Q: What should I do if I've maxed out my RSPs and TFSAs?
A: Go on vacation…!
I'm kidding. Well, kind of. I was actually hesitant to write this column, because I think it's a very unique scenario that doesn't apply to the typical Canadian investor. But since I've been asked the question, I thought, why not?!
Most questions I receive are from folks trying to save and invest, while managing conflicting financial priorities. But this time around, I got an email from Jason, who asked me what I'd recommend for someone who's already maxed out their RSPs and TFSAs, while also having a defined benefit pension plan from work that will provide a solid income in retirement. So firstly, this is an enviable position to be in, and most people reading this are probably a bit envious – myself included!
With that in mind, if you ever find yourself in a position where you're trying to think of ways to save extra money and have already maxed out your registered contribution plans, here are a few options to consider:
Pay down all debt, including mortgage debt, even if you're paying a low interest rate. Why? Because it's a guaranteed rate of return. Right now, your mortgage rate could be as low as 2.00% or even less in some cases, but paying down that mortgage is still keeping you from paying that extra interest.
Gift money to your spouse, if applicable, so they can also max out their TFSA. If you haven't done this, it's a great way to ensure you're maxing out your collective contribution room.
Make sure you've optimized your investment mix in your respective accounts. Keep interest-bearing investments in your RSP or TFSA, since interest is the least efficient (i.e. the most highly taxed) type of investment income. Keep more tax-efficient investments in your non-registered account (products that generate dividends or capital gains), as this type of income is more efficient than interest income.
If you have children, make sure you've maxed out their RESPs. By doing so, you'll be taking advantage of free Canada Education Savings Grant (CESG) money, not to mention helping them hopefully leave post-secondary school without a mountain of debt.
From an investment selection perspective, there are more complex options you could pursue, including some life insurance products or real estate investments. This will all depend on what you're trying to achieve.
Perhaps best = be charitable. There's no lack of great charities that would literally beg for donations – and with good reason – so please consider donating some money (or more if you already do) to those that aren't in quite as enviable a financial position.
But again – start by taking a vacation. A nice long one!
If you have a question Joe can answer in a future article or have a topic suggestion, please email it to: askanadvisor@tangerine.ca
This article is intended to provide general information only about RSPs and TFSAs. If you need further information about your specific circumstances you should speak to an investment advisor.
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