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T-series funds: part of a tax-efficient retirement income strategy

Published on: September 24th, 2021

Once you’ve retired, your financial focus becomes making the most of your retirement savings – and that means paying as little tax as possible. Mutual fund investors have a unique tool available to them: T-series mutual funds.

Part of your plan

Fortunately, there are several things you can do to structure your income flow in a way that maximizes your after-tax income. These include withdrawing your income in the most tax-advantage way possible, splitting income if your personal tax situation allows, and using your Tax-Free Savings Account (TFSA) room to shelter as much investment gains as possible from tax. These ideas should be examined alongside T-series funds for a complete tax-efficiency strategy.

Planful cash flow

T-series funds are designed to provide a predictable and sustainable cash flow, often at a set percentage which helps with cash flow planning. Depending on the fund’s earnings (usually interest income, dividends and capital gains) the fund may also distribute a portion of the investor’s original investment, known as Return of Capital (ROC). ROC is usually not taxable, resulting in a more tax-efficient payout for you. If you are not currently in T-series funds, it may be possible to transition to the T-series version from the series of the fund you currently hold without triggering a tax liability. One word of caution: when you receive an ROC distribution, you will lower the Adjusted Cost Base (ACB) of your holding, which could have tax implications later. Careful planning and monitoring are required.

Find the right balance Everyone’s situation is unique and there is no “out-of-the-box” solution. While obtaining tax-efficient cash flow is an important goal, so is maintaining the right asset allocation in your mutual fund portfolio for adequate growth and managing risk according to your own risk tolerance. Professional tax and investment advice are needed to achieve the right balance.

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