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Think about your future retirement income level before you raid your TFSA to feed your RRSP
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.
A: 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:
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I just came across this article and I know it is quite old so I’m not sure I’ll get a response back. My question is you’re saying there’s a discrepancy of $800 ($5,000-$4,200) but what about the $800 tax refund you’ll get back on the $2,000 RRSP contribution (using the same 40% tax rate? Wouldn’t that make both approaches equal?
P.S. I should add that I do understand that you wouldn’t receive the $800 refund until a year later so you would lose a year of potential investment income on it compared to the other approach where you end up with $5,000.
My spouse is 64 now and has quite a bit of RRSP room. Her income is below 5k now and will stay the same or grow less.
What if she takes out money from her TFSA now and until age 71, to invest in the RSP but claim the deductions in future years when she will be drawing down on her RRSP/RRIF to support retirement?
Is it even legal?
Thanks!
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.