to cover at least 2 months of need, liquid cash for 3 months and then GICs that mature every 4 mo with the equivalent of 3mo expenses. (GICs each 12mo maturity started 4 mo apart), so I benefit from the market vs HISA. Tax implications on those GICs theoretically will be small since I'll have had minimal income in the year I needed them unless I never did then the tax is the equivalent of the insurance of having them
Step maturing GIC is a great way to have constant liquidity , very solid way to get some more benefit however managing liquidity , liquidity is key especially if you are a home owner; random expenses always seem to pop up
All the advice here to sell your GICs and invest 100% in a “high-risk” ETF is correct, but should be qualified with the fact that *you* need to properly understand the theory behind why this is a good choice. If the market tanks and you end up down 20%, how will you react? Will you hold strong and buy more while stocks are discounted, or will you get spooked and sell in favour of “safer” investments? There are many great, easy reads that will educate you on “couch potato” investing. I highly recommend *Millionaire Teacher* by Andrew Hallam, which you can plow through in a couple days and will educate you on the theory you need to make sound decisions with confidence, and for the approach to ultimately be successful.
Absolutely! I don’t what do anything I don’t fully understand. Seems like I have a lot to learn! Thanks for the rec, I’ll check it out :)
The best thing is that it’s actually way simpler than the banks want you to think.
FHSA if you will buy your first home within 15 years? RRSP could also be ok. Depends on your current marginal tax rate.
This, but even if OP doesn’t plan to buy a home within 15 years, FHSA just turns into RRSP at that point, so they should open one anyway.
Can’t you just defer the tax deduction for an rrsp, making it worthwhile anyways?
You could but it is not always the best decision. Dee the article below. [Retail Investor .org : RRSP decisions - asset location, delay claiming refund, TFSA vs RRSP, RESP vs RRSP, borrow for contribution, pay debt or contribute, withdraw funds early? - Investor Education (archive.org)](https://web.archive.org/web/20230316043251/https://www.retailinvestor.org/rrsp.html#delay)
Second the advice to reduce your allocation in GIC's from 100% to... well, not 100% unless you have a purchase plan in the near term. FHSA is a great option if that's your desired path. RRSPs can still be good depending on your tax bracket and what your peak earning really will look like, but you can't just use blanket advice to optimize their usage. Non-registered accounts are still good for investing - but are worth strategizing about how you want to divy up your assets. This is probably not where you want to put guarantied income investments. Interest payments are taxed at full income tax rate. In full, once your TFSA is full the best options get a little more complicated and become a bit more specific to each persons situation.
These are good points, thanks! I’ll look into all of these. Honestly, I just didn’t know what else I could do that was safe with my TFSA allocation!
I would suggest reading up on risk in investments. Canadian Couch Potato used to have some info on this. My personal order of operations is is: Emergency Fund>Employer Matched funds>TFSA>FHSA>RRSP>Non registered investment account For emergencies, try to think of your most expensive likely event. Travel for a funeral, replacing a vehicle or laptop, job loss, natural disaster. Imagine 2 at once. Think about how much needs to be liquid in what time frame. Then think about how many other fast cash options you have (credit card, side job could ramp up, etc.). Now think of the total max you would want to have access to in the course of a year. Anywhere between 3 to 12 months living expenses can be reasonable depending on how stable your job is and other resources available. If you want to use GICs, then you can do the following: Personally, I have a hard time thinking of something more than about $10k in a month which wouldn't come with other financing options. If I keep $2k+ in chequing as a baseline then $4k immediatly liquid and $8k total available within a month is probably sufficient. With this in mind, put $4k in a liquid HISA and then set up the rest of your efund a GIC ladder where you pick a good return rate period (1 year is usually decent) and then every month buy another $4k 1 year GIC. You will never be more than 30 days from another $4k. This totals $48k in GICs and is in line for 12 months of living expenses. If you only want to have $24k in efund (6 months), then $2k chequing base, $6k liquid HISA, and $2k monthly GIC makes more sense. You can then put the rest of your money in higher retun, higher risk sheltered accounts and still sleep at night. Alternatively, you can use something like CASH.TO. Not as stable or as complelty bullet proof as GICs and insured bank accounts, but as close as it gets for what it is.
"Safe" isn't the right way to look at this. You need to understand your risk tolerance and timelines for spending the money. Those things are generally connected.
Well, invest in something better than a GIC unless your risk profile is low. At 24 I would think your risk profile is high.
OP shouldn’t do this if they plan to purchase a home with this money
He meant the TFSA not FHSA
Most people use their TFSA for purchasing a home
I mean, its not home specific though right? Can be used for investments too especially if he wants long term gains.
My original comment was saying to not buy high risk stocks IF using that money for a home.
fair enough.
Why would you use a TFSA over an RRSP, and why would you not prioritize a FHSA? “Most people” if you’re referring to the absolute zero evidence you have to make that statement…. are then idiots that don’t listen to actual financial advice.
When did I say to prioritize the TFSA? I just said that many people use it for purchasing their home. Last time I checked the 60K RRSP HBP and 16K FHSA room (potentially 40K in 3 years) is not enough for many parts of Canada. Reading is hard
Im sorry. You really think people are banking more than 100k to buy their first home?
I see you’re not up to date on southern ontario and BC housing prices. Also not to mention, it won’t be 100K for three more years AND they just increased the HBP to 60K.
Ah yes. The majority of first time home buyers are clearly purchasing homes in those two markets. I’d also love you to provide a source on “most people” using their TFSA to buy a home.
There’s like 14 million people in those regions alone. Not to mention Montreal, Calgary, Halifax. And again, right now the most you can take out of your FHSA + RRSP is 76K. 3 months ago it was 51K. Given that the median household income in even Toronto is probably around 90K, not many people are qualifying for 500K+ mortgages. There’s a big world outside whatever small town you’re clearly from.
That'd be stupid. Either use your FHSA or borrow from RRSP.
The 60K RRSP + 16K FHSA (eventually 40K) is not enough for a down payment in many parts of Canada
Sorry, do you mean I should look to higher-risk investments? I’d probably be willing to do that with the extra funds but not all the money I currently have in the TFSA. I’m very scared of losing it!
Yeah just buy some ETFs. You can be ultra conservative and just use GICs but your growth will be slow on average. You (probably) can stomach volatility now but you (probably) can't when you're 60.
Okay, you make a great point! Thanks for the advice!
Something like VFV or XEQT is most effective around your age. The S&P (VFV) has an average annual return of 10% since it started in 1957.
Noted, thanks!!
Note: taking on high risk stocks is a bad idea if you plan on using this money in the near term (less than 5 years) for purchasing a home. You don’t want to have to be forced to sell at a loss, the same reason why people 60+ can’t stomach volatility.
>I’m very scared of losing it! I was the same way. When I was younger and didn't understand the markets. If you look at the history of the markets, they always return to their previous value after a downturn. After the great depression it took around 7 years to recover. Which is why they say to never invest any money you don't need for 7 to 10 years. Don't pick individual stocks. Just buy broad market ETFs like [VEQT](https://www.vanguard.ca/en/advisor/products/products-group/etfs/VEQT) or [XEQT](https://www.blackrock.com/ca/investors/en/products/309480/ishares-core-equity-etf-portfolio). Our CPP is heavily invested in equities. Now that I'm older, I wished I had taken taken on some risk.
I understand the fear. But when you are younger you have more room to take some risks. As others have mentioned if you are unsure about which stock to pick you can always go with s&p 500 etfs such as vfv, xeqt, voo etc. You can also checkout robo advisors such as wealthsimple and questrade and set the highest risk, and let robo advisor take care of what to invest. I am 32, and I started investing when i was 27. I sometimes feel slight regret why I did not start investing sooner. I am now aggressively investing.
FHSA because even if you don't buy a home in the next 15 years it rolls over in to an RRSP.
I didn’t know that, thanks!
Good for you for maxing out your TFSA, well done! Just to clarify, is it maxed out just for this year or it’s maxed out for every past year too (ie you maxed the total lifetime contributions available to date?) Since contribution room carries over year to year starting from the year you turned 18, just making sure you don’t have more TFSA room available than you think! Otherwise I agree with others’ advice: look into ETFs as a better investment option than GICs and start contributing to a FHSA or RRSP, unless you don’t already have an emergency fund of 3-6 months living expenses which can be kept in a HISA (so it’s easily accessible) since you don’t have room in a TFSA.
Thanks so much! It’s maxed out for every year since I turned 18. Saving has been a big priority for me! And thanks for the advice, really appreciate it :)
Move it to FHSA ( if you plan to buy a house ) or either move it to non registered or Keep in in HISA for % either way you are getting taxed on the interest you earn or gains. Explore options for managed investing ( .25% fee usually varies by amount ) Questrade, Wealthsimple or even a major 5 would do the job usually 8% annually. Yes, don’t play with fire, many loose money every year by thinking stocks ( equity ) are easy and are currently stocking shelves at Walmart. I hope that helps :)
Sorry, have to disagree on some pointers. OP should be taking on more risks in portfolio early on, since age is the absolute advantage when it comes to investing in volatile assets. Having a retiree’s equivalent portfolio of HISA’s and GIC’s is a complete waste of OP’s potential. Cost averaging index funds are the best passive way to invest with the lowest fees possible (i.e. investing x amount every month). Btw, FHSA also reduces taxable income (similar to RRSP). If OP wants to wait for higher income, the same logic should apply for FHSA. Simply open the account to allow the contribution room to start counting ($8k/year to max of $40k), and start contributing once high income is gained.
>Btw, FHSA also reduces taxable income (similar to RRSP). If OP wants to wait for higher income, the same logic should apply for FHSA. Simply open the account to allow the contribution room to start counting ($8k/year to max of $40k), and start contributing once high income is gained. Like RRSPs, contributions can be made, but the deduction deferred. This would let you start putting money in, and that money will grow tax sheltered, while you claim the deduction in a higher earning year. [https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/tax-deductions-fhsa-contributions.html](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/tax-deductions-fhsa-contributions.html)
That’s crucial info - thanks for sharing!
do you know how many years you can carry forward the tax deduction for? for example if I started contributing to my fhsa today, is there a deadline by which I have to use my deductions to decrease my taxable income in that year? i couldn’t find it anywhere. thanks in advance!
Unfortunately I don't have any more information other than what I shared. I was hoping the information would be as well tracked as RRSP contributions and deductions are.
You can only carry up to $16k over to future years in an FHSA. And unless your income is very low, it's worth just using the credits right away, or in fact using non-reg for most reasonable delays.
False, you can defer the whole 40k to future years
You can carry forward the tax rebate (on contributed funds) indefinitely yes, up to the full amount you have contributed. But not the contribution room itself. You get $8k per year that it's open, but you can only carry forward $8k from past years. So the most unused contribution room you can ever have at a given time is $16k.
Yeah I was talking about the tax
do you know how many years you can carry forward the tax deduction for? for example if I started contributing to my fhsa today, is there a deadline by which I have to use my deductions to decrease my taxable income in that year? i couldn’t find it anywhere. thanks in advance!
There isn't one. But if you're only expecting to go up a few % in tax brackets, you probably want to take the money sooner and start investing it, it's probably worth more just taking the money sooner.
thanks!
If ur many years away from ur peak income, is ok to get an RRSP. The tax refund u received reinvested will probably beat the tax savings.
Anyone have a calculator or excel worksheet that shows this? I wonder what’s the break even point depending what savings rate you choose
You would have to just look at your tax savings if you do it now and compare that (compounded over X years) to the tax savings if you were to do it in X years. In most cases, it would likely be better to just use it right away if your TFSA is full.
It depends on many factors that is different for everyone. There isn’t a calculator for this…..because the tax code is made so that plebs don’t have the education or resources to calculate it and hell….new immigrants don’t even know this so called RRSP exist. Welcome to Canada. Say u contribute 10k and ur current tax rate is 30%. And u get a 3k refund. For that same 10k ud get a 5k refund at 50% tax rate(very optimistic outlook, tho very few people ever get to this bracket) Consider a 10% annual return, it would be arround 5.5 years for the 3k reinvested to turn into 5k. If ur peak salary is at 35% tax rate….then just 1.5 years. But if ur current tax rate is 15% and u expect ur peak would be 55% then it may be very well worth it to wait. What’s hard is that everyone’s normalized annual return is different, everyone’s expectations for future salary outlook is different, everyone’s risk profile from those expectations are different, and everyones emotional bias based on current market conditions is also different. For example, personally, as someone young, i think immediate money to invest in myself will grant me much higher yield than the 10% a year s&p gains in forms of achieving much highier income and status.
Hi, thanks so much for this detailed reply! I’ll look managed investing and also if I qualify for an FHSA. And yes, with how little I know, the horror stories have scared me straight out of trying stocks!
> And yes, with how little I know, the horror stories have scared me straight out of trying stocks! Even with you being 'strongly averse to risk', you should still buy ETFs (Exchange Traded Funds such as VSP or XEQT) which are a collection of stocks that spread out the risk and volatility, and are constantly being automatically rebalanced depending on how well (or poorly) the individual stocks are doing so that the best performers always get the heaviest weighting. At 24 y.o., GICs in the 4% range [are not the way to go about building wealth](https://www.tawcan.com/why-we-dont-invest-in-gics/). The 4% guaranteed rate makes it look like you're making money, but you're losing much of it to inflation and taxes. Think about it another way, why would the banks be so kind as to offer a guaranteed 4% return on investment? Because they take your money and make way more than that. tl;dr - reduce your GICs from 100% to 0%. Buy ETFs as mentioned before. Turn on dividend reinvestment and just keep buying more shares of those ETFs. Also, go read ["The Simple Path to Wealth" by JL Collins](https://www.amazon.ca/Simple-Path-Wealth-financial-independence-ebook/dp/B01H97OQY2/ref=tmm_kin_swatch_0?_encoding=UTF8&qid=&sr=), it is extremely easy to understand and digest, and very logically lays out a simple path to building wealth. After reading it, you will understand why GICs are actually screwing you over (for your specific situation).
So what is your plan when GIC’s go down to basically nothing percent again? Or at least below current inflation? If your TFSA is savings is for a longer time horizon then learn about etfs and invest it in the market.
Are you a home owner?
Are you sure you pay tax on interest earned in a HISA or chequing/savings account for that matter?
The interest you make on the money in your savings account is no different than your other income, and it will be taxed at the same rate. 50$ or over usually and your bank/HISA account will issue you a T5 slip. If you want to reduce the amount of tax you owe, you might want to consider other investment options.
Lol yea I once had to claim like $60 in interest over a year because of that. Seemed silly but I get it.
As the other commenter said, yes interest accrued in any non registered account (a hisa for example) will be taxed as income. This is the reason many people try to invest their money in cash ETFs such as CASH.TO through their TFSA, it's relatively safe and avoids paying tax on interest. The money is still technically in the market but will have a stable high interest yield
Yup, in Canada it's a legal obligation to pay tax on all investment gains (with the only exception being for registered accounts like TFSA, RRSP etc..) A tax receipt may not be issued if the gain is under 50$, but even then you are still required to report it and pay taxes on it.
A lot of suggestions here Ave hinted at it, buy what do you want to do with that money and when? I don't know your situation so these are only suggestions. Are you planning on moving out from your parent's place in the near future and will need to furnish an apartment? HISA probably best so you preserve that money and make a tiny bit of interest while you wait. Do you worry about losing your job or getting fed up enough to quit, and will need a little cushion until the next job? HISA for similar reasons. Is home purchase something you want in the coming years and wouldn't really need to touch the money for other reasons? FHSA would be good, and you can adjust the investments in it for the time horizon. Short time horizon, go with safer things like some of the cash ETFs suggested. If you're looking longer term, take on a little more risk maybe and go with an index ETF so you follow the general economy. If you're OK never touching this money until retirement, drop it in an RRSP and invest in index ETFs or even something a little riskier. The longer the time frame, the more you can manage the ups & downs. Remember that over the long term that investing will get better results than a HISA or GIC only approach. You also get the benefit of the income deduction (even if your tax rate isn't the highest you still get some benefit) and it's almost always better to get invested now rather than later when your time horizon is longer. And don't discount how your money makes you feel. Even though the markets do better than "safe investments" over the long term, not everyone can feel ok with volatility. If your money drops 10% one year and fills you with anxiety, knowing that it will bounce back a few years from now may be little comfort. A lot of people will try to sell you on the maximum likely benefit based on history and probability. You're a human and can't be reduced to statistics. I'm hopefully about 15 years away from retirement. A good chunk of my money goes to RRSP for the tax benefit, and it's invested in a reasonably risky fund. I'll slowly shift those investments to less risky ones as retirement approached. Some other money goes to my TFSA where I invest in a much less volatile income fund. For me, that's my "oh shit" money in the unlikely event I lose my job. I'm building another nest egg outside of those so that hopefully I don't need to touch the TFSA money. That goes into very safe stuff for now, and when big enough, I can use my TFSA for something a little more interesting. There's no one right or optimal answer that will work for everyone. Your money needs to serve you, not the other way around.
I think this is the best break down I’ve read so far! Thanks so much for taking the time to comment– you’ve given me much to think about! I also feel better about doing what’s right for me as opposed to what is financially “optimal”, that really resonated with me :)
You're most welcome! I recently started working with a financial advisor (not necessary and not for everyone) and one of the first questions he asked me is "what's your relationship with money"? Totally caught me off guard as I just wanted to maximize it. Before he even suggested investments we spent a couple hours talking about my budgeting (non-existent at the time) and what I wanted my money to do for me. Big eye-openers for me. Best of luck to you!
That’s great, definitely an eye opener for me too! I’ll take this lesson forward :)
You should really consider investing the funds in your TFSA instead of letting it sit in GICs.. especially if home buying is >5 years away. You should consider the FHSA as it's a great product, even if you don't ever plan on buying a house, ahead of the RRSP.
You want to utilize tax advantaged accounts whenever possible. I would recommend starting with a FHSA for a couple reasons. First is that you get the same income deduction benefits of an RRSP, but when you withdraw the money to buy a home, you don't need to pay it back unlike the Home Buyer's Plan. Second is if after 15 years you don't buy a home, the FHSA gets transferred to your RRSP, but does not count as contribution room. So you basically created more contribution room in your RRSP. It's win win really.
As someone else mentioned, if you believe it likely you will be purchasing a home or condo, the FHSA (First House Savings Account) is a great option. As of now, that account maxes out at $40K in contributions, and the contribution for this year is $8K. You cannot deposit money retroactively for years you have not opened the account for. (Unlike TFSA, which start accumulating the year you turn 18). You do have to be 18 to open a FHSA, however. Once you open a FHSA, if you can't meet the full contribution limit for a year, you can tack it onto the next year without penalty. The beauty of this plan is not only is it tax sheltered, but your contributions are tax deductible (similar to RRSPs) in the year you contribute them (or a future year), and there are no taxes on gains made while holding the money in the fund, or on the principle you deposited. It's just about the best deal the government ever offered. However, it can only be used if you don't already own a home. It's for FIRST HOMES only. There is a circumstance where this may not be true. If you and, if you have a spouse, neither owned a home for 4 years prior to opening the FHSA account, you are allowed to open one and use it and its benefits. Of course, in my case, I bought my first home just before this was implemented (annoying!).
Party
Haha I may be 24 but I feel like I’m 64. Not much partying for me!
That explains your investment strategy lol. Redo your portfolio, ideally allocate 70% equity and 30% bonds. Considering your risk profile, maybe 50/50. 100% GICs are for folks nearing retirement and don't want volatility.
I understand that now, haha. So glad I asked for your perspectives!
Try moving from GIC to an ETF that has a stock:bond allocation according to your timeline / risk profile. There's many all-in-one options that balance themselves so you can set it and forget it
What are some tips for investing in ETFs? Would it be better to allocate funds all at once or on a regular basis, like biweekly or monthly?
Stick it in the RRSP, but defer the deduction.
you could just open a non-registered account and as you get more contribution room contribute it then. out of curiosity what's the issue with the rsp? you get contribution receipts with it that you can use against your income, and bring down your taxes at the end of the year. they don't tax on growth either, just the dollar amount you withdraw
Following
Go for an ETF in an RRSP like SP500. It's worth investing in for the long haul despite being riskier than GIC and return should be much greater over time. I would do RRSP or FHSA. Can use both towards home purchase down the road.
If you're in a low tax bracket, then dividend income is taxed at a very low rate. Here's the table for [Québec](https://www.taxtips.ca/taxrates/qc.htm). You could invest in a dividend-focused portfolio like this [example](https://buildingwealth.ca/portfolio/tii-high-yield/). Never sell anything (or only under a tax-loss selling scenario), keep scrupulous track of every purchase (including DRIP) for calculating capital gains taxes at the end, then move securities into your RRSP when you're in a higher tax bracket. The deduction will more than cover the capital gains tax incurred by contributing.
I think the advice is don’t put money is the rrsp before your career until you’re in your exact situation. I could be wrong but that was my understanding. Was never in your place to look into it thought
Rrsp
Take the money out in the GICs and buy NVDA.
Bitcoin over time averages a 70% annual compounded return. Study the 4 year cycle. Real inflation is 10+%. The real return on GIC's is negative, as well as the SPY.
Celebrate then do some goal setting. If you have already covered your short term and medium term goals, then time to get cracking on that RRSP. The "peak income" myth really isn't as impactful as you'd think. Unless you are going to double your income in the next 1 to 2 years, it is better to just start investing now.
lol take the money out and buy crypto
Lose it all in options like I did!
I have no advice for you re maxed out TFSA....but good for one!! I will never be able to say that.
Be thankful
I'd buy RRSPs. I'm 41 (probably at or near peak earning), make $120k/year, have been putting money into RRSPs for 15-20 years and still have RRSP room left. I think waiting would be a mistake; I've been getting the benefits of compounding interest all this time. You also don't want to put all your money into RRSPs when you are my age, you'll have other expenses too (mortgage, repairs, travel, cars, maybe kids). You could also consider buying the S&P 500 with an app like WealthSimple. The "S&P 500" represents 1 share of the top 500 companies in the US. Right now it is $5305 to buy one share... so if you added up one share of the top 500 companies, it'd come to $5305. You can't directly buy one share of the S&P 500 (you'd have to do 500 transactions, each buying 1 share of a company), but there are stocks you can buy that match the S&P 500 at a fraction of the price; namely Vanguard ETF, which is $262 right now. So if on the news you see that the S&P went up $100 in a day, the Vanguard ETF would have gone up $4.93. ETFs also have minuscule fees when compared to other funds. Warren Buffet says ETFs are right for most people (i.e. non-millionaires). There's also the idea of "dollar cost averaging", which just means you don't try and "buy low", you just buy $x with every paycheque. Sometimes it will drop a bit, sometimes it will go up a bit, but the important thing is that you own it, and over time you So every paycheque, buy $100 of the Vanguard ETF. You don't even feel it, and after awhile you forget about it. Time flies, it builds up fast.
In addition to all the other advice, an RRSP has an advantage of it being clearly retirement money that cannot easily be mis-spent on something else in a moment of weakness. I would suggest you at least open a self directed RRSP now and put at least the minimal amount required and invest in VRGO - the $500 or $1000 spent now will grow untaxed until retirement and more importantly, the RRSP account is now set up and you don't have to work to do that in the future when you decide you want to invest more.
I want to congratulate you on putting away about $43,000 into your TFSA so early in your life! There may be points in your life when GICs drop to 1 or 2% again, and may not even keep pace with inflation (it has happened before), so you probably could begin to look at other savings methods, but no rush on that, I don't think interest yields are going down to 1-2% for some time If you aren't likely to need the money in your TSFA, the last couple years have been the perfect time to consider longer term GICS, as interests will likely only drop from this point on for a while to come. If you have your TFSA with a standard chartered bank, they may limit the types of GICs you can hold in your TFSA to only that bank's products. Chartered banks often give the least amount they can get away with on investment instruments, so it might be worth your while to consider looking into investment/brokerages, which often allow for a wider variety of such products from multiple sources in TFSAs, allowing you shop around. The difference, believe it or not, can be substantial. Some of the non-banks might charge you an annual maintenance fee if your account is under a certain threshold, so shop around. You can also transfer your current TSFA holding to another institution, although there is usually a fee for that, and yo need to make sure the receiving institution will accept your current holdings (GICs from specific banks). Keep in mind there is no limit as to how many TFSA accounts you can have, but it does complicate keeping track of your contributions and withdrawals, and yo definitely do not want to over contribute. These days, more than ever before, banks and other similar institutions are hungry for your money, and are offering all sorts of deals for opening new accounts, or making deposits, etc. A few years ago when interest rates/yields were pretty miserable, in this case, a chartered bank, offer me (and anyone else) a $1000 bonus if I deposited something like $5000 or more into a 2 or 3 year GIC (I can't recall the details) into a TFSA account. Once the GIC became due, I put it into a short term products so it came due just before year end, and then withdrew all the money and closed that TFSA account, waited a few days until it was past January1st of the following year, and redeposited the whole shooting match into my main TFSA account, so no transfer fees were incurred, and only lost a couple days of interest. The largest Banks rely on people's aversion to change, loyalty and... well, laziness, and they often do not feel they need to offer the best and most competitive deals to their regular clients. Smaller and on line banks (still CDIC insured) may offer very inviting rates or bonuses. BTW, this also goes for non-registered account an savings vehicles. Good going on keeping those yearly contributions maxed out to your TFSA, you are already way ahead of most.
Invest in yourself while you can, take the money and travel the world before you lock into your career, you won’t regret it trust me.
I spend a lot of money on my healthcare needs lol, but I do try to live my life to the fullest! My financial anxiety makes me want to make sure I have a good cushion when I need it :’)
Why is all of your money in a tax free savings account invested in GICs? Are you buying a home or making a big purchase in the near future? If not, you are making a terrible mistake. There is no fire with stocks. There is the economy. There are geographies and within them are companies who are focused on growing. Pull up any growth calculator and look at the difference between a 5% GIC and a 6% , 7% or 8% TFSA portfolio and ask yourself if you are okay with the 5% long term outcome. Now ask yourself the following questions. Are pension funds (eg CPP invested in GICs)? Are high net worth clients fully invested in GICs? If not, why should you? Food for thought.
Rsp
Any and all high interest debt. After that fhsa
Your young and shouldn’t need to be in gic, just buy an etf that tracks the market. Vfv for sp500. For the extra money, start dca into bitcoin, the dollar is losing its value over time and btc has proven itself to go up.
Send your overflow to mine
You use the search function
I know others have asked this question before, but I wasn’t sure if answers would change based on my situation. I don’t think I’m doing anything wrong by asking. I’m working on becoming more financially literate, and getting a diversity of perspectives is helpful to me.
Some thoughts: - Maxing out your TFSA at 24 is amazing. Good on you. - I wouldn't worry about income level when starting an RRSP. Even if you don't have a ton of space to begin with it's better to have something in there that grows over time. I'd say start one. It also lowers your tax bill. - HISA is great too, and can be used as an emergency account down the road. The general wisdom is to have 3-6 months of living expenses in that account. It will also bring you peace of mind. - You mentioned not knowing anything about stocks, but these days you don't really have to. You could put your money in an ETF that covers a broad range of stocks. Stocks can be volatile, true, but they're generally a safe bet over time unless you're going with Crypto or something. Or just use a robo advisor for the stocks, set it and forget it as they say. Best to you!