January 29, 2019

Can I win by shifting funds from my RRSP to my TFSA?

If your RRSP account is where the majority of your money is held, what are the implications of transferring some RRSP money each year to a TFSA account to catch up to the maximum limit? Unfortunately, there is no right answer for everyone. Because this is a tax question, it really depends on your annual income, retirement income and financial goals as to whether it is wise to shift funds. For instance, if you’re not currently working or have a small income for this year, then withdrawing from your RRSP so that in retirement your income is reduced would be beneficial. However, at a certain income level, there isn’t any difference between leaving it in an RRSP or transferring to a TFSA.

Key Takeaways:

  • When considering shifting money from an RRSP to TFSA, taxes are an important factor.
  • You may not benefit from shifting funds depending on your current income as well as your after-tax retirement income, so consider your entire financial situation.
  • There’s a slight advantage to keeping your withdrawals under $5,000 because there’s less withholding tax, but this may be temporary as you may owe more tax when you file your annual tax return.

“An RRSP drawdown to fund your TFSA can mean more retirement income [but] this is a tax question so your annual income is important to consider when making a final decision.”

Read more: http://www.moneysense.ca/columns/ask-moneysense/whats-the-best-way-for-alexis-to-move-money-from-her-rrsp-to-her-tfsa/

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