RRSP question (canadians)

L

linx

Im a full-time university student and is just learning the basics so i havent made much. Last year's notice of assessment i only had about $ 3100 worth of RRSP deduction limit. I would gather than this year another $1000 worth of room was probably added.


what my question is, i know most canadian brokers want atleast 5k before they open a self-registered RRSP account. I think i could over contribute to my RRSP without facing penalties if i only go over $2k above my limit. Is this true? or are there any brokers which dont have the 5k limit?

finally, the fees on these accounts are horrendous, what are you paying??
 
I have two self directed RRSP's at TD Waterhouse. I don't recall a $5k minimum to start, and as long as you pay the $100 a year fee, they don't care. I've had one of them at close to 0 balance for over a year now.

You can over-contribute up to $2k without penalty.
 
some self-directed RRSP accounts dont have any limits such as the ones where you can only deal with GIC's. Can you trade stocks in your self-directed RRSP account?


thanks for the information
 
Yes you can trade stocks in your account, but only a small % can be with US stocks, the majority is to be with Cdn companies or Cdn funds. The best opportunites can be found in the US ( only my opinion from what I found )
 
But remember, You can only take money out for select reasons without incurring a penalty.

1) to buy your first home (Home buyer's Plan)
2) for education (lifelong-learning plan)
3) to essentially retire

I had to withdraw to start daytrading and paid the penalty which is

10% on amounts $0 - $5000
20% on amounts $5001 - $15 000
30% on $15 000 and above

although you might have saved some on contributing. If you are a hardcore player you might just want to pay the tax on gains and be able to short and write naked calls.

You sound pretty young so you might not have seen the mad dollars to be made going short in 00'-02'.

good luck
 
Those aren't penalties, but tax withheld at source. RRSP withdrawals are treated the same as income from an employer, so the government makes the brokerage withhold some tax. You'll get a form (a T5 I think) to include on your tax return and you'll be credited for the tax you paid on your RRSP withdrawal.

The foreign content of your RSP can't exceed 30%. That's a government-set limit, but you can effectively skirt the rule using certain mutual funds.

The list of what you can trade in a self-directed RSP is quite large.
 
I think the crux of the matter is that if you have a $5000 Self Directed RRSP and you are limited to 30% foreign content and no margin, you can only trade $1500CAD worth of stock. That is only 100 shares of a $11.50USD stock. Consider that if your account is at any of the big banks, the flat fee per trade is around $25-$30. So to trade in and out will cost you around $50-$60. That translates into a $0.50-$0.60 cent break even point or as a percentage, $50/$1500 = 3.33%.

For all intents and purposes, it is too prohibitive to "trade" inside an RRSP with small capital in the US market.

So your other option is playing $5000 worth in the TSX Venture. Although you could hit it big with penny stocks, my commerce friends from UBC had to hold their stock on average, 5 months. So you're not really trading, as so much as you're investing or speculating. Of course, your commissions on penny stocks will be even higher, taking out an even larger % to break even. However, there is the possbility of hitting a high flyer. Only experience will let you know.

Just be informed of what you're about to do. That money can buy a lot of beer, pizza, and dinner dates. = ) Best of luck to you in whatever you choose to do.
 
i appreciate the help guys,


I didnt know that you can only trade $1500 worth of stock? Maybe im reading you wrong? are you saying i can only trade $1500 worth of US stocks considering the 30% rule or all stocks in general. Im assuming its US stocks



The only reason i want to open up an RRSP account is for retirement and first-time home buying purposes. I wont be day trading in the RRSP account, probably swing trading it (in months)
 
You can trade anything you want, as much as you want. The 30% rule is the maximum foreign content allowed in your account. It's based on what you paid, not current value. If you had 30% foreign content, and that portion of your account doubled in value, you don't have to pare it back to stay under the 30% cap. You can buy more than 30% if you want to, they just penalize you if you go over. It used to be 1% a month for the amount over the limit.
 
Maybe you could evaluate if to trade outside of your RRSP is more appropriate for the moment.

As explain above member, you have many restriction on your RRSP, the present rules are not well adapted as the US part IRA can do and have to use many workaround tips for to be efficient if you want to be active inside this kind of account. When someone have low capital in RRSP, you don't have a lot of solution and everything are expensive (fee, commission, etc.) and many limitation on the products (no short unless you use Rydex fund, no put option, no futures). A strategy that some people use, is to put every interest product inside you RRSP (bond, corp. bond, monetary fund, etc...) and keep outside RRSP with a standard margin account the products as stock, options and futures. The main advantages to do that is these product have a better fiscal treatment (capital gain and dividend yield) and in many case you will have a better return on your investment rather to do the same transaction inside your RRSP and take the money later. Also, you have more choice for a real discount brokers as Interactive Brokers or other, because some of them don't process RRSP (only margin and cash accounts).

If you have few fund, this is very important to have low fee when you start because as explain by another member this will cut your profit (in his example you will have to do up to 60¢ before to do money, a large spread in trading ...)

I could give a lot of case why should seriously evaluate to trade outside of your RRSP with a small amount unless you do a core trading (long term investment). IMO, swing trading or day trading with few money inside RRSP is not very rewarding because the fee are too high, and don't forget the last thing, RRSP is for your old day, doing safer transaction is more appropriate if this is really your goal.
 
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