Congratulations, procrastinator. You’ve officially slacked it enough that you have exactly 7 hours to make a RRSP contribution, and on the industry’s busiest day of the year to boot. That’s like waiting until Christmas Eve to buy your kid the hot new toy. Not that your kid deserves it, I’ve seen her on the playground. (NOT IN THAT WAY GEEZ) Still, not your smartest move.
It’s important to make the deadline because of the tax implications. If you get your contribution in by the end of the day today, that’s less tax you’re paying. If you contribute $5,000 and you’re in the 33% tax bracket, that gets you an extra refund of $1666.66, which can then be used next year to get even more of a refund, and so on, until you maximize your contribution room. I show you the importance of doing that with this post.
The problem with waiting until the deadline is now your options are limited. You can’t make an electronic transfer from your bank account to your online broker because those take a few days, and you’ll miss the deadline. You might not even be able to get an appointment with someone at your bank to set something up there. Are you more screwed than an oil guy in Alberta?
Nah. You’ll have to be a little innovative, but you’ve got options. Here’s how to make that last minute RRSP contribution.
Transfer in kind
This one works best for those of us who already have stocks outside of our RRSP. All you need to do is tell your broker to transfer a stock you already own from a cash account to a registered account. It’s easy, and as long as you have the official request submitted today, they should be able to get it done for you.
The only thing you have to worry about is the tax implications. When you transfer something like that the CRA treats it like a sale. So if you bought Apple in 2001 at 4¢ per share, you can’t just transfer it over and keep your cost base intact. The CRA assume you sold it, and you’ll owe the corresponding tax on it next year.
The easy way to get around this is to transfer something at a loss. Chances are your portfolio has a couple of dogs in it, so just transfer them over. Easy peasy.
This is for people who have cash sitting in their margin account because they’re procrastinating in a different way. Either that or they just can’t find any value in the market because they insist on being stock pickers. Know anybody like that?
Anyway, this is even easier than transferring stock. One call or email to customer support and it’s done. I suggest email, that way you won’t have to hear them say “I’d be happy to help you with that Mr. Smith” even though their tone of voice says “please smother me with a pillow it would be better than talking to guys like you all day.”
I put trick in quotation marks because it is literally the lamest trick in the history of ever. It makes your grandpa’s quarter trick look like Houdini in comparison.
You go to the bank, and contribute into a GIC for your RRSP, leaving it in for the minimum amount of time. Right when it comes due, transfer it to wherever you’d like. You’ll forfeit potential returns for the year, but a) we’re mostly concerned with the tax refund at this point, not the returns and b) you can just view it as the fixed income part of your portfolio.
You could do the same thing with bank mutual funds, in theory. If you can even talk to someone today, you can invest in a bank fund with a relatively cheap MER (most big bank balanced funds have an MER with a 1 handle, which isn’t ideal but also isn’t the worst thing in the world), hold it for a year or two, and then cash it out and transfer it to an online broker. This isn’t a higher recommendation because many people who do it will just leave their money with the bank, too lazy to take it out. At least a GIC at 0.04% interest gives you some incentive to transfer it to equities.
Bonus! A few last minute RRSP investment ideas
Making the contribution is just half the battle. Now you have to invest the cash. Assuming you’re not just blindly buying 3 or 4 ETFs, here are some ideas I’ve been looking at for my own cash.
Extendicare — I wrote about Extendicare at my other blog, Canadian Value Investing. I think shares could double in the next 1-2 years, depending on what management does with the mountain of cash they’re about to get from the sale of the U.S. operations.
Energy — There are dozens of cheap energy stocks out there. I’m waiting because I think oil pulls back into the $40s again, but keep in mind that trying to predict oil is a suckers game. You could just buy the energy ETF, or you could look at individual companies. Stocks on my watch list are Penn West, Athabasca Oil, Gran Tierra, Pacific Rubiales, and Petrobras.
Cominar/Dream Office REIT — I think most Canadian REITs are overvalued, thanks to baby boomers and their lust for yield. These two are reasonably valued and have a good chance of maintaining their payout.
Russia — If it can go wrong, it’s going wrong in Russia right now. Oil is really hurting that country, and if there was a Russia ex-oil ETF I’d probably be buying it right now. You can look at individual companies or just buy one of several Russia ETFs.
Disclosure: I own Dream Office REIT, Penn West, and Extendicare. As always, if you buy a stock just because I’m buying it, you deserve to lose money. Do your own research before buying anything, including donuts and delicious beef bowls from Yoshinoya, where I’m going right now.