It’s amazing how much more time you have once your children are in school and the eldest is old enough to be left “home alone” even if only for a 5-minute bike ride to the mailbox. When we reached this milestone in parenthood, I finally had the time to start looking at where our money was and why and deciding what changes were needed. One of the first messes that needed to be cleaned up was our RRSPs: It’s taken 4 years to simplify and improve our RRSP holdings but things are progressing well.
What We Started With
Four years ago I wasn’t even sure
- where our RRSP money was,
- how much was in each place,
- what the rate of return was on the money, and
- whether we should be doing something differently with it.
I read a few books about RRSPs and one piece of advice struck home immediately.
Why You Should Always Designate a Beneficiary for Your RRSP
Four years ago, we already had our wills and the wills designated that my husband and I will inherit each other’s assets if one of us dies. What I didn’t know, though, was that if a RRSP has a designated beneficiary, the value of the RRSP is not included in the amount that the government uses to calculate the probate fee or, as Ontario now calls it, the Estate Administration Tax.
For example, say I had $100 000 in my RRSP and I died. If my RRSP did not have a beneficiary named, that $100 000 would be added to my other assets and that total amount would be taxed by the Ontario government as a condition of probating my estate. If my other assets were worth, say, $50 000, the government would charge an Estate Administration Tax of $1 750.
If I had designated my husband as the beneficiary of my RRSP, he would not have to include the $100 000 value of my RRSP in the amount used to calculate the estate administration tax. That means the tax would be calculated based on the other $50 000 in my estate. The total payable would be $250.
That’s right. He would not have to pay $1 500 in tax.
Just for having his name on a slip of paper filed at the bank!
So the first thing I did was get a Beneficiary form filled out and properly filed for each of our RRSPs.
Neither of us has died yet but it still feels like we’ve saved thousands of dollars.
Where Our RRSP Money Was
We had quite a collection of RRSP accounts 4 years ago.
I eventually determined we had
- a RRSP invested in mutual funds and GICs at CIBC
- another RRSP in a GIC at CIBC
- a RRSP each holding Canada Premium Savings Bonds in the Canada Retirement Savings Plan
- a RRSP each in GICs and cash at ING Direct (now Tangerine)
- a spousal RRSP in GICs at ING Direct (now Tangerine)
- a locked-in RRSP at BMO in GICs and high interest savings accounts
- a RRSP at BMO in mutual funds and GICs
- a RRSP at BMO in a high interest savings account
Argh! Can you see why I desperately needed to fix this up?
For anyone who is deadly curious, the mutual funds included
- index funds mirroring the performance of the TSX and the NYSE (purchased before ETFs existed)
- funds holding mortgages
- funds holding bonds in Canada, the USA and internationally
Where Our RRSP Money Is
We are not finished consolidating our RRSP holdings yet. Unfortunately, you cannot simply transfer GICs from, say, CIBC to CIBC Investor’s Edge. Don’t ask me why. I’m pretty sure it has to do with making the bank more money at our expense, though.
Still, it’s looking a bit better:
- a RRSP each at BMO InvestorLine
- a LIRA at BMO InvestorLine
- a RRSP at CIBC Investor’s Edge
- a spousal RRSP at RBC Direct Investing
- a GIC RRSP at CIBC that we will be able to transfer to Investor’s Edge in 2015 on maturity
- a GIC RRSP at Tangerine that we will be able to transfer to BMO InvestorLine in 2015 on maturity
The CIBC Investor’s Edge RRSP could be consolidated with one of the BMO InvestorLine ones, but to avoid paying transfer fees it’s best to wait till the GICs at CIBC mature and the money can transfer fee-free up to the Investor’s Edge account. Then, if desired, the entire amount can transfer out to InvestorLine. Or, conversely, the InvestorLine account could transfer in to Investor’s Edge. That would bring us down from 10 accounts to 4.
The spousal RRSP is at RBC Direct Investing primarily so I could investigate their trading platform in more depth! It could be transferred out at any time but I’m happy to keep it there. As a spousal it cannot combine with any other RRSP so it really makes little difference which brokerage it is kept at. (All of our RRSPs qualify for the lowest trading commissions etc at their respective brokerages.)
- The two BMO RRSPs are closed.
- One of the CIBC RRSPs is closed.
- One of the Tangerine RRSPs is closed.
- The Canada Retirement Savings Plans are both closed.
The optimization of the holdings within the RRSPs continues. I’m sure it will be the subject of more articles in the future.
- How do I calculate the Estate Administration Tax for Ontario?
- Goodbye Canada Retirement Savings Plan
- Get Ready to Die: How to Designate a Beneficiary for Your Brokerage Accounts
Did you make the mistake of opening a new RRSP at a different bank each time you moved? Did you ever despair and refuse to read your RRSP mutual fund statements for over a year? Please share your RRSP escapades and foibles with a comment.