If you're like most people, you probably have a TFSA or an RRSP either with a bank or with a traditional financial advisor. If your money is simply sitting in a GIC or a savings account generating less than 1.5%, you're probably better off investing in a smart, low-cost portfolio of ETFs (Unless it's your emergency funds, in which case a savings account is probably your best choice). If you're invested in mutual funds, you're probably paying a lot of fees and you may not even realize it.

Guess what? You can set up a transfer of that account over to Wealthsimple in 2 minutes and you'll be able to benefit from everything Wealthsimple has to offer.

Why transfer your RRSP or TFSA to Wealthsimple?

1. Reduce your fees

How does reducing fees improve your savings over the long-term? Let's do the math. Our management fee is only 0.50% in addition to the costs of the ETFs which average ~0.20%. All in, you're looking at about 0.70% without including your rewards. Most institutions and mutual funds charge about 2% per year.

If you have a portfolio of $20,000, you'll be saving $260 in fees every year. Now imagine your portfolio grows to $100,000 in 10 years as you keep contributing. You'll now benefit from Wealthsimple Black's reduced 0.40% yearly pricing. You're now saving $2,800 per year. It adds up really fast!

Bonus: If you transfer an existing account of over $5,000 from another institution, we give you an additional $10,000 managed for free for 1 year - that's another easy $50 saved on fees on your first year with Wealthsimple. Remember. the lower the fees, the better the probability that future you will have more money!

2. Invest in a smart way using Technology

Trying to decipher a mutual fund or bank statement is one of the hardest things to do. For example, do you know how much your investments are costing you? Do you know what your rate of return is? Do you usually just throw your statements out without ever reading them? Except for that last question, you probably answered no.

Have no fear! Our cutting-edge technology helps put you in control of your investments. Doing things like setting recurring contributions, seeing your returns, and investing in a smart way has never been easier with our user-friendly and transparent platform.

3. Trusted Advice

Our portfolio managers are always available when you need them. They can help plan your financial milestones and answer questions you might have about potential risks or what sort of investment accounts you should have. By having all your accounts under one roof, we can make sure that all your investments are working hand-in-hand to help you achieve your goals in a way that maximizes your returns, and minimizes the risks. We can help answer questions like how much to contribute to your accounts, how much risk you should be taking, and when you can retire comfortably. All this is included with Wealthsimple.

4. Get Wealthsimple Black service

When you transfer your accounts to Wealthsimple, you can qualify for the Wealthsimple Black status* and take advantage of lower fees, tax optimization and financial planning sessions.

To transfer your accounts to Wealthsimple, follow these steps:

1. Login to your Wealthsimple account
2. Navigate to the "Funding" page of your account and click "Transfer an existing account"
3. Fill in the details of your transfer and upload an account statement (optional)
4. Review, e-sign the transfer form, and press "Finish"
5. We will take it from here! We will get into contact with your financial institution to initiate the transfer and all that's required from you. These processes typically take 4-6 weeks - we wish it could be faster! - but we'll stay on top of it for you and email you once the transfer is complete.

If you want to speak to a portfolio manager before setting up a transfer, simply click here to schedule a call.

*A minimum of $100,000 of net deposits is required to qualify for Wealthsimple Black. 

One of the most common questions we get from clients is whether they should invest in a TFSA or an RRSP. They both have their advantages but depending on your situation, one might be better than the other. The RRSP offers greater tax benefits under the right circumstances but the fact that you have to pay income taxes when you take out money from it makes it less flexible. The TFSA may not provide as many tax benefits as the RRSP, but since taking money out of it has no tax consequences, it's much more flexible.

When should you use an RRSP?

RRSP contributions are tax-deductible. The contributions you make are deducted from your income for tax purposes. In other words, if you make $100,000 this year but add $10,000 to your RRSP throughout the year, you'll be taxed as if you made 90,000$ of income that year. Thanks to the tax deduction, if your income taxes are around 40%, you'll be getting a ~$4,000 tax refund after filing your taxes. However, since RRSP withdrawals are taxed like income, you'll eventually pay taxes on the withdrawals, but at a lower tax rate in the future if your income is lower at retirement than throughout your working years. Very important: to use the RRSP properly, you need to make sure that your tax bracket is high when you're contributing to it but that your tax bracket is low when you withdraw from it.

You should generally invest in an RRSP if:

1. You're investing for retirement, are making more than $50,000 a year and don't expect your income to grow significantly.
2. You're investing for retirement and are making over $90,000 a year. 
3. You're investing towards your first home, are making more than $50,000 a year, and plan to use your RRSP for a Home Buyer's Plan.
4. You're investing towards your education, are making more than $50,000 a year, and plan to use your RRSP for a Lifelong Learning Plan

When should you use a TFSA?

The TFSA is a simpler tool that allows your investments to grow tax-free but doesn't provide the tax-deduction benefits of the RRSP. It's ideal for objectives that are earlier than retirement but can also be used for retirement in certain cases.

You should invest in a TFSA if:

1. You're investing towards an objective that is sooner than retirement (a home, wedding, vacation, car, etc).
2. You're investing for retirement and are making less than $50,000.
3. You're investing for retirement, are making more than $50,000, but expect your salary to go up significantly. Using a TFSA in this case allows you to use your RRSP contribution room later, when you're at a higher tax bracket, to take advantage of a greater tax deduction.

Pro tip: If an RRSP is right for you, consider maximizing your RRSP contributions to get a large tax refund and put that refund into your TFSA. That way, you have more money working for you and you'll have a mix of long-term retirement funds (RRSP) and flexible funds (TFSA). 

Already have an RRSP or a TFSA elsewhere? Transfer it to Wealthsimple to benefit from lower fees and get an additional $10,000 managed for free for 1 year!

The RRSP

A registered retirement savings plan (RRSP) is an account designed to help Canadians save for retirement. The money in an RRSP can be used to buy a whole host of investments including:

1. Savings accounts
2. GICs
3. Mutual Funds
4. Individual stocks
5. Bonds
6. ETFs
7. Options

The Pros

The money you contribute to your RRSP is tax-deductible. That means that you can subtract the amount you contribute from your income and pay less in income taxes. If you made $70,000 this year and you contributed $10,000 to your RRSP, you will pay tax on only $60,000 of income. You will eventually have to pay income taxes when you withdraw your money from your RRSP, but the idea is that when you do so, you’ll be retired and your tax rate will be lower. Additionally until you withdraw from your RRSP, the growth is tax-free.

Don't forget, you can also use a certain amount of funds from your RRSP to buy a home or even fund your education.

The Cons

The money you take out from your RRSP is taxable like income. Click here for more details.

So now that you know about the RRSP, let's see if it's right for you and if so, how much you should be contributing to it.

The TFSA

The TFSA was created by the Canadian government in 2009 to give Canadians the incentive to save and invest without paying taxes on the growth. Although it is known as a Tax-Free Savings Account, a better name for it would be a Tax-Free Investment Account since the money within a TFSA can actually be invested in all kinds of investment products such as:

1. Savings accounts
2. GICs
3. Mutual Funds
4. Individual stocks
5. Bonds
6. ETFs
7. Options

The Pros

The benefit of the TFSA is that the growth of the investments within it is tax-free. You will not pay taxes on the interest, dividends or capital gains earned. The tax savings allow the TFSA to grow faster than a taxable investment account. You can also withdraw the funds within your TFSA at any time without any tax implications, making it ideal for short or medium-term objectives. Better yet, the money you withdraw will be added back to your contribution space starting in the next calendar year.

The Cons

Although the tax-free status of the TFSA is recognized in Canada, the US Government doesn't officially recognize it, so US-company dividends received in your TFSA are subject to a 15% withholding tax. Don't worry, we take care of those for you so there's no effort needed on your end or any paperwork to file with the IRS.

Additionally, a withdrawal from a TFSA has no impact on current contribution room. However, to put back the withdrawn amount in your TFSA within the same year, you need to make sure you have enough contribution room left this year OR wait until the next calendar year.

For example, if I have $30,000 in a TFSA and my total contribution room is $52,000, then I only have $22,000 of available room for this calendar year. If I withdraw the $30,000, I still only have $22,000 of contribution left for the current calendar year. I'd be able to put $22,000 back into a TFSA this year but could only contribute the additional $8,000 the following calendar year, when I'll regain the $30,000 of contribution room (What I withdrew the year before) + the new year's contribution room.

So now that you know about the TFSA, let's see if it's right for you and if so, how much you should be contributing to it.

When the TFSA was created in 2009, the government allowed Canadian adults (18+) to contribute $5,000 per year in the account. But this amount was subject to inflation (the increase in the average cost of life). In 2013, when inflation had increased enough, the contribution limit increased to $5,500 per year - today's current yearly contribution limit. The one historical exception to this yearly limit is in 2015, where the government changed the limit to $10,000 per year but decided to reverse the idea the following year. Complicated, right? Don't worry, here's a visual aid to help you understand your contribution room.

Contribution Room

So how much money can you contribute today if you were a Canadian citizen since 2009 and never funded a TFSA before?

Warning: make sure you don't over-contribute to a TFSA. If you go over your limit, you'll be penalized 1% per month on the over-contributions. Don't worry, Wealthsimple can help you track your contributions so you never have to worry about going over your limit. Just click on your Wealthsimple TFSA and click on "Set Up Tracking" to get started. 

Great, so now that you know the rules around the contributions, here's how much you should be putting aside. Although it's not always easy, we recommend saving about 20% of your income for future you. The more you save, the better off you will be in the future. However, here is a good practice for saving:

1. Make a budget and determine your monthly expenses. Be realistic. From your income, make sure you keep enough to cover those expenses.
2. The income above your monthly expenses can go towards your savings.
3. Before contributing to your TFSA, make sure to keep 3-6 months of living expenses in an emergency fund - This is money that can be used in case of an unexpected expense. These funds should be in a chequing or savings account to make sure they're liquid and accessible.
4. Once you have a well-cushioned emergency fund, any additional income above your monthly expenses can be contributed to your TFSA.

Eventually, you will have maxed out your TFSA contribution room. If you have additional funds you'd like to invest, you should consider using an RRSP. If your RRSP is already maxed out, then you'll have to use a personal (non-registered) account.

Lifelong Learning Plan (LLP)

The Lifelong Learning Plan (LLP) is a program that allows you to borrow up to $20,000 from your RRSP to pay for full or part-time education and training. The maximum that can be withdrawn in any calendar year is $10,000. Please note that an LLP cannot be used to pay for a child's education and that funds must have been in your account for at least three months to qualify.

To withdraw funds from your RRSP under the LLP, you'll need to fill out an RC96E form. You will be prompted with this when you set up the withdrawal through your Wealthsimple dashboard. Simply click on your name in the top-right corner and you will see an option for "Withdrawals". Be sure to select your reason for withdrawal as 'Education using a Lifelong Learning Plan' to download the required form and upload it.

For the bottom section of the form, please use Canadian ShareOwner Investments as the RRSP Issuer. This is our brokerage. Their information is as follows:

RRSP Issuer: Canadian ShareOwner Investments Inc.
Address: 241 Spadina Avenue, 3rd Floor, Toronto, ON, M5T 2E2
Phone: (416) 595-7200

Once we receive this form, we can liquidate your RRSP for you! It will take up to 3 days to trade your portfolio, followed by a 2-day settlement period. So the entire process takes about 5-7 business days. We will stay on top of this for you but if you have any questions, please give us a call at 1 (855) 255-9038.

Home Buyers Plan (HBP)

The Home Buyers' Plan (HBP) is a program that allows you to withdraw up to $35,000 in a calendar year from your RRSP to buy or build a qualifying home for yourself or for a related person with a disability. Note that funds must be on deposit for at least three months to qualify for an HBP withdrawal.

For the bottom section of the form, please use Canadian ShareOwner Investments as the RRSP Issuer. This is our brokerage. Their information is as follows:

RRSP Issuer: Canadian ShareOwner Investments Inc.
Address: 241 Spadina Avenue, 3rd Floor, Toronto, ON, M5T 2E2
Phone: (416) 595-9600

Once we receive this form, we can liquidate your RRSP for you! Trades take a few business days to settle, so the entire process takes about 5 to 7 business days. We will stay on top of this for you but if you have any questions, please give us a call at 1 (855) 255-9038.

A withdrawal from your RRSP will count as taxable income for the year it is withdrawn, except under two circumstances - the Home Buyers' Plan or the Lifelong Learning Plan. It will also be subject to a withholding tax which gets taken out of your withdrawal immediately and paid to the government to cover a portion of the taxes you'd normally owe. Come around tax season, if the withholding tax was greater than what you owed in taxes, you'll get a tax refund. If the withholding tax was less than what you owed in taxes, you'll have to pay additional taxes.

Withholding Tax rates

A simplified example:

John, from Ontario, makes $75,000 this year and withdraws $10,000 out of his RRSP for emergency reasons. Assuming his marginal tax bracket is 35%, he will owe an additional $3,500 of income taxes come tax season. Due to a withholding tax of 20% ($2000 of “pre-paid” taxes in a way), John will only receive $8,000 in his bank account when he makes the withdrawal. Then come tax season he will owe an additional $1,500 in taxes.

You should withdraw from your RRSP only if:

• Using a Home Buyer's Plan
• Using a Lifelong Learning Plan
• You're in retirement and need the funds for your lifestyle
• Pro tip: If you don't need the funds, you can postpone withdrawing from your RRSP until the age of 71 years once it's been converted to a RRIF.
• You're in a situation where you need additional income to sustain your lifestyle and your marginal tax bracket is low (Maternity leave, paternity leave, sabbatical year, etc)
• You need extra income in case of an emergency, but only if you're willing to pay the taxes associated with the withdrawal. Avoid this unless absolutely necessary!