Now we want to think OUTSIDE the box (aka RRSP).

What should we keep outside of the RRSP or Tax Deferred Shelter?

Well, after you maximize your RRSP’s and TFSA, then you can keep investments in the “spillage”

Basically you want investments that are the least “taxing” to you, to keep outside of an RRSP.

Say HELLS NO if you can help it, to:

• bonds
• GIC’s
• money market funds
• foreign equities/ stocks that have robust dividends
• basically anything that is taxed at 100% your marginal rate to you

Say YES PLEASE, to:

• Canadian stocks with dividends (these are actually given PREFERENTIAL tax treatment- the government is kind to us when we are kind to our Canadian corporations)
• Any stocks (capital gains are given good tax treatment)
• non-dividend foreign stocks (e.g. stocks on the NYSE that don’t give out dividends)
• equity type mutual funds
• risky investments (you definitely don’t want to keep these in an RRSP because once you lose that contribution room, you’re screwed)

It may be nice to receive $100 interest from a GIC that you have maturing.  But if you don’t keep it inside some sort of tax shelter (RRSP or TFSA), then that $100 is really $70 if you are taxed at 30% of your income (marginal rate).

On the other hand, if you have $100 investment gain from a stock, then that is considered a capital gain, and only 50% of that amount is subject to tax.  So $50 would be subject to the 30% tax, so for that $100 you get to see $85 of it, not $70.

I personally was keeping everything and anything in my RRSP intially (except for GIC’s!!) and after I did some researching I realised that I should be more “tax efficient”.  So now I put GIC’s and bond index funds in my RRSP, to shake things up a bit.

What are you keeping in and out of your RRSP/TFSA tax shelters?

Related posts:

1. RRSP holdings: part one
2. RRSP versus TFSA: Head to Head Comparison
3. RRSP’s: aka Registered Retirement Savings Plans: