Q. When does it make sense to withdraw money from a TFSA and move it to an RRSP? I am in my late 50s and considering doing this as I have a fairly high income and not much cash on hand to make RRSP contributions. Is that a good move for me? – Deirdre T.
I like that you are thinking about ways to reduce tax, Deirdre, and if you’re careful it may be a good move; if not, it could be a big mistake.
There are two things to think about:
Will your tax rate in retirement be lower than it is now? If so this could be a good strategy. Also think about things like the OAS clawback, the age credit, GIS, GST credit etc…
A TFSA contribution is an after-tax contribution and an RRSP contribution is a pre-tax contribution. A $5,000 contribution to a TFSA is not the same as a $5,000 contribution to an RRSP. If your marginal tax rate is 40% and you draw $5,000 from your TFSA you’ll have $5,000. The same $5,000 withdrawal from your RRSP will leave you with $3,000, and that’s where you could make your mistake…
Q. TFSA or RRSP, which one is more popular today—and why? – Phyllis D.
The RRSP marked its 50th-anniversary last year —but it looks like its Golden Age has already passed. While the RRSP still has more contributors than the TFSA, its lead is narrowing. According to StatsCan, the number of RRSP contributors aged 25 to 54, “declined by 16% from 2000 to 2013, from five million in 2000 to 4.2 million in 2013.” The dollar amounts are on the decline as well. RRSP contributions hit $30 billion in 2000 but fell to $22.5 billion by 2013.
A part of that decline can be blamed on the Tax-Free Savings Account, which was introduced in 2009. StatsCan says there was a slight decline in RRSP use over the last few years and that, “coincided with an increase in the number of individuals who contributed to a TFSA, from 2 million in 2009 to 3 million in 2013.”
Why does the TFSA have a leg-up? Flexibility is one thing. The RRSP was designed for retirement savings, while the TFSA works well as a place to save for retirement and anything else—a dream vacation, a new car, or a house down payment…
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The terms of the deal announced today were not disclosed.
The president of GWL Realty Advisors says the acquisition of EverWest provides the Canadian insurer’s wholly-owned subsidiary with a real estate platform south of the border and opens up investment opportunities for its clients.
Paul Finkbeiner adds that the purchase is an important step in the long-term growth strategy of GWL Realty Advisors, a Toronto-based real estate investment advisor which services pension funds and institutional clients.
Great-West Life is one of Canada’s largest insurance and wealth management companies and is part of the Power Corporation group of companies, one of Canada’s largest non-bank financial conglomerates.
EverWest, based in Denver, is a privately-held real estate investment and operating company which operates in several U…
I am 52 years old and have $200,000 in my RRSP and $5,000 in my TFSA. I have a lot of unused TFSA room, but no new money to contribute. Does it make sense to withdraw some money from the RRSP each year, and then move it over to the TFSA? I realize the tax implications, so perhaps the best thing to do is always withdraw under $5,000 so I pay only 10% tax? My annual income is about $75,000. — Alex
There are situations when it might make sense to withdraw money from your RRSP and recontribute it to your TFSA. But these are rare, and Alex, I don’t think this is one of them.
You recognize that RRSP withdrawals are taxable, but I think you have underestimated the amount of tax you will pay. When you make an RRSP withdrawal of $5,000 or less, your brokerage is required to withhold 10% for income taxes. (The withholding tax rate is 20% on withdrawals between $5,001 and $15,000, and 30% on larger amounts. Rates are higher in Quebec.) But that doesn’t mean your total tax bill for the withdrawal is limited to 10%…