It seemed a victory for investors when the federal government allowed the cost of having RRSPs,RRIFs and TFSAs managed by an adviser to be paid with money from an outside account.
If your adviser works on a fee-based arrangement, you might pay 1 to 2 per cent of the value of your assets to have an account managed. Wouldn’t it be better to leave that money to grow over the years in your registered account and pay those fees with outside money?
The answer is yes for tax-free savings accounts, a new report from the tax and estate planning people at the Canadian Imperial Bank of Commerce says. For registered retirement savings plans and registered retirement income funds, it may actually make sense to pay your fees from within your plan. According to CIBC, it all depends on your tax bracket, age and the rate of return you’re targeting over the long term.
Story continues below advertisement
“If you’re expecting high rates of return and your time horizon is in the decades, then it may make sense to pay RRSPs on the outside,” said Jamie Golombek, CIBC’s managing director of tax and estate planning and a co-author of the report with Debbie Pearl-Weinberg and Tess Francis.
The federal Department of Finance gave the all-clear to pay RRSP, RRIF and TFSA fees with outside money last fall after a review of whether people doing this would have an “unfair advantage” that artificially shifts value into a registered plan. A stiff penalty can be applied to an unfair advantage.
The analysis by CIBC notes that when you pay RRSP fees with outside money, you’re using after-tax dollars. If you pay from within an RRSP, you’re using pre-tax dollars. Remember: You get a tax deduction when you contribute to an RRSP, and you pay tax on your withdrawals later on in retirement.
CIBC built an example using someone who pays $100 in RRSP fees and is in the 30-per-cent tax bracket while working and in retirement. If this person pays the $100 fee from an outside account, then that’s the cost, period. If the fee is paid from within the RRSP, CIBC argues that the real cost is only $70.
Here’s CIBC’s reasoning: When you pay the $100 fee from within the RRSP, you never take that money out of the plan and incur a tax hit of 30 per cent. You could say that you’re paying $70 of the $100 fee and the government is paying $30 via the amount it would have taken as tax if you withdrew $100.
The counter-argument is that paying fees out of your RRSP depletes the amount of money that can compound in your account over the years on a tax-sheltered basis. The CIBC report said it’s possible to calculate a break-even point where you get more benefit from paying fees outside your RRSP than you do from inside.
Someone in the 30-per-cent tax bracket who pays $100 in fees in Year One from within an RRSP that has an initial value of $10,000 would need 25 years to break even on those fees, if we assume average annual returns of 5 per cent. With a higher rate of return, the break-even point comes sooner.
Story continues below advertisement
Your tax rate also affects the break-even point. The higher your tax rate on RRSP withdrawals, the better the tax savings from paying your fees from within your plan.
For TFSAs, “it seems pretty clear they should be paid from outside to maximize the tax-free growth from within the plan,” the CIBC report concludes. “For RRSPs and RRIFs, this is not an easy question to answer, as it will depend on your investment time horizon, expected rates of return and tax rates.”
All of this suggests it may be fine to continue to pay fees from within an RRSP if you’re retired. You might have decades ahead of you, but your portfolio is likely to be conservatively built and not generating big returns. Younger people, with many decades ahead of them and more aggressive portfolios, should consider paying their RRSP fees outside the plan.
Paying your RRSP advice fees isn’t a make-or-break thing, though. “Many, many people would be just fine over the long term by keeping things as they are, which means paying from the RRSP,” Mr. Golombek said.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
