# TFSA conundrum



## French Bird (Mar 17, 2018)

Hi Folks,

Newcomer to the Forum (and loving what I am seeing so far). I am 50, looking to retire in 5 years. Wife is 48 and looking to retire in 10 years. Combined income of 325k (25/75)
I have been debating on whether or not to put the following into action: 

•	Deplete TFSAs (combined 150k), lock-in gains of past 10 years, open up room to stash away some RRSPs later (RRSPs getting too large for tax purposes)
•	Use TFSAs money to pay off mortgage line of credit, currently at 2.85% and climbing (tied to prime rate)

I understand from a pure mathematical point of view it makes more sense to keep the higher yielding TFSAs, but although I consider myself an aggressive investor, I feel the current situation (end of cycle, interest rates climbing, retirement fast approaching) calls for a little prudence.

Opinions?


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## james4beach (Nov 15, 2012)

Hi French Bird, welcome to the forum. Your post was sitting in a moderation queue and was not visible until recently, but is now.

This is a good question. Personally I like the idea of paying off the LoC but others may have different thoughts.


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## heyjude (May 16, 2009)

There are three questions here.

Question 1: should you pay off your mortgage line of credit before interest rates go much higher? 
My answer: if this is consumer debt, I would pay it off ASAP. If it is investment debt, I would not be in a rush. From your post, it sounds like this is consumer debt.

Question 2: should you take money out of your TFSA? 
My answer: assuming you want to pay off your mortgage line of credit, and there is no liquid cash around, that is a good idea. 

Question 3: should you plan on replenishing your TFSA with money from your RRSP? 
My answer: absolutely, but wait until you retire at age 55, when your income goes down.


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## agent99 (Sep 11, 2013)

What heyjude suggests sounds good. However, presuming you have been contributing to RRSPs, perhaps divert that money to gradually replenishing TFSAs and let RRSPs (hopefully) continue to grow? Maybe look at present allocation in RRSPs and hold most of your fixed income there?


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## Nerd Investor (Nov 3, 2015)

Given your combined income, I'm wondering if you could hammer down the line of credit with free cash flow rather than depleting your TFSA? I also presume you don't have any non-registered assets available, otherwise I would say use those instead of TFSA funds to pay off the line (or to make the interest tax deductible).


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## Eclectic12 (Oct 20, 2010)

It is not clear to me whether some the items mentioned are being lumped together when it may make more sense to keep them as separate decision with different timing.

For example - the current investment environment/locking in TFSA gains can happen within the TFSA with no tax implications. Depleting the TFSA to pay off the mortgage LoC may make sense as a preparation step to retirement plus be a better use of the proceeds but IMO the environment/locking-in gains decision comes first. Either way, shifting out of the riskier investments to be "more prudent" can be done without or without TFSA withdrawals for whatever use.

In a similar vein, depleting the TFSA to pay off/reduce the mortgage LoC (not sure the size) but thinking about depleting the TFSA to create room for RRSP proceeds looks to be too early. Retirement income may be the better time to be withdrawing from the RRSP so creating TFSA room for the RRSP proceeds shouldn't be happening until the year before retirement - except where one has something to spend the TFSA withdrawal on (ex. pay off mortgage LoC).


In general, unless the interest costs are tax deductible - IMO paying off the mortgage LoC is the first priority. I would only use TFSA withdrawals to accelerate paying this debt off *if* after tax cash flow can't cover the full amount. 

Just my two cents ...


Cheers


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