RRSP to TFSA Grand Jeté

I like the title as Mrs. C8j is a former ballerina, so any time I can figure to use a ballet term I get extra points (one day I will figure out how to put Benesh Movement Notation in a post).

What could I possibly mean by this odd title? For a long time folks have talked about how to deal with RRSP tax refunds (if you get them, some folks simply have that built into their taxation deductions, so they enjoy their refund all year round), and this is another interesting idea, that I am sure many folks are already using, but I will see if I can sum it up.

Ballet

The Full RRSP to TFSA Grand Jete
Image courtesy of Danilo Rizzuti, at FreeDigitalPhotos.net

My first assumption is that you are out of debt or have not much left on your mortgage (and thus nearly out of debt), if you have debt to pay off, please refer to the RRSP to Debt Pas De Deux method, where you substitute the word Pay Debt for Put Money in TFSA in my method.

The Grand Jeté is simply done, but let me wander through the steps for you in case you are unsure.

  1. You have extra money that you wish to save for your retirement future (and good on you for thinking of this). Let us say the amount is $5000 (you got an Atta Person Bonus from work).
  2. You decide to put that money into your RRSP (or a Spousal RRSP if you want to add some exciting savings pirouettes before the Grand Jeté).
  3. When you deposit your $5000 into your RRSP, you will receive a refund of about $1300 or so ( your mileage may vary).
  4. You receive this cheque as a refund for the CRA into your savings account (because remember cheques are going away very soon).
  5. Time for the actual Grand Jeté you now take this money and transfer it to your TFSA for it to then grow without tax repercussions (assuming you have room in your TFSA, you cannot do the Grand Jeté in this case you may only be able to do a Petit Jeté).

That is it folks, that simple. So you must have RRSP room to make the contribution and room in your TFSA to make the deposit, but that is about it. At the end of it, you have two viable savings plans with money in them. You might be able to automate this if you:

  1. Make per pay cheque RRSP deposits, then you can estimate how much tax you are “saving”
  2. Set up a per pay cheque deposit to your TFSA to put the savings there.

I think I’d call that a Modified Petit Jeté.

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TFSA Retirement Welfare Bums

I am borrowing an expression that David Lewis made about Canadian Corporations getting far too many tax breaks (his phrase was “Corporate Welfare Bums“), however, I feel it is correct, given the furor in the main stream media about Rich Canadians getting fat off Retirement Welfare (again to paraphrase and add alarmist tenor to the argument).

Typical Rich Fat Cat Canadian

Typical Rich Fat Cat Canadian™ lying around with his TFSA and his tax loopholes!

This all seems to be a reaction to The Harper Government™ proposing (or maybe only socializing) a doubling of the current TFSA yearly limit to $11K, and thus the fear of “Rich Fat Cat Canadians™” taking advantage of this unfair change to hide income and possibly end up getting paid the Guaranteed Income Supplement if they retire (GIS is really to help those who are retired with lower-income, if you have a higher income it typically is clawed back). This is diabolical, someone who could save $11,000 a year until they retire might appear to be a pauper and attempt to get government hand outs? How dare they exploit this “tax loophole” ! #OMG

Now let’s all calm the heck down given  I have just whipped you into a fury of moral indignation about the Rich Fat Cat Canadians™ out there. My guess would be that the government (as part of announcing the doubling of the TFSA limit (possibly)) will simply force folks applying for GIS to report their TFSA holdings, and that will then disqualify them from getting the GIS , but if you believe what is being currently written, it is happening right now, and the Harper Government™ is doing nothing about it! #OMG

This (of course) is not likely the case, but having a higher TFSA limit does make for some very interesting questions about where to put your Retirement funds, especially if you are younger (for someone like me, I have about 10 years before retirement, if they DID double the rate and I DID max out my TFSA‘s I could have about $140K or so (with growth) in my TFSA). I have seen many interesting arguments on both sides, and I am not completely sure which is better, however, I will be proposing tomorrow (teaser) an interesting hybrid solution (that is neither brilliant nor new, just me rehashing old ideas (as usual)).

So all you Rich Fat Cat Canadians™ can thank the Harper Government™ for yet another break being given to you, you oppressors of the proletariat

Full Disclosure: I believe if I use the definition of Rich Fat Cat Canadians™ I must disclose that I am (most likely, depending on the income line used) a member of this club too, and yes this article was written (a little) tongue in cheek.

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Inflation Stays High Despite Lower Gas in October

Our friends at Stats Canada published their monthly report on the Consumer Price Index, and the numbers are not what I was guessing it might be (in that it is still inching up in the Bank of Canada Red Zone).

To quote the report precisely:

Higher prices for shelter and food led the rise in the CPI. At the same time, larger year-over-year price increases for transportation and for clothing and footwear contributed the most to the acceleration in the CPI.

So, day-to-day living costs of shelter and food are up last month and thanks to transportation continues to drag the year over year number up? Lovely.

CPI For Past Little WHile

The 12-month change in the Consumer Price Index, from October 2009 to October 2014

To be more clear about the shelter increase year over year, Stats Canada pointed out:

Shelter costs rose 2.8% in the 12 months to October, led by a 20.1% gain in natural gas prices. Consumers also paid more for electricity, homeowners’ home and mortgage insurance as well as rent in October compared with the same month in 2013. Property taxes rose 2.2% on a year-over-year basis, while mortgage interest cost declined 0.2%.

That is wild that mortgage rates actually lowered the cost of shelter over the year? Wow. The Natural Gas and Electricity increase makes me shake my head. Here in Ontario the Electricity cash grab was mostly due to bad management and government interference, and the Natural Gas is mostly due to artificially created shortages by mismanagement on the part of the Natural Gas suppliers (see a repeating theme here).

While I am confident there are those saying, “Why worry CPI is at 2.5% and my income is growing faster than that“, and you may be correct, but that is assuming these stats reflect the actual world (I always view them as a “it increased at least this much” point of view, I suspect prices actually went up higher, but how the data is manipulated makes it more optimistic). If inflation runs at 2.5% and you get a 3.2% raise and your investment grow at 3.0%, yes you are ahead but only by 0.7% in terms of income and 0.5% in terms of savings.

 

CPI for past little while

Seasonally adjusted monthly Consumer Price Index, from October 2009 to October 2014

Bank of Canada’s core index

The Bank of Canada’s core index rose 2.3% in the 12 months to October, after increasing 2.1% in September.

The seasonally adjusted core index increased 0.2% on a monthly basis in October, matching the gains in September and August.

This is important because this is the Red Zone for Bank of Canada in terms of interest rates, so we have best watch out if this creeps up a little more, we may see an easing of lower interest rates (to use banker baffle gab speak).

The Big CPI Data Table

This month’s big table is the seasonally adjusted numbers, not sure how this adjustment works, but have a look and see if you can figure it  out.

Consumer Price Index, major components and special aggregates – Seasonally adjusted

August
2014
September
2014
October
2014
August to
Sept 2014
Sept to
Oct 2014
(2002=100) % change
All-items Consumer Price Index (CPI) 125.6 125.8 125.9 0.2 0.1
Food 135.4 136.3 136.4 0.7 0.1
Shelter 132.4 132.5 132.8 0.1 0.2
Household operations,
furnishings and equipment
117.8 117.5 117.8 -0.3 0.3
Clothing and footwear 93.2 93.8 94.1 0.6 0.3
Transportation 131.2 130.5 130.9 -0.5 0.3
Health and personal care 119.2 119.2 119.1 0.0 -0.1
Recreation, education and reading 107.8 107.9 108.1 0.1 0.2
Alcoholic beverages and
tobacco products
148.4 148.5 149.2 0.1 0.5
Special aggregates
Core CPI 123.6 123.8 124.1 0.2 0.2
All-items CPI excluding
food and energy
119.5 119.6 119.8 0.1 0.2

 

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Financial Tweets of the Week

No not financial twits of the week, given my propensity to pontificate on Twitter, I figured I’d add my considerable skill at finding useful information by compiling a few of my favorite tweets of the week (what is the tongue in cheek font?).

Twitter Icon

My New Twitter Icon

Mr. Buchanan felt a little irked by the commentary of renowned Economist (and blow hard (IMHO)) Paul Krugman. Assuming that a physicist cannot comment on Economic issues is a bit myopic in nature.  Are we Steaming slowly toward the limits of growth? Read the follow on article, there are some very good points made by Mr. Buchanan.


Which is the better place to be saving for your retirement? I always like when folks publish their work and at the end of it admit they haven’t necessarily convinced themselves that they have figured things out or proven their point. I think that is why I like this one.

An interesting catch-line, for the tweet, and that is important when you have 132 characters to limit you. The article is a pretty standard, “Save and things will be better” kind of post, but I really did like the catch-phrase.

Kerry’s tips are always well written and very useful, and this one is well worth reading for those too shy to ask for discounts, after all it is all your money, try to keep it.

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We got to see what Lake Effect Snow actually means with some vivid photos of Buffalo getting buried by 7 feet of snow. They are getting more snow today evidently, this is why I am happy that Ottawa only has a river running through it. The worst part of this is that it might rain in Buffalo putting all roofs in the area in the peril (7 feet of heavy wet snow is not what any how is designed to support).

Winter Sucks

Mr. Cardinal Confirms, Winter Sucks

Enjoy  your web cams and such? The laptop I am typing on has one pointed right at me, but evidently our Russian hacking friends have sites from hacked cameras that folks can go and check. You know how to fix this (aside from having good anti-virus and security), cover the camera up with a piece of paper and tape, or point your web cams elsewhere when you aren’t using it.

A couple in Alberta learned just how expensive medical costs are in the US, when their bundle of joy showed up 9 weeks prematurely, and they are now stuck with an almost $900K bill, that their insurance provider (Blue Cross) refuses to pay. Travel insurance is always a tricky world, always be sure you are covered

My Writings for Week Ending November 21st

Winter has come with snow and all of that, but luckily this is Ottawa, so it is supposed to rain on Monday. Note that I am experimenting with a new grading system for comments (so far I only have Gold Stars, but I will be looking to expand that capability very soon).

 

Scotia Bank Value Visa

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