US citizen working in Canada - what to put in RRSP?

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jugdish
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US citizen working in Canada - what to put in RRSP?

Post by jugdish »

Hi everyone, this is my first post at FWF! I'm a US citizen so typically post at Bogleheads, but have recently moved to Canada and have questions about what to do with my RRSP. My portfolio is split between US / UK / Canada, but hopefully there are some here who might be able to help.

Below I have converted all values to CAD. Also, I have omitted the names of US mutual funds since I know they mean nothing to Canadian readers, but I have included the MER to show as a comparison, since I know Canada's MERs are higher. Wherever possible, I am making use of low-fee Vanguard index funds.

Current Situation:

Age: 34
Marital Status: Single
Provincial Residence: BC
Target Asset Allocation: 20% bonds, 50% US stocks, 30% international stocks
I intend to live and work in Canada for a few years at the minimum, but have not yet decided whether I intend to retire in Canada or the US.

Accounts:

UK tax-deferred:
$82,000 International stocks (0.11% MER)
(can no longer contribute)

US tax-deferred:
$40,000 US bonds (0.05% MER)
(can no longer contribute)

US tax-free:
$24,000 US bonds (0.05% MER)
$4,000 US stocks (0.04% MER)
$22,000 International stocks (0.11% MER)
+ $6,900/yr contribution rate

US taxable:
$140,000 US stocks (0.04% MER)
+ $21,000/yr contribution rate

Canada tax-deferred (RRSP):
$0
+ $22,000/yr contribution rate

Emergency funds:
$54,000 cash

Question:
My main question is which fund to put in which account so as to minimize fees and maximize tax-efficiency. Ignoring the asset class I'm currently holding in each account, and considering that I can only contribute to 3 accounts going forward (US tax-free, US taxable, and RRSP), which funds should go where?

One idea I had was to use my RRSP to invest in Canadian bonds. The idea being that the fees involved with Canadian bonds might be lower than those of Canadian mutual funds. If I did this, then I could devote more of my US accounts to the unbeatably low-fee stock indexes, and gradually shift my bond allocation into Canada. Thoughts?

(Note that I am already aware of the tax implications of a split US/Canada portfolio, and have read the relevant sections of the finiki. So I'm seeking fund allocation advice here, rather than cross-border tax advice.)

Thank you!
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Peculiar_Investor
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Re: US citizen working in Canada - what to put in RRSP?

Post by Peculiar_Investor »

Welcome to FWF. Looks like you've done quite a bit of homework, thank you.
jugdish wrote: 14 Jan 2018 08:48 considering that I can only contribute to 3 accounts going forward (US tax-free, US taxable, and RRSP), which funds should go where?
I would think you could also establish a taxable account in Canada. You don't mention it but I'm going to guess that you've probably also read Taxation as a US person living abroad - Bogleheads, particularly the section on Canadian tax advantaged accounts.
jugdish wrote: 14 Jan 2018 08:48 One idea I had was to use my RRSP to invest in Canadian bonds. The idea being that the fees involved with Canadian bonds might be lower than those of Canadian mutual funds. If I did this, then I could devote more of my US accounts to the unbeatably low-fee stock indexes, and gradually shift my bond allocation into Canada. Thoughts?
Your idea to use your RRSP to hold Canadian bonds is inline with the common recommendation for Tax-efficient investing as interest income doesn't have any tax advantaged treatment for Canadian income taxes and therefore is taxed at your highest rate.

The general advice here is to avoid Canadian mutual funds and their high MERs. Vanguard Canada has been part of the Canadian landscape for a number of years, but unfortunately they only offer ETFs. Blackrock (iShares) have been here even longer and there is now healthy competition that has been driving MERs downwards on ETFs.

There are a number of low cost bond ETFs that track broad-based indices, such as Vanguard Canada's Canadian Aggregate Bond Index ETF (VAB) or Blackrock's iShares Core Canadian Universe Bond Index ETF | XBB.

In case you haven't done a forum search, there are a couple of topics that also might be helpful to your situation, see Contributing to RRSP as US resident: worth it? and Moving from Canada to California with substantial RRSPs as examples.
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ig17
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Re: US citizen working in Canada - what to put in RRSP?

Post by ig17 »

jugdish wrote: 14 Jan 2018 08:48 One idea I had was to use my RRSP to invest in Canadian bonds. The idea being that the fees involved with Canadian bonds might be lower than those of Canadian mutual funds. If I did this, then I could devote more of my US accounts to the unbeatably low-fee stock indexes, and gradually shift my bond allocation into Canada. Thoughts?
I don't think it's a relevant consideration to sway your decision one way or the other. You can buy US-based Vanguard ETFs in your Canadian RRSP. The fees will be as low as anything you can purchase in your US accounts.
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