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The Money Management Newsletter: RSP Planning
The types Of RRSP options you have

With the maze of options facing those looking at investing in RRSPs, it really should not come as a surprise that for many, the first few months of the new year can be a very confusing time. Below, we have compiled and explained a few of the more popular choices to help you make the most of what has come to be known as RRSP season.

GIC RRSPs: These are RRSPs invested for a single specified term and interest rate with a fixed maturity date. Depositors sometimes have a choice of having the interest compound for the term at the initial investment rate or otherwise paid separately to a savings account. The compound interest feature is the most popular option. Interest rates for new deposits are normally fixed at the time the deposit is made however renewals and transfers from other institutions are often given a rate guarantee which can range from 15 days to 60 days depending on the institution. GIC RRSPs are offered through banks, trust companies, credit unions and life insurance companies. There are different types of deposit insurance coverage depending on the type of institution.

Normally institutions do not charge a fee to administer GIC RRSPs however transfer out fees ranging from $10.00 to $60.00 are often deducted by the releasing institution if the RRSP is transferred elsewhere at maturity.

Indexed Linked GIC RRSPs: These are a variation on the GIC RRSP in that the investment is for a fixed period of time with a set maturity date and may contain some type of guaranteed return for the investment period. The main difference is that the investor also has the opportunity to participate in the growth of a specified stock index such as the S&P/TSX 60 or S&P 500 or a combination of indices up to a preset limit which can be the full index gain or a percentage thereof. At maturity the investor will receive back the original invested capital plus the guaranteed return or the original capital plus the index return up to the preset limit, whichever is higher. The deposit is also covered by the applicable deposit insurance. This product is available through banks, trust companies and life insurance companies.

Normally, a trustee fee is not charged to administer these plans however, like GIC RRSPs a transfer out fee ranging from $10.00 to $60.00 may be charged.

Mutual Fund RRSPs: RRSP funds can be deposited in one or more of the mutual funds offered by an institution. Investors should become familiar with such terms as book value and its impact on your expectations. Mutual funds are security items and are not covered by any form of deposit insurance. Fees on mutual fund RRSPs include sales commissions which can be paid at the time of purchase or on a declining redemption schedule, management fees which are paid to the fund manager who actually invests the money, trustee fees which may or may not be absorbed by the fund company and partial withdrawal or transfer out fees.

Mutual fund RRSPs are available through banks, trusts, life insurance companies, credit unions and mutual fund companies and through a variety of independent dealers.

Self Directed RRSPs: This is an umbrella plan which permits the investor to hold eligible products from a variety of institutions including GICs, bonds, mutual funds, stocks and mortgages all in one place.

There are often annual trustee fees, which can range from nil up to $150.00. Other fees can include transaction fees, and withdrawal or transfer fees.

These type of plans are offered through most banks, some trust companies, securities dealers and a variety of independent dealers.

The following is a list of the more common RRSP eligible investments that can be held in a Self Directed RRSP and is not intended to be exhaustive.

  • Savings accounts
  • GICs
  • Stocks traded on prescribed Canadian stock exchanges
  • Stocks on prescribed foreign stock exchanges
  • Stocks of some Canadian companies not listed on prescribed stock exchanges
  • Federal Government Bonds
  • Provincial Bonds
  • Corporate Bonds
  • Strip Bonds
  • Strip Coupons
  • Canada Savings Bonds
  • Canadian Mutual Funds
  • Canadian Real Estate Investment Trusts (REIT)
  • Mortgages secured by Canadian property
  • Royalty trusts/Income Trusts
  • Shares of Canadian controlled Labour Sponsored Funds
  • Some Limited Partnership units

Benefits of Self Directed RRSPs

1. Ease of Record Keeping - investors receive one statement containing all investments, details of transactions made and the market value of the portfolio. Only one trustee has to be notified for any changes of personal information or beneficiaries. Tax receipts will be received from only one source.

2. Ease of Investment - all RRSP investments can be held in one place so the RRSP holder does not have to deal with a variety of institutions to contribute to the plan. When term investments mature the cash value can simply be reinvested without the loss of investment income or incurring transfer fees that can happen when transferring non self directed funds between institutions

3. Investment Flexibility - foreign content investments can be in any eligible investment up to the foreign content limits. Withdrawals can be scheduled at any time and changed to suit investor needs.

4. Improved Investment Selection - without a self directed plan an RRSP holder could not invest in such items as government bonds, strip bonds or mortgages

5. Increased Foreign Content Eligibility - Since such Canadian content items as GICs and bonds can be held in a self directed plan their valuations can be used to calculate higher foreign content limits.

Please note: The foreign property limit of 30% you were allowed for foreign property in RRSPs or RRIFs, is cancelled effective January 1, 2005. This allows more international diversification opportunities for retirement investments.

6. Low trustee fees - there are many self directed plans that provide all their services for one low annual trustee fee

7. Ease of Conversion to RRIFs - since all investments are held in one place it is a simple exercise to convert the single RSP to a single RRIF.

Definitions

Spousal RRSP: An RRSP where one spouse contributes funds in the name of the other spouse so the funds become the property of the receiving spouse but the contributing spouse receives the tax deduction.

Beneficiary: The individual(s) or estate that will receive a lump sum payout from the RRSP in the event of the owner's death.

Contribution Room: The total amount that an individual can contribute to an RRSP that includes both current year eligibility and the accumulated, unused, eligible amounts for years after 1990.

Tax Receipt: The official document issued by the RRSP trustee that must be included with your tax return to claim an RRSP deduction.

Pension Adjustment: This measures the annual pension benefit that accrued to a member of a pension plan and reduces the annual RRSP contribution limit accordingly.

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