SDRRSPs explained

Self-Directed RRSPs require you to manage a lot of money on your own.



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rrsp_0211_322Have you been considering a Self-Directed RRSP? The more extensive range of investment options available makes a Self-Directed RRSP attractive. And the convenience of one plan and one statement can be very attractive. But Self-Directed RRSPs are not for everyone since you must be willing and able to make your own investment decisions, and you must have a large enough pool of investments to offset the fees. Consider a Self-Directed RRSP if:

You want to make a non-monetary contribution. If you don’t have the cash readily available to invest in an RRSP you may think your only option is to borrow. Not true. If you are holding eligible non-registered investments, you can contribute those investments to a Self-Directed RRSP and claim a tax deduction.

Let’s say you have a Canada Savings Bond worth $3,200 (principal and interest). Contribute that CSB to your Self-Directed RRSP and claim a $3,200 deduction—providing it’s within your deduction limit—just as you would with a cash contribution. (Note: The accrued interest must be reported in your tax return for the year of the transfer. Any accrued interest already reported in prior years does not have to be reported again.)

Any eligible RRSP investment qualifies as a non-monetary contribution. The sale to your RRSP must take place at fair market value or you will be deemed to have made a contribution to your RRSP. If you pay less, you will be deemed to have made a withdrawal. (Note: If a loss is triggered by the sale of your non-registered investment to your RRSP, the loss will be deemed by the tax-man to be nil. If a gain is triggered, you may have to pay tax on that gain.)

You’re interested in investment options that are not available in a regular RRSP. Whether you want to hold your own mortgage (I’ll talk about this in more detail next week) or you’re looking for investments not available with a regular RRSP, along with the wider choice of investments goes the need to pay particular attention to the types of investments chosen. Screw up and choose a non-qualified investment and the fair market value of that non-qualified investment at the time it was acquired by the RRSP will be included in your income. As well, any income earned on non-qualified investments will be taxable to the RRSP.

You want to consolidate many plans with a variety of investments in one place. Most regular RRSPs now charge fees for withdrawals and transfers. By consolidating all your RRSPs in a single plan, you may be able to reduce your annual administrative costs. Consolidation will also simplify your record keeping. And it’ll make keeping track of your asset mix easier. When it comes time to convert to an annuity or RRIF, the transfer will be a lot simpler if it is done from a single plan.

4 comments on “SDRRSPs explained

  1. How much money do you need in your RRSP to make haviong a self-directed plan worthwhile?


    • The amount you need to have is partly dependent on the amount of the fees associated with the Self-Directed plan, Gail says. So if you’re going to pay $100 a year for a SDRRSP, a balance of $100,000 would mean you were losing 0.1% of the return to fees.


    • You can start a TD e-series account with a diversified allocation of ETFs (20% Canadian equity, 20% International Equity, 20% US Equity, 40% Canadian Bonds) with very low MER with as little money as you like. This strategy knocks the pants off any kind of mutual fund. But probably the best thing about this account for new investors is you can put an automatic deposit in every week or every month with no fee.


  2. "You must be willing and able to make your own investment decisions" might be a bit misleading. You you are still on your own in the end of any investment scenario, even if a financial advisor loses you a great deal of money (which is what happened to me after 13 years of having mutual funds).
    There is a wealth of knowledge in the form of blogs run by experts who have self directed their RRSPs for years. There are books at your local library about the passive investment strategy through indexed funds. Start by reading Hallam's "Millionaire Teacher" and then move on to Malkiel's "A Random Walk Down Wall Street". The message in these books is the same.

    About fees… Questrade, Qtrade, TD e-series are three online services I can think of off the top of my head that offer self-directed RRSP accounts with no annual fees.


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