Comments on: Back to Basics: How Self Directed RRSP’s Work

By: John D.

John D. — Fri, 28 Aug 2009 15:07:57 +0000

I’ve been out of the country for awhile and have questions regarding the relative benefits of the supposedly ’self-directed’ RRSP. If it is ’self-directed’, why the limitation on what may be invested within said? Can one hold real property in an RRSP? Can one invest in Futures or Options on real material (commodities) rather than on Forex (pure speculation on fiat standing) through their RRSP? And are the current limitations based on the differentiation between ‘Inventory’, ‘Capital’ and ‘Income’ in the Canadian tax code?

The RRSP, to my mind, seems a tool giving only marginal tax benefit over time because any possible capital gain is retarded via sub par ROI vehicles.

Are there niceties within the tax code of which I am not aware that strongly mitigate my assumptions?

All comments/answers appreciated.

By: Jeremy

Jeremy — Wed, 25 Mar 2009 20:41:35 +0000

As an employee of an IDA firm, a “self-directed” account is essentially a brokerage account. You can hold a variety of investments including stocks, bonds, mutual funds and currency (cash).

There are a couple of advantages; consolidated reporting, and a wider array of investment types.

In our business, it means that an advisor can act upon your telephone or electronic instructions vs. opening an account with a mutual fund company which requires a client’s signature for every transaction.

P.S. – I love your comment about buying “RRSPs”.

By: WhereDoesAllMyMoneyGo.com

WhereDoesAllMyMoneyGo.com — Wed, 25 Mar 2009 04:04:15 +0000

Hi FT – note that RRSP accounts at a full service broker are often self-directed RRSPs. A self-directed RRSP does not mean that the investor makes the decisions. Generally speaking it is where the RRSP administrator offers third party products and individual securities within the account. For example, if you are a client of Investors Group you can hold a directed RRSP through an advisor and you can only hold Investors Group funds. If you want to hold third party funds, you have to open up a self-directed RRSP with them. (At least this is how it used to be, don’t expect it’s changed.)

By: TStrump

TStrump — Wed, 25 Mar 2009 03:47:51 +0000

Great timing … I’m on the verge of starting my first self-directed account.
The account I have now with CIBC can only hold CIBC mutual funds.

By: DAvid

DAvid — Tue, 24 Mar 2009 15:21:22 +0000

mojo30,
If the company “gives” you X dollars, why can’t you do what you want with it? Say buy a new TV?

Because they don’t really GIVE you the money, do they? It is, in fact, placed in your Defined Contribution RSP account (a regular TD Group RSP account) which has withdrawal restrictions placed on it, due to your employers contribution. E-series funds are only available to individual investors (not Group RSP contributors) who manage their entire portfolio through the internet interface, thus the overhead of managing the transfers, reporting, etc. from your employer is covered in higher MER.

Since your Group RSP is entirely contributed by your employer, I suggest you take the rest of your available RSP contribution limit, and invest as you wish. Many Canadians would be delighted to have an employer contribution to their pension.

DAvid

By: bank deals

bank deals — Tue, 24 Mar 2009 05:54:41 +0000

Owners of self-directed RRSPs are responsible for ensuring that their RRSP investments meet the legal requirements set by the Canada Revenue Agency. The penalty for not meeting these requirements is the loss of the income tax deduction.

By: CanadianFinance

CanadianFinance — Tue, 24 Mar 2009 01:45:18 +0000

mojo30,
efunds have their own hoops to jump though… maybe the reason you can’t pick them in your employer’s plan is the same as how you can’t walk into a TD bank and get efunds?

By: mojo30

mojo30 — Mon, 23 Mar 2009 22:15:55 +0000

DAvid – sorry but you are wrong.

I make no contributions at all, the company gives me $X for every hour that I work. I am allowed to pick any fund I want with the EXCEPTION of the Efunds.

You know why TD does that? because they know until I work there I dont have a choice but to do business with them so they put the restrictions on for their own benefit. My employer has nothing to do with the funds I have, I can add, trade or remove funds as I please..with the exception of EFUNDS.

My problem is that they imposs big business mentallity and at this point I have no choice, when I do leave the company I will be trasnfering my money. They are making short term gains just so they can lose a long term customer..poor business in my opinion..oh well

If th

By: Ray

Ray — Mon, 23 Mar 2009 21:04:58 +0000

@ Mojo30- I would do what Jewel’s husband does. Problem with group plans is that there arent a lot of option, but good thing is that it is free money from your employer and usually they pay some of the fees for you. So just contribute enough to get your match and have the rest somewhere else.

By: Jewel of Toronto

Jewel of Toronto — Mon, 23 Mar 2009 20:59:36 +0000

mojo30- my husband is in a similar situation. He makes only the bare minimum contributions to the employer-selected TD funds so he can get the match. the rest of his contributions go into another RRSP account with another bank.

By: DAvid

DAvid — Mon, 23 Mar 2009 19:54:44 +0000

mojo30 stated:“The only RRSP account I have is through my work with TD..the scandal is that TD will not allow me to buy their Efunds.”

Actually, it is your employer that is responsible for the ’scandal’ you describe. They chose a product for their pension plan. Since many of these plans have an employer contribution, it is responsible on their part to ensure the appropriate (from their point of view) management of their funds. Since your contribution is matched by them, they also want to try to ensure that you don’t spend (or lose) the monies contributed.

I, too, have no say in where my pension plan invests it’s income, though I do have certainty of the income it will eventually produce.

By: mojo30

mojo30 — Mon, 23 Mar 2009 17:53:54 +0000

The only RRSP account I have is through my work with TD..the scandal is that TD will not allow me to buy their Efunds. So until I am employed here I am forced to stay in high MER funds. Once I move on I will be removing all the money from TD and putting it through my broakerage account that I have other investments with. Its practices like this that make me stay away from the big banks. Truly a shame.

By: Sarlock

Sarlock — Mon, 23 Mar 2009 17:10:13 +0000

I’m with RBC Direct Investing. No annual fee for RRSP accounts over $25,000. Trading fees are $9.95/trade if you have over $100,000 in your trading account. It’s not the super cheapest option out there, but I really like their interface and trading options. I’m a long-term hold investor for the most part, so I only do about 10 trades per year in both my registered and non-registered accounts.

By: Ray

Ray — Mon, 23 Mar 2009 16:17:08 +0000

Another thing I forgot to mention is that you pay extra for self-directed accounts even with discount brokers this can be up to $100 with the big banks, a few online discount brokers do offer free RRSP account FT has a review on them as do I. That’s a cost you might want to keep in mind

By: Ray

Ray — Mon, 23 Mar 2009 16:04:44 +0000

Asset allocation is an important part here as FT pointed out, from experience the 100-age doesn’t really always work well. Have had clients in their late 20’s who could only handle 60% Equities, it works out better if you do a little bit of self-assessment and fill out a risk profile questionnaire. I have posted on some basics of asset allocation
http://financialhighway.com/asset-allocation-what-it-is-and-why-its-important/

By: Sarlock

Sarlock — Mon, 23 Mar 2009 15:47:20 +0000

I was stuck in the same trap at my last job, Chris. We were with Standard Life and the only selection of mutual funds available had 2.5%-3.5% MERs. Evil. Needless to say, my funds left Standard Life the moment I moved jobs. My main RRSP is a self-directed brokerage account. I try to keep my trading fees below 0.5% to keep the overhead down. I’d rather keep the MERs than pay them to someone else. A 2%-3% MER per year on your investment adds up to a lot of money when the lost earnings are compounded annually.

By: FrugalTrader

FrugalTrader — Mon, 23 Mar 2009 14:49:08 +0000

Chris, you are allowed to open as many RRSP accounts as you like. However, the limitation is not the number of accounts, but your contribution limit. If you do open an extra RRSP account, make sure to keep track of your (and your employer match) contributions to avoid the over contribution penalty.

By: Chris

Chris — Mon, 23 Mar 2009 14:34:53 +0000

I’ve already got a RRSP account through work where my employer will match a certain amount. The problem is that I’m limited to a few mutual funds. Am I allowed to open a second RRSP account somewhere else so I can invest in something other than mutual funds (assuming I don’t go over my contribution limit)?

Thanks, its nice to revisit the basic stuff once in a while :)

By: Four Pillars

Four Pillars — Mon, 23 Mar 2009 11:46:50 +0000

I just want to add that I think the prefix “self” is a bit of a misnomer – it appears that almost all rrsp accounts are self-directed on some level.

I think the only rrsps that aren’t self-directed would be an account where you have signed over trading authority to an advisor.

I’m not too sure of this however – if anyone knows of any “non self directed” rrsps I’d be interested to hear of them.

Great post!