# Invest in TFSA then transfer to RRSP each year?



## wuinvestor (Mar 23, 2014)

Hello

I wanted to get peoples' opinion on a strategy my wife and I were thinking about. Invest throughout the year in a TFSA (invested in ETFs using a similar model to the couch potato 2017 ETF sample portfolio) and then before tax season, withdraw the TFSA funds and put them into an RRSP (invested in mutual funds) to bring down our taxable income. The idea is to get whatever growth we can for the year in the TFSA.

We would then use the refund to make extra payments to the mortgage or put it back into the RRSP. 

Any thoughts on this? Any opinions are welcome.

Thanks a lot,

Ryan


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## Dilbert (Nov 20, 2016)

Sounds good, I would check with your brokerage to see if you can transfer them "in kind" so you don't have to sell and repurchase. Why would you want MF's anyway?


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## OnlyMyOpinion (Sep 1, 2013)

I'd say its not worth the hassle, just save and put it in the TSFA and if you have extra then into your RRSP. If your future incomes grow, you can max out your RRSP's at that time, with bigger tax reduction (deferral) to boot. 
Why the distinction between etf's in one and mutual funds in the other?
P.S. I'm a fan of maximizing both TSFA and RRSP.


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## wuinvestor (Mar 23, 2014)

Wow - thanks for the feedback so fast!

@Dilbert
I was set up with a mutual fund in my RRSP way back when was a student and never changed it - it's the RBC Select Growth Portfolio. With the fund in 2014 I had a good 8% return, then down in 2015 to to 6.7%, and further down in 2016 to 5.27%. Of course I'd be open to changing this. Do you think I should switch to ETFs in my RRSP instead (is this possible - the only options I see in my RBC account for RRSP contributions is MFs, GICs, and Saving Deposits)?


@OnlyMyOpininon
I have A LOT of contribution room in my TFSA (no way I'd be maxing it out for the next few years). As well as contributing to my TFSA, I wanted to benefit from the lower taxable income by contributing to the RRSP (I've recently moved up into a higher tax bracket) - this seems like a no-brainer to me so I'm curious as to why you wouldn't recommend it? Or maybe I should do both? How should I divide it?

I'm open to changing my investment style. I'm looking to put away about $500.00 per month into investments for at least the next year and increase it after that. Our goal is to save for retirement but also want some cash on hand - thus socking it away in the TFSA and then moving it to the RRSP right before tax season. My wife and I are both in our early 30s.

Thanks,

Ryan


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## Eclectic12 (Oct 20, 2010)

wuinvestor said:


> ... I'm looking to put away about $500.00 per month into investments for at least the next year and increase it after that. Our goal is to save for retirement but also want some cash on hand - thus socking it away in the TFSA and then moving it to the RRSP right before tax season ...


For me, it is the risk. The most you are going to get is the year or so in the TFSA before the RRSP contribution is made. If you make the RRSP contribution, it grows tax deferred anyway. Then there's the question of what happens if the TFSA investments are in a loss position when you go to make the RRSP contributions.

If the idea is to transfer the investment itself ... will your broker allow it to be a direct TFSA to RRSP transfer? If not, another issue is that the TFSA withdrawal will make it taxable for the transfer day(s).

Another route would be to make the RRSP contribution then use the tax refund to fund the TFSA contribution. That way, regardless of what the TFSA investment does, the RRSP contribution/refund have already happened. If the TFSA investment pays income (ex. dividends, mixed income) that can be withdrawn then contributed to the RRSP.


Cheers


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## TomB19 (Sep 24, 2015)

I think it's a great idea. Now that TFSAs can be well upward of 50K+, you could save in the TFSA, divert a few thousand per year to the RRSP for the tax benefit, and eventually end up with a full TFSA that should be able to fund the RRSP contributions without further funding. Of course, you would fund the TFSA fully. To not would be a waste of a wonderful benefit.


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## Oldroe (Sep 18, 2009)

Is your wife in a lower tax bracket and is it spousal RRSP.


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## wuinvestor (Mar 23, 2014)

Oldroe said:


> Is your wife in a lower tax bracket and is it spousal RRSP.


Yes my wife is in a lower tax bracket than me. We have separate RRSPs going right now - didn't plan on combining them actually. She isn't using her TFSA account right now because we have so much room in mine that splitting it up doesn't seem to make sense (unless I'm missing something?)


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## CalgaryPotato (Mar 7, 2015)

A few thoughts. You'd have to do the math to figure out how much benefit you are getting out of this strategy. But most math I've seen show that putting money into an RRSP or a TFSA over the long term, works out basically the same for most situations. So developing an overly complicated plan to try and squeeze the last drop of juice out of the lemon, probably isn't worth it.

But then here you are trying to make this tiny little bit of extra money in this way, yet you are paying into a high fee mutual fund, because you have been in it for a few years. That is a really poor reason for an investment choice. You seem to understand the value of ETFs. You should probably just stick to those in both your TFSA & RRSP.

Also you are in a high tax bracket, and your goal is to contribute $6K/year into your investments. You really should be trying to up that number. Obviously you are still young, but if you already have a good salary, and a second salary on top of that. I don't know the particulars of your situation, but if you don't figure out how to live within your means now, it isn't magically going to happen down the line.


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## zylon (Oct 27, 2010)

I hear many oldsters say that they would have been better off just paying their income tax and forgetting about RRSP contributions and rebates.

Myself, my marginal tax rate will certainly be higher when I start withdrawing RRSP than it was when I diligently made contributions. I quit doing that about 20 years ago.

Every situation has to be examined on it's own merits.









http://www.marksdailyapple.com/mond...simplicity-of-physical-activity-for-oldsters/


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## Nerd Investor (Nov 3, 2015)

zylon said:


> *I hear many oldsters say that they would have been better off just paying their income tax and forgetting about RRSP contributions and rebates.*
> 
> Myself, my marginal tax rate will certainly be higher when I start withdrawing RRSP than it was when I diligently made contributions. I quit doing that about 20 years ago.
> 
> ...


I have heard this as well, but it is almost never true.


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## CalgaryPotato (Mar 7, 2015)

Nerd Investor said:


> I have heard this as well, but it is almost never true.


For people now, the TFSA might be a better choice. But I agree it rarely works out that someone lost by using an RRSP vs. an unregistered. 

Main reasons would be if they invested into the RRSP heavily in the years right before starting to withdraw and or went with an overly conservative portfolio. Then things like tax rate difference and OAS clawback would be worse than the gains of tax deferred growth.


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## GreatLaker (Mar 23, 2014)

zylon said:


> I hear many oldsters say that they would have been better off just paying their income tax and forgetting about RRSP contributions and rebates.
> 
> Myself, my marginal tax rate will certainly be higher when I start withdrawing RRSP than it was when I diligently made contributions. I quit doing that about 20 years ago.
> 
> Every situation has to be examined on it's own merits.





Nerd Investor said:


> I have heard this as well, but it is almost never true.


I maxed out my RRSP most years. I expect my tax rates to easily be less in retirement than working. A lot of my working years were in the 43% tax bracket (Ont). From retirement to age 71 I expect to be in the 20% tax bracket, due to a lot of income coming from dividends. Then starting the year I turn 72 mandatory RRIF withdrawals will push me into the 31% tax bracket. And some judicious withdrawals from RRSP before age 72 will enable me to manage taxes paid and minimize or eliminate OAS clawback.

The only way to effectively evaluate it is to project RRSP value forward to retirement years based on contributions and expected rate of return. Then project inflation adjusted OAS clawback threshold and mandatory RRIF withdrawals to estimate tax rates during retirement.

Everyone's situation is unique, but guessing is not an effective way to address it.


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## Eclectic12 (Oct 20, 2010)

TomB19 said:


> I think it's a great idea. Now that TFSAs can be well upward of 50K+, you could save in the TFSA, divert a few thousand per year to the RRSP for the tax benefit, and eventually end up with a full TFSA that should be able to fund the RRSP contributions without further funding ...


Where the OP has enough $$ to fully fund the TFSA and is only skimming off the income paid ... it would make the issues of FMV irrelevant.

From what the OP wrote, he seems to want to make a short term gain on the $$$ earmarked for the RRSP ... which raises the issue of FMV when it's time to make the RRSP contribution. At $500 a month x twelve months - that's $6K. It seems a lot of work, with a lot of risk for a small amount.

As I say earlier, if instead the RRSP contribution is made where the refund is contributed - there's no issue for the FMV of the TFSA investments, where over time - income paid into the TFSA can be used to add to the RRSP contributions (or reduce the cash flow needed to fund the RRSP).



Cheers


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## Eclectic12 (Oct 20, 2010)

wuinvestor said:


> Yes my wife is in a lower tax bracket than me. We have separate RRSPs going right now - didn't plan on combining them actually.


??? ... a spousal RRSP is a separate RRSP form her personal RRSP (unless one combines them later). 

For the spousal RRSP, both can contribute where your contributions will be deducted from your higher income. The challenge is that both of you have to make no spousal RRSP contributions for three years to make sure none of the withdrawal $$ are attributed back to your higher income.
http://gailvazoxlade.com/blog/archives/4563
http://www.theglobeandmail.com/glob...awing-money-from-spousal-rrsps/article536063/


Some will choose to merge the personal RRSP with the spousal RRSP to simplify things but the result is the merged RRSP is a spousal RRSP, with the need to pay attention to the contributions leading up to the withdrawal. IMO, it is easier to stick with the two RRSPs where one RRSP has no attribution rules to worry about ... but that's me.
http://www.taxtips.ca/rrsp/combinespousalrrsp.htm




wuinvestor said:


> She isn't using her TFSA account right now because we have so much room in mine that splitting it up doesn't seem to make sense (unless I'm missing something?)


Makes sense to me.


Cheers


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## TomB19 (Sep 24, 2015)

Nerd Investor said:


> I have heard this as well, but it is almost never true.


I suspect the people who feel this way do not understand how compound interest works.

We're in our 50s and we still make RRSP contributions.

I've also read on this site that the dollar matched pension isn't a great benefit so there is some incorrect advice being presented.

The best thing I've done financially, is spend 4 hours every Saturday morning, modeling scenarios and ideas. From real estate to investments to tax to retirement scenarios. I've got tons of spreadsheets that I may or may not open again. The value was in creating them and seeing how money flows through situations and time.


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## Eclectic12 (Oct 20, 2010)

CalgaryPotato said:


> A few thoughts. You'd have to do the math to figure out how much benefit you are getting out of this strategy.


+1 where the OP plans on short term in the TFSA then withdrawing at an unknown FMV to fund the RRSP.




CalgaryPotato said:


> ... But most math I've seen show that putting money into an RRSP or a TFSA over the long term, works out basically the same for most situations.


YMMV .... my co-worker changed jobs a couple of times, leaving the DB pensions of old company, which is limiting his eventual DB pension. He has estimated he will be four or five tax brackets lower in retirement. Add in that his wife is currently making half of what he is ... then the spousal RRSP contributions likely mean he will receive a top end refund for the working income spousal RRSP contributions while in retirement, she will be paying bottom end tax on the withdrawal $$$.

It's not clear the levels the OP is at, just that it looks like a spousal RRSP may mean a long term tax savings (depending on what the future tax rates at withdrawal are).




CalgaryPotato said:


> ... So developing an overly complicated plan to try and squeeze the last drop of juice out of the lemon, probably isn't worth it.
> But then here you are trying to make this tiny little bit of extra money in this way, yet you are paying into a high fee mutual fund, because you have been in it for a few years ...


Definitely seems to be some areas where more of a long term benefit can be had versus the risk/what looks like low reward of putting RRSP funds into a TFSA for a short time.


Cheers


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## OnlyMyOpinion (Sep 1, 2013)

Zylon - I think most complaints are about paying too much tax in retirement - not about having too much income. Taxes are a fact of life, and yes RRIF income is taxable.
I think that not contributing to an RRSP during your working years is a very risky proposition. There are ways to deal with looming taxes from your RRSP>RRIF at age 72 if becomes clear that is going to be a problem.

Wuinvestor - I suggested max'ing the TSFA out first simply becasue it is more flexible in terms of money in-out, without tax implications (remember though that while capital gains are not taxed, capital losses in a TSFA are also not claimable). And because you can top up your RRSP in the future when you may be in a higher tax bracket and it is more beneficial. It is a bit of a double-edged sword though because saving sooner is better.
My suggestion was to try over the years to maximize both TSFA and RRSP. I wouldn't touch the RRSP until retirement, but money from the TSFA could be used for those occasional spending needs (car, house, etc.). 

Rather than TSFA>RRSP, I would contribute to your RRSP's, and then use the tax savings to contribute to your TSFA. Then use the TSFA savings to pay off/reduce your mortgage on its anniversary date. You would want conservative, shorter term investments in it though. Once your mortgage is paid off, your free cash flow and ability to save will be much higher.

The idea of the spousal RRSP is to keep your future RRSP/retirement incomes balanced. You contribute to a spousal RRSP in her name and you get the tax deduction, but the RRSP is hers (note that she can't touch it for 3 yrs after a contribution without the money being attributed back to you as income).


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## Eclectic12 (Oct 20, 2010)

Nerd Investor said:


> zylon said:
> 
> 
> > I hear many oldsters say that they would have been better off just paying their income tax and forgetting about RRSP contributions and rebates ... Every situation has to be examined on it's own merits ...
> ...


I'm more middle ground ... most I have talked to, when they discuss the details haven't evaluated their retirement situation at all or superficially. Without checking with reasonable accuracy, some are convinced they have been messed up, despite the numbers saying otherwise.

I have talked to a few, particularly professionals or business owners who definitely would have been affected ... so it seems to me to be more common than "almost never".


Cheers


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## My Own Advisor (Sep 24, 2012)

Seems like a lot of effort....calling, moving money; around, keeping track of your TFSA contribution limits, etc.

Why not just focus on, over time, maxing out both TFSA and RRSP as they are vs. shuffling money around?

1) Max out TFSA, then, if $$ left, contribute to RRSP.
2) Work to contribute to RRSP and every year, use RRSP-generated tax refund to contribute to TFSA.

There is beauty in simplicity!


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## CalgaryPotato (Mar 7, 2015)

Eclectic12 said:


> YMMV .... my co-worker changed jobs a couple of times, leaving the DB pensions of old company, which is limiting his eventual DB pension. He has estimated he will be four or five tax brackets lower in retirement. Add in that his wife is currently making half of what he is ... then the spousal RRSP contributions likely mean he will receive a top end refund for the working income spousal RRSP contributions while in retirement, she will be paying bottom end tax on the withdrawal $$$.


That is a pretty extreme scenario though (there are only 5 brackets in Canada). To drop 4 brackets, means he's going from over $200K in salary (not counting the RRSP money, because if he's making $200 exactly, then most of that money will be at the next bracket down). To his wife making under $45K. For 5 brackets it would have to be under $11K, and I'm pretty sure she'd be getting more than that from OAS & CPP.

I guess if the idea is that he is shoveling a bunch of money in right before retirement into the spousal RRSP and then she'll withdraw it, it'll be that huge 4 bracket advantage. But if you're talking a normal scenario of investing over the years, and if he was putting his full 18% into the RRSP, odds are by retirement, she'd be in a decent tax bracket herself, just from that money.

There are clearly scenarios when TFSA or RRSP work better than one another. But for normal long term investing, across most tax brackets, the numbers work out really close.


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## latebuyer (Nov 15, 2015)

I can't speak to the specific strategy, but i know i am maximizing my tfsa vs. my rrsp even though i may lose money down the road. Ultimately the feature of being able to withdraw from the tfsa is worth more to me then the additional money i save with an rrsp. This argument is similar to how you are paying more for something like travel insurance with trip cancellation insurance. We are paying for the feature of being able to withdraw the money immediately. Also no one should judge someone for how much money they save without knowing their full situation. I know i probably only save 6000/year and i am a very frugal person.


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## Mookie (Feb 29, 2012)

Wuinvestor, you mention that you’re in a higher tax bracket now, but I don’t think you mentioned what your marginal tax rate is, or if you expect it to increase in the future. Do some research on TFSA vs. RRSP (including spousal RRSP) to determine which is truly best for you at this point. You may find that it’s better (for now) to focus on the TFSAs, and save the RRSP room for later. 

Assuming you’ve already done the above, and you’ve determined that the RRSP is the ultimate destination for your money, then I actually don’t see any benefit to your plan. Why not just contribute directly to the RRSP in the first place? Once it’s there, it grows tax sheltered, just as it would in the TFSA, plus you get the tax refund (and a tax bill later when you retire, don’t forget). You don’t need to wait until “tax season” to contribute to your RRSP.


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## Nerd Investor (Nov 3, 2015)

Eclectic12 said:


> I'm more middle ground ... most I have talked to, when they discuss the details haven't evaluated their retirement situation at all or superficially. Without checking with reasonable accuracy, some are convinced they have been messed up, despite the numbers saying otherwise.
> 
> I have talked to a few, particularly professionals or business owners who definitely would have been affected ... so it seems to me to be more common than "almost never".
> 
> ...


Well, you basically need to be in a higher tax bracket in retirement to even have a chance of being worse off in the RRSP vs non-reg, and you still might come out ahead due to the tax deferred compounding. This can happen occasionally (that's why I said _almost _never ) but certainly isn't the most common case. The biggest problem is, people don't compare apples to apples. They think in terms of putting $5,000 in their RRSP vs $5,000 in a non-registered account, when they should be thinking $5,000 in their RRSP vs ($5,000 x (1-marginal tax rate) in their non-reg account.


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## latebuyer (Nov 15, 2015)

I'm wondering if I could quantify how much money I stand to lose by investing in tfsa over rrsp by looking at how much tax I would pay before making an rrsp contribution and then calculating how much extra i'm paying due to being in the second tax bracket. Would that make sense?


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## Eclectic12 (Oct 20, 2010)

CalgaryPotato said:


> That is a pretty extreme scenario though (there are only 5 brackets in Canada).


I'm not saying it isn't extreme but am using the example to show it is worth making sure of the numbers.




CalgaryPotato said:


> ... To drop 4 brackets, means he's going from over $200K in salary (not counting the RRSP money, because if he's making $200 exactly, then most of that money will be at the next bracket down)


Are you projecting the tax rates for your tax jurisdiction onto my co-worker when you comment "over $200K in salary"?

He is in Ontario where using the tax tips web site for Ontario ... over $91,831 up to $142,353 down four levels is over $45,916 up to $74,313, where five brackets down is over $42,201 up to $45,916.
http://www.taxtips.ca/taxrates/on.htm




CalgaryPotato said:


> ... To his wife making under $45K. For 5 brackets it would have to be under $11K, and I'm pretty sure she'd be getting more than that from OAS & CPP.


If you really believe the "over $200K", why isn't his wife's salary more like $100K?

Regardless, you seem to have missed something as I did not say he'd drop four or five then she would also drop a similar number of tax levels. I said that by using the Spousal RRSP with the withdrawal rules being respected, her spousal RRSP withdrawals could be bottom end (i.e. drop more like two tax levels).

Her pension is not a DB pension so there's lots of space to fit a small pension, OAS and CPP (which won't be large as she's only worked at CPP eligible jobs for about ten years or so).




CalgaryPotato said:


> I guess if the idea is that he is shoveling a bunch of money in right before retirement into the spousal RRSP and then she'll withdraw it, it'll be that huge 4 bracket advantage. But if you're talking a normal scenario of investing over the years, and if he was putting his full 18% into the RRSP, odds are by retirement, she'd be in a decent tax bracket herself, just from that money.


He's married in the last two years so that he's been making spousal RRSP contributions for about two years. He has no intention of waiting for "just before retirement".

I also outlined that he's in a DB pension so he gets nowhere near 18% of his earned income as his pension adjustment (PA) cancels most of his yearly RRSP contribution room. I'd have to confirm but based on my PA, I'd guess about three times of what he is granted is canceled by the PA.




CalgaryPotato said:


> ... There are clearly scenarios when TFSA or RRSP work better than one another. But for normal long term investing, across most tax brackets, the numbers work out really close.


That's where IMO it is critical to check ... based on this statement, my co-worker might ignore it as "the two are close". 

In his case, his pension income at best would replace 38% of his employment income. Were he in a pension that replaced 70% of his employment income, it would be a different ball game.


Cheers


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## TomB19 (Sep 24, 2015)

latebuyer said:


> I'm wondering if I could quantify how much money I stand to lose by investing in tfsa over rrsp by looking at how much tax I would pay before making an rrsp contribution and then calculating how much extra i'm paying due to being in the second tax bracket. Would that make sense?


There are legions of people who will provide an answer to your question based on their gut feeling. I recommend that you ignore them and get a spreadsheet. Model some scenarios and you will understand how it works far beyond the majority of experts.


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## Eclectic12 (Oct 20, 2010)

latebuyer said:


> I'm wondering if I could quantify how much money I stand to lose by investing in tfsa over rrsp by looking at how much tax I would pay before making an rrsp contribution and then calculating how much extra i'm paying due to being in the second tax bracket. Would that make sense?


I'd probably estimate using StudioTax where one return didn't have the RRSP deduction and one did.
http://www.studiotax.com/en/


I like the "make an RRSP contribution, contribute the refund to the TFSA" for a couple of reasons. The first is that the deduction will still happen but as the refund is tax free, the $$ in the RRSP are kept low. I am biased though as I have a DB pension - those with a different pension or no pension might have a different situation.


Cheers


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## latebuyer (Nov 15, 2015)

So, due to a pension I have a meagre rrsp allotment. I am looking at investing 3000 in the rrsp, but if I invest 4000 (which is my maximum) I get $300 more. However, looking at it from a tax perspective isn't it true that in retirement part of that money will be taxed so the reality is I am not really saving that much money? That is where the tax bracket issue comes into play but given that I only make $15000 over the first tax bracket I don't really see it is a huge saving. This is where an accountant is needed.


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## CalgaryPotato (Mar 7, 2015)

Eclectic, I was going by the federal tax brackets only since that is where the majority of our tax dollars go. If you look at the Ontario example you send there are a lot more brackets, but the difference between them is a lot smaller.

I'd still be curious to see what the actual numbers would be TFSA vs. RRSP to see how big of a difference it would make for them. I mean for them it's a moot point, since it sounds like they had investments before TFSA even existed. But on a go forward it's really hard to come up with numbers when the RRSP blows away the TFSA, at least from what I've seen.


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## latebuyer (Nov 15, 2015)

I thought i'd post this article

http://www.advisor.ca/tax/tax-news/tfsa-or-rrsp-the-answer-isnt-only-about-tax-rates-201112

which shows the only way investing your rrsp comes out over the tfsa is if you invest your tax refund in your RRSP. (I've read this argument before)


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## TomB19 (Sep 24, 2015)

latebuyer said:


> So, due to a pension I have a meagre rrsp allotment. I am looking at investing 3000 in the rrsp, but if I invest 4000 (which is my maximum) I get $300 more. However, looking at it from a tax perspective isn't it true that in retirement part of that money will be taxed so the reality is I am not really saving that much money? That is where the tax bracket issue comes into play but given that I only make $15000 over the first tax bracket I don't really see it is a huge saving. This is where an accountant is needed.


If you could borrow money when you're 30, invest it for 25 years tax free, and then start returning the money when you're 55, wouldn't that be a good thing? That is exactly what the RRSP is.

Even if you repay the savings, you have the opportunity of investing the money for a number of years. That's the power of an RRSP.

As you get closer to retirement, the benefit wanes. The saw off will vary with individual circumstances. Also consider the benefit of the spousal RRSP.

I don't have a pension. My wife has an outstanding DB pension. There will be opportunities for me to take half of her RRIF, when that day comes. Half of it will likely be withdrawn tax free. In the mean time, we have built a nice nest egg in our RRSPs.

My projections have shown that it doesn't make sense to build RRSPs to infinity. As the RRSP grows, there is a reduction in financial power on the tax side.


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## latebuyer (Nov 15, 2015)

Part of my argument for investing in the tfsa is that I will delay cpp until i'm 70 and use the money in my tfsa to fund the shortfall. Delaying cpp is arguably in my case more lucrative then putting more money in my rrsp and taking cpp at 65 or earlier. I can see where for high income earners it makes sense, but in my case I don't make a lot.

Just a note that I am still investing in my rrsp, I am only putting a $1000 less and putting that in my tfsa.


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## My Own Advisor (Sep 24, 2012)

The linchpin of the RRSP vs. TFSA debate is always reinvesting your RRSP tax-generated refund. If you don't, you are essentially spending the government loan.
http://www.myownadvisor.ca/if-you-spend-that-rrsp-refund-then-tfsa-makes-more-sense/

There are much far worse things to do than putting your RRSP-generated refund into your TFSA


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## Oldroe (Sep 18, 2009)

So you are playing a nickel dime game and leaving spousal RRSP off the table?


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## GreatLaker (Mar 23, 2014)

latebuyer said:


> Part of my argument for investing in the tfsa is that I will delay cpp until i'm 70 and use the money in my tfsa to fund the shortfall. Delaying cpp is arguably in my case more lucrative then putting more money in my rrsp and taking cpp at 65 or earlier.


Fred Vettese wrote 2 articles for the Globe and Mail explaining why delaying CPP to 70 can make sense. He took an awful lot of flack in the comments though. Most people prefer the "bird in the hand" approach to the "make sure my nest egg stands the best chance of lasting my entire life" approach.

Want your money to go further in retirement? Defer CPP until age 70

Why people hate the thought of deferring their CPP pension


Michael Kitces wrote a good blog post. It is US based so refers to Social Security but similar principles are applicable to Canada. 
The Asymmetric Value of Delaying Social Security Benefits As The Ultimate Hedge

It outlines how delaying Social Security hedges against longevity, high inflation and low market returns late in life when retirees are most vulnerable by providing more of their income from government guaranteed indexed sources. This could be especially important for retirees that don't have any other guaranteed income.


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## latebuyer (Nov 15, 2015)

Here is a counterpoint argument which gives good reasons for and against delaying cpp

http://www.financialpost.com/m/wp/p...e-hard-math-says-otherwise&pubdate=2017-03-22


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## Eclectic12 (Oct 20, 2010)

CalgaryPotato said:


> Eclectic, I was going by the federal tax brackets only since that is where the majority of our tax dollars go. If you look at the Ontario example you send there are a lot more brackets, but the difference between them is a lot smaller.


Understood ... though this is why it is important to check the numbers/one's situation, is it not?

Ignoring the provincial taxes as well as surtaxes (the table I was using) is going to understate the tax $$$ being deferred or partially eliminated.




CalgaryPotato said:


> ... I'd still be curious to see what the actual numbers would be TFSA vs. RRSP to see how big of a difference it would make for them. I mean for them it's a moot point, since it sounds like they had investments before TFSA even existed.


Not following what you mean ... in their high earning years, they are focused on the registered accounts. The small taxable account is from when he was in a low tax level where he expected to move up the income scale as his career progressed.




CalgaryPotato said:


> ... But on a go forward it's really hard to come up with numbers when the RRSP blows away the TFSA, at least from what I've seen.


Hmmm ... the TFSA has a bit under $0.57 to invest while the RRSP has $1. 
Buying similar things means similar growth in both accounts.

At withdrawal - the tax range looks like 20% to 24%.

I'll have to run some numbers but I can't see how losing the use of $0.43 is going to work well in the long term.


Cheers


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## TomB19 (Sep 24, 2015)

That $1 in your RRSP will eventually turn into $0.80 but only after you've enjoyed investing the $1 for a few decades.


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## CalgaryPotato (Mar 7, 2015)

Eclectic12 said:


> Not following what you mean ... in their high earning years, they are focused on the registered accounts. The small taxable account is from when he was in a low tax level where he expected to move up the income scale as his career progressed.
> 
> Hmmm ... the TFSA has a bit under $0.57 to invest while the RRSP has $1.
> Buying similar things means similar growth in both accounts.
> ...


If you can get down to the 20% tax rate in retirement I would totally agree, that the RRSP will come out ahead more often. But that is also about a 60% reduction in income from the 43% tax rate. So when you factor in CPP, OAS the RRSP itself and in this case, a pension plan, I'm finding it hard to believe that they are going to be in that low of a bracket.


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## CalgaryPotato (Mar 7, 2015)

I actually didn't realize how different the provincial tax systems were across Canada.

The difference between $92K and $41K in Ontario is 23.4%
In Alberta that same difference is 7.4%

I'm actually curious if anyone has devised a retirement strategy based on working in a place like Alberta, which has low tax rates at higher income levels, and then retire in a place like Ontario which has lower tax rates at low income levels.


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## My Own Advisor (Sep 24, 2012)

I suspect some have...but not in my cards. I plan to live and eventually retire in Ontario (Ottawa, Eastern Ontario, other) for about 10 months per year.

Gone in Jan & Feb - too cold


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## Eclectic12 (Oct 20, 2010)

TomB19 said:


> That $1 in your RRSP will eventually turn into $0.80 but only after you've enjoyed investing the $1 for a few decades.


For the spousal RRSP, it looks more like a decade and a bit more. Regardless - between so little coming off the withdrawal due small pension, small CPP - it looks like there's plenty of room for investment/OAS, even before considering shifting $$ that aren't needed yet into the TFSA.




CalgaryPotato said:


> If you can get down to the 20% tax rate in retirement I would totally agree, that the RRSP will come out ahead more often. But that is also about a 60% reduction in income from the 43% tax rate. So when you factor in CPP, OAS the RRSP itself and in this case, a pension plan, I'm finding it hard to believe that they are going to be in that low of a bracket.


Not sure why you keep ignoring that for my co-worker - the company pension is at best (i.e. working until age 65) going to kick in 40% of employment income. It is not clear he can hit this as it is a toss up as to whether the new direction for his department makes him redundant. I did say he's switched jobs, reducing the company pension possibilities in the current company pension. Should the company declare him redundant in the next two years - the company pension payout drops to 24% of employment income.

He's contributing to her spousal RRSP so even if she draws it out at her current employment income, it's a difference of 13.76% lower. The plan is for her to withdraw in retirement, where she also has limited time in the pension to make for a small pension so that's likely lower.


As I say, I'd have to run more specific numbers for things like OAS as well as CPP but there seems lots of wiggle room - particularly as she plans to work part time for a while before taking the plunge of full retirement.




CalgaryPotato said:


> I actually didn't realize how different the provincial tax systems were across Canada.
> 
> The difference between $92K and $41K in Ontario is 23.4%
> In Alberta that same difference is 7.4%
> ...


I don't recall anyone mentioning it as most prefer to be around where family are and/or have make friendships they don't want to cut back on by moving. I have worked with people from Newfoundland who left for work but planned on moving back in retirement - which may be similar. Then there's the posts by those who were working in Alberta before the oil price crashed who planned to move back to the UK.


Cheers


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## CalgaryPotato (Mar 7, 2015)

Eclectic12 said:


> I don't recall anyone mentioning it as most prefer to be around where family are and/or have make friendships they don't want to cut back on by moving. I have worked with people from Newfoundland who left for work but planned on moving back in retirement - which may be similar. Then there's the posts by those who were working in Alberta before the oil price crashed who planned to move back to the UK.


A lot of people move around for work though. I know many people who've moved to Ontario for work. And just as many people move for retirement.

That is interesting about the UK thing. I work with a lot of people from the UK, and I don't get the sense any of them would ever consider moving back there.


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## TomB19 (Sep 24, 2015)

The tfsa is a great tool to lower tax during retirement. Between my wife and I, we have close to $160k that is presently growing at a nice rate. That could change but I am expecting in the range of $2000 per month out of the tfsa.

Tfsa money will be a nice bridge until the senior tax credit when we can take an extra few thousand per year out of our rrsps, tax free. It's not much of an optimization but it's something.

Later, we will sell one or both of our residences. That can be used to top up the tfsa.

Any numbers I've run show that it's far better to max out he rrsp as early as possible and put the refund into the tfsa until it's maxed also. The tfsa can be maxed out later. Perhaps this is unique to our situation but it seems pretty straight forward.

When withdrawing, you take as much as you can from your RRSP without incurring tax. Next take what you need from unregistered accounts. Last, top up with your tfsa.

I've modelled a few scenarios that get me to 5k per month with little or no tax until I'm well into my 60s.


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## Nerd Investor (Nov 3, 2015)

It's actually pretty straightforward: If your tax rate remained consistent while working/contributing and throughout retirement/withdrawing you are in _exactly_ the same position whether you invest in a TFSA or an RRSP in terms of after tax available income. If your tax rate while contributing is higher than when withdrawing RRSP > TFSA. If your tax rate is lower while contributing than when withdrwaing TFSA > RRSP. 

**One nit picky exception would be US dividend paying stocks/ETFs held directly in the RRSP would grow slightly faster than in the TFSA by avoiding withholding tax. I'm sure there are a few other issues like this I'm not thinking of but you get the gist of it.


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## Eclectic12 (Oct 20, 2010)

CalgaryPotato said:


> A lot of people move around for work though. I know many people who've moved to Ontario for work. And just as many people move for retirement ...


Must be moving in different circles ... the ones I am thinking of went to Alberta for work, spend their working life there and then moved back.
I know people who moved from Ontario to Alberta as their daughter/grand child was there - but as they were retired in Ontario for years before doing so, it is doubtful taxes came into the picture.

Thinking of my relatives - I can think of many who moved for work (Ontario, California, NY state, Louisiana, Ohio etc.) but can't think of any who moved in retirement.


Bottom line is that while what our circles are doing is interesting ... there would need to be some sort of survey or more trustworthy data.




CalgaryPotato said:


> ... That is interesting about the UK thing. I work with a lot of people from the UK, and I don't get the sense any of them would ever consider moving back there.


I'm not finding the UK oil patch worker's thread asking about RRSPs and what would happen when he retired (or work dried up) so that he returned to the UK ... but I did find this one.http://canadianmoneyforum.com/showt...in-Canada-and-returning-to-UK-tax-calculation

I can recall far more of Canadians or PR's asking about moving to the UK or Asia (in some cases, well after moving to these places :confused2: ).


Cheers


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## Oldroe (Sep 18, 2009)

I watched lots retire and move to tim buck. All back in few years much broker than they left, unless they where moving home.


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## Eclectic12 (Oct 20, 2010)

According to a 2011 BMO survey, when asked to rank the important factors for a move, respondents listed proximity to family, health care facilities in the community and housing costs. Only 4% considered taxes the most important factor.

https://www.bmo.com/pdf/mf/prospectus/en/BMO_Retirement_Institute Report_En.pdf


Financial factors are at the top for Atlantic Canada and Ontario then second for the rest. Note that financial factors includes more than taxes. Interestingly, Alberta has weather in the lead by 18% over financial factors.


Cheers


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## TomB16 (Jun 8, 2014)

Nerd Investor said:


> It's actually pretty straightforward: If your tax rate remained consistent while working/contributing and throughout retirement/withdrawing you are in _exactly_ the same position whether you invest in a TFSA or an RRSP in terms of after tax available income. If your tax rate while contributing is higher than when withdrawing RRSP > TFSA. If your tax rate is lower while contributing than when withdrwaing TFSA > RRSP.


You seem to have missed one small point. Returns.

Which do you suppose will provide better returns, $57000 or $100000?

If he can put $57K into his RRSP and $43K into his TFSA, he will probably do better than just putting $57K into his TFSA.


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## wuinvestor (Mar 23, 2014)

HI everyone - OP here. Thank you for the amazing feedback and advice. It's given me A LOT to consider. One thing that is important to us is to have cash available to us in case of emergencies so contributing to the TFSA will be the route we go. And then we'd transfer the funds to an RRSP (invested in the same ETFs as the TFSA) to get the RRSP tax refund each year. I've confirmed with my bank that transferring from the TFSA to the RRSP will not cost me (they're both with RBC). The tax refund would then go into our mortgage.

I've used a few online tools as some of the posts have mentioned and in our case it looks like the TFSA and the RRSP will fair roughly the same.

I'm definitely going to get out of the mutual fund I'm in for RRSP (RBC Select Growth) and get into ZAG (25%), VCN (25%) and XAW (50%). As I near retirement I'll shift over more to bonds and less risky ETFs / index funds in the RRSP.

Thank you all


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## Nerd Investor (Nov 3, 2015)

TomB16 said:


> You seem to have missed one small point. Returns.
> 
> Which do you suppose will provide better returns, $57000 or $100000?
> 
> If he can put $57K into his RRSP and $43K into his TFSA, he will probably do better than just putting $57K into his TFSA.


I haven't missed anything, but perhaps you misunderstood me? $57,000 in a TFSA vs $100,000 in an RRSP (I believe that is what your getting at?) will provide identical after tax returns if they are invested the same and your tax rate (which in this case appears to be 43%) remains _constant._ If it is lower when you withdraw, the $100K in the RRSP will do better, if it is higher when you withdraw, the TFSA will do better. You can try this yourself with any numbers in excel, but just to walk through it here using your figures: 

$100,000 in an RRSP growing at 5% for 20 years = $265,330. Subtract our 43% tax rate and the net value = *$151,238*
$57,000 in a TFSA ($100,000 of income less taxes at 43%) growing at 5% for 20 years = *$151,238*


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## My Own Advisor (Sep 24, 2012)

Agreed. RRSP and TFSA are by design a wash if tax rate remains constant throughout. This is highly unlikely over time though, so as Nerd suggests, I think you contribute to RRSP and max it out in highest income years and withdraw from RRSP in lowest income years. 

Use TFSA whenever and as much as you want. That's just me though.


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## CalgaryPotato (Mar 7, 2015)

wuinvestor said:


> HI everyone - OP here. Thank you for the amazing feedback and advice. It's given me A LOT to consider. One thing that is important to us is to have cash available to us in case of emergencies so contributing to the TFSA will be the route we go. And then we'd transfer the funds to an RRSP (invested in the same ETFs as the TFSA) to get the RRSP tax refund each year. I've confirmed with my bank that transferring from the TFSA to the RRSP will not cost me (they're both with RBC). The tax refund would then go into our mortgage.
> 
> I've used a few online tools as some of the posts have mentioned and in our case it looks like the TFSA and the RRSP will fair roughly the same.
> 
> ...


It is great that you are moving into lower fee products and that you checked and you were able to do the moves for no cost.

I still can't say I understand your strategy though. Waning emergency cash in your TFSA makes sense to me, building up your emergency fund every year, and then setting it back to 0 at the end of the year seems counter productive to that point. If your furnace ever blows, hopefully it's in December and not January.


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## TomB16 (Jun 8, 2014)

Nerd Investor said:


> I haven't missed anything, but perhaps you misunderstood me? $57,000 in a TFSA vs $100,000 in an RRSP (I believe that is what your getting at?) will provide identical after tax returns if they are invested the same and your tax rate (which in this case appears to be 43%) remains _constant._ If it is lower when you withdraw, the $100K in the RRSP will do better, if it is higher when you withdraw, the TFSA will do better. You can try this yourself with any numbers in excel, but just to walk through it here using your figures:
> 
> $100,000 in an RRSP growing at 5% for 20 years = $265,330. Subtract our 43% tax rate and the net value = *$151,238*
> $57,000 in a TFSA ($100,000 of income less taxes at 43%) growing at 5% for 20 years = *$151,238*


He won't h ave $100K to invest in the RRSP. He will have $57K of after tax dollars to invest in the RRSP and he will receive $43000 in tax refund so the $43000 will end up back in his TFSA or on his mortgage.


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## Nerd Investor (Nov 3, 2015)

TomB16 said:


> He won't h ave $100K to invest in the RRSP. He will have $57K of after tax dollars to invest in the RRSP and he will receive $43000 in tax refund so the $43000 will end up back in his TFSA or on his mortgage.


The calculation is correct, but I see what you're saying; it's hard to frame it in a real world context because tax is withheld at source from most people's income which creates timing issues compared to the example above. To reconcile the theory to an actual situation, you could consider someone who has the option of using pre-tax dollars to contribute to an RRSP through payroll. They can choose to do this and contribute say $10K pre-tax to an RRSP or they can choose not to and have $10K less $4,300 of tax = $5,700 to contribute to a TFSA. 

In your example a $57,000 contribution to an RRSP wouldn't generate a $43,000 refund, it would generate a refund of $24,510 (57,000 x 43% marginal tax rate). So you'd have $57,000 in the RRSP and $24,510 for the TFSA or mortgage. $24,510 is the after tax equivalent to $43,000 pre tax ($24,510 / (1-43%) so we are back to total pre-tax income of the $100,000 that we have to work with. 

There's obviously a ton of different scenarios, the main point is understanding that the TFSA and RRSP have basically the same profile in an environment where the tax rate is consistent which leads to understanding the RRSP is better when the tax rate is higher now vs at withdrawal and vice versa for the TFSA. That helps determine which account you should prioritize at different points in time if you have limited funds (obviously if you can max both that's ideal).


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