# Do you contribute to the maximum RRSP and TFSA limits?



## milhouse (Nov 16, 2016)

I was reading an article on BNN that said the CD Howe Institute was suggesting that Ottawa should be increasing the RRSP contribution limit from 18% to 30% of your previous year's income. However, the counter argument was that only 0.5% of eligible Canadian are actually contribute the maximum to both RRSP's and TFSA's according to CRA.

Do you maximize your RRSP and TFSA contributions?


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## redsgomarching (Mar 6, 2016)

TFSA first then RRSP. but yes, sheltered gains are a good thing. RRSP gains being tax deferred are why I focus more on my TFSA.


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## 1980z28 (Mar 4, 2010)

Always do it at the beginning of the year
Starting in 2018 I will start to remove about 10k to 25k each year from RRSP until gone,as i am retired without pension,,now 56,,so it will take a few years to get it to zero,,hoping not to pay to much tax


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## My Own Advisor (Sep 24, 2012)

Same with Reds. Max out TFSA first, hopefully in early 2018 again this year and then contribute to RRSP throughout the year to max out contributions to that account.


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## GreatLaker (Mar 23, 2014)

Yes, generally I have always maxed out both my RRSP and TFSA. The only time I have not is when I took time off to go back to school full time, and when saving for two real estate purchases. Even then I caught up as quickly as I could after getting back to work or after the purchases.

I believe you should always save between 10% and 20% of your gross income and only spend it on education, real estate or retirement. And people that don't have a DB pension should be at the high end of that range.


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## Mortgage u/w (Feb 6, 2014)

TFSA is maxed. RRSP on a need only basis. 

Reason being is TFSA is tax sheltered whereas RRSP is tax deferred only. I don't like the argument of high tax bracket vs low tax braket in the future to justify RRSPs - that is only true if inflation is taken out of the equation and personal income remains unchanged.


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## Jaberwock (Aug 22, 2012)

Mortgage u/w said:


> TFSA is maxed. RRSP on a need only basis.
> 
> Reason being is TFSA is tax sheltered whereas RRSP is tax deferred only. I don't like the argument of high tax bracket vs low tax braket in the future to justify RRSPs - that is only true if inflation is taken out of the equation and personal income remains unchanged.


Inflation has no bearing on the decision. It affects the TFSA and RRSP equally.

The argument that an RRSP is better if you expect to be in a lower tax bracket in the future is valid. If you are in the same tax bracket on withdrawal as you were in when contributing, there is no difference between the TFSA and the RRSP. However, there are features of the TFSA which makes it more attractive, all other things being equal.

You can withdraw from a TFSA and re-contribute without losing contribution room
There are no forced withdrawals in a TFSA, as there are in an RRIF (all RRSPs have to covert to RRIFs by age 71)
TFSAs pass tax free to your estate on death. An RRSP or RRIF is taxed as though you withdrew the whole amount in the year of death, the government can end up with 50% or more.


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## steve41 (Apr 18, 2009)

Sigh.


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## gardner (Feb 13, 2014)

I have maxed out the TFSA since the day they created it and have maxed out my RRSP for about 30 years -- mostly to the upper limit.
This will be my last year contributing to my RRSP, I think, and once I get my retirement income figured out I will be drawing it down keeping the marginal rate below 30%.
I intend to keep the TFSA maxed until I run out of other money.


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## gardner (Feb 13, 2014)

Jaberwock said:


> Inflation has no bearing on the decision [ ... ] if you expect to be in a lower tax bracket in the future is valid


This modelling has to take into account the fact that the tax brackets shift with inflation.



> If you are in the same tax bracket on withdrawal as you were in when contributing, there is no difference between the TFSA and the RRSP


There is still an advantage to the RRSP and besides the tax bracket shift over time, it is mainly due to the fact that the initial capital is larger -- probably 30% larger on average -- than the amount a taxpayer might have put instead in a TFSA or taxable savings. The larger initial capital generates more income and even taxed at the same rate coming out, yields a better overall return.


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## Eclectic12 (Oct 20, 2010)

Mortgage u/w said:


> ... I don't like the argument of high tax bracket vs low tax braket in the future to justify RRSPs ...


Love it, hate it or be ambivalent to it as you wish ... there will be a mix where some people that will have higher income, some will have the same income and some will have lower income.

IMO key factors are projecting where one will fit, determining what flexibility one will have for setting income levels, building a plan and monitoring/adjusting it for changes.




Mortgage u/w said:


> ... that is only true if inflation is taken out of the equation and personal income remains unchanged.


I'd have thought personal income that remains unchanged would tilt the field to a combination of TFSA and capital gains instead of the RRSP.


Cheers


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## OnlyMyOpinion (Sep 1, 2013)

steve41 said:


> Sigh.


^+ ... second. longer sigh :cower:


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## Mookie (Feb 29, 2012)

I have maxed my RRSP every year since I started earning a decent salary. When my first kid was born, I also began contributing enough per year to my RESP to maximize the CESG, and doubled that when my second child was born. When the TFSA came along, I maxed that as well. My wife maxed her RRSP when she was working, but now that she's a stay at home mom / retired, she focuses solely on maxing her TFSA.

The poll results will obviously be skewed in favour of maxing both, given the type of people who hang out on this forum. Sadly, from conversations with family and friends, there are many people out there who prioritize instant gratification and keeping up with the Joneses over saving for their future and taking advantage of these tax shelters.


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## Ag Driver (Dec 13, 2012)

Deleted


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## Eclectic12 (Oct 20, 2010)

gardner said:


> ... There is still an advantage to the RRSP and besides the tax bracket shift over time, it is mainly due to the fact that the initial capital is larger -- probably 30% larger on average -- than the amount a taxpayer might have put instead in a TFSA or taxable savings. The larger initial capital generates more income and even taxed at the same rate coming out, yields a better overall return.


Perhaps you can point out the flaw in the example or math below then.

For $10K taxable income at 30%, the after tax for the TFSA is $7K.

*TFSA*
$7K that triples to end up with $21K. For a full withdrawal of capital plus growth, the total is $21K.

*RRSP*
$10K that triples to have $30K. For a full withdrawal of capital plus growth, $30K income is reported at 30% to end up with a tax bill of $9K. 
Once the final tax return has fixed any discrepancy between the RRSP withdrawal withholding tax and the final tax bill, the net is $21K.


Unless there is a flaw, the larger capital seems to make no difference.


Cheers


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## CalgaryPotato (Mar 7, 2015)

Most of my RRSP room is taken up by my pension contribution. After that I prioritize, my kids RESPs, then our TFSAs & then RRSP.

So far I'm up to date on all of it, but I wouldn't lose sleep not being full. For me, the sole provider of a family of 4, with a just over 6 figure salary, it's ~34% of my salary to fill those up. And the TFSA & RESP portions are after tax. 

There is a strong possibility I'll end up with more disposable income in retirement than I have now.


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## Thal81 (Sep 5, 2017)

I don't have much RRSP room because of DB pension eating it up, but I still like taking them because when I FIRE I will cash out all my RRSP slowly within the 5 years before I get my pension benefits. I will pay close to no tax on those since my only other taxable income will be dividends and capital gains... So my RRSP contributions right now gives me a lot of free money that I won't have to pay back.


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## Koogie (Dec 15, 2014)

I no longer have RRSP contri room since I take remuneration in dividends instead of salary (I am a ̶t̶a̶x̶ ̶c̶h̶e̶a̶t̶ small business owner). I have maxed out all my accumulated RRSP room though. We also max out our TFSAs on the first banking day of the year.

As to the newspaper article, they were making their argument for an increase based on the equivalency to DB pensions, I believe. Probably there is a case to be made for it as public service pensions march on with their annual increases. Because, you know, #FAIRNESS.


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## nathan79 (Feb 21, 2011)

I've never earned enough to max my RRSP. I was maxing the TFSA before it increased to 10K, but I never caught up after that.


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## CalgaryPotato (Mar 7, 2015)

Thal81 said:


> I don't have much RRSP room because of DB pension eating it up, but I still like taking them because when I FIRE I will cash out all my RRSP slowly within the 5 years before I get my pension benefits. I will pay close to no tax on those since my only other taxable income will be dividends and capital gains... So my RRSP contributions right now gives me a lot of free money that I won't have to pay back.


I'm not following, are you planning on having 5 retirement years before you get your pension benefits? Otherwise, how would it be tax free?


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## Thal81 (Sep 5, 2017)

CalgaryPotato said:


> I'm not following, are you planning on having 5 retirement years before you get your pension benefits? Otherwise, how would it be tax free?


Retire in my mid 40s, DB pension will only start at 60. So in my late 50s I'll empty the RRSP (it won't be very big, like 100k-150k).


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## Mookie (Feb 29, 2012)

Thal81 said:


> Retire in my mid 40s, DB pension will only start at 60. So in my late 50s I'll empty the RRSP (it won't be very big, like 100k-150k).


Yes, the RRSP can be a very useful and tax efficient bridge for early retirement, so long as you have other funds to support yourself after draining your RRSP. Take it out after retiring, but before other retirement income sources kick in. This keeps you in a very low tax bracket. I plan to do the same for the first 5-10 years of my retirement, starting at age 55.


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## OnlyMyOpinion (Sep 1, 2013)

Mookie said:


> ... so long as you have other funds to support yourself after draining your RRSP...


^+1 Important point Mookie. Don't drain that puppy without certainty re/ your other sources
It surprises me that a DB pension would hold up if a person retired in mid-40's.
Also important to understand what CPP will pay (or more importantly what it won't pay).

Melting down an RRSP can work if a person has got things well planned. Most don't, which is why RRSP's and the rules around them were designed - to provide a retirement income, and let the cat keep their cat food :cat:


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## redsgomarching (Mar 6, 2016)

I hope they increase the TFSA contribution limit.


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## OnlyMyOpinion (Sep 1, 2013)

redsgomarching said:


> I hope they increase the TFSA contribution limit.


Not going to happen.
You'll recall the Liberals reduced it from $10,000 to $5,500 as soon as they took power. It is indexed to inflation but that's not going to bump any time soon (in $500 increments).


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## Ponderling (Mar 1, 2013)

I and my wife have maxed rrsp's for over 25 years now. TFSA's fully funded and non registered getting to a healthy size as well.

In a way our rrsp holdings will force an early retirement on us. Otherwise claw back is going to get messy down the road.


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## milhouse (Nov 16, 2016)

OnlyMyOpinion said:


> Not going to happen.
> You'll recall the Liberals reduced it from $10,000 to $5,500 as soon as they took power. It is indexed to inflation but that's not going to bump any time soon (in $500 increments).


I don't think it's too, too far away. I think based on current inflation levels, the next bump up to $6000 is going to happen in 2019.


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## GreatLaker (Mar 23, 2014)

Ponderling said:


> I and my wife have maxed rrsp's for over 25 years now. TFSA's fully funded and non registered getting to a healthy size as well.
> 
> In a way our rrsp holdings will force an early retirement on us. Otherwise claw back is going to get messy down the road.


This article dos a good job describing which accounts to draw from first and how to proactively reduce OAS clawback. It's a couple of years old, the tax rates are from Alberta and it predates the ability to defer OAS to age 70. Current tax rates are available at taxtips.ca. I found it to be a good comprehensive resource.
http://rgafinancial.com/articles/What-Account-Should-I-Draw-From-First-In-Retirement.pdf

Remember the objective is to maximize estate size for a given retirement income, or conversely give the maximum retirement income for a given estate size. If you pay more tax because you have more money that's not a bad thing.


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## Sm5 (Nov 2, 2014)

TFSA is maxed on first or second trading day of the year., less a 100 dollar a month amount that is contributed throughout the year (because I'm too lazy to cancel the pre-authorized payment). RRSP is maxed once I receive my NOI for the year and know how much I can contribute. Everything else stays in non-registered accounts. 

Once the RRSP reaches a reasonable size ($1MM or so) I'll probably stop contributing and stop generating RRSP room; but until then, hedging bets.


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## gardner (Feb 13, 2014)

Eclectic12 said:


> Unless there is a flaw, the larger capital seems to make no difference.


If the tax rate is the same, then I agree that it's a wash.


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## My Own Advisor (Sep 24, 2012)

Ponderling said:


> I and my wife have maxed rrsp's for over 25 years now. TFSA's fully funded and non registered getting to a healthy size as well.
> 
> In a way our rrsp holdings will force an early retirement on us. Otherwise claw back is going to get messy down the road.


A great problem to have no?


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## mcoursd2006 (May 22, 2012)

We maximize on our RESP and TFSA first, then if there's anything left RRSP.


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## ian (Jun 18, 2016)

We top up both TFSA's each year. We maximize our grandchildren's RESP each year. 

RRSP no longer an issue for us.


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## gardner (Feb 13, 2014)

Is it worth planning to retain some unused contribution room into a post-employment future? I am thinking that in my last year of employment I would be accumulating contribution room that I wouldn't necessarily want to use up in retirement. I would have contribution room of ~27K coming online in 2018, but if that is my first year of retirement there would likely be no point in using it since I would have low income -- in fact I would be drawing down my RRSP at a rate to keep the income in an optimal range for taxes.

But if in some year I have a large income -- say I sell a rental property and have a $200K CG --> $100K taxable income, then I might want to USE the RRSP room to transfer part of the tax burden ahead into the next year. As long as I am still below 71 I think I could use contribution room strategically in this way.

Does this make any sense? Is there a reason this would not be a reasonable strategy?


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## BeautifulAngel (Jun 30, 2017)

Currently I have not maximized neither my TFSA or RRSP. However, it is definitely something I really want to do. 

I've started saving $25 from each pay to go into my TFSA and once that is maxed out I will start to try to max out my RRSP. 

When I can find extra money I will definitely be putting it into the TFSA or RRSP.


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## hboy54 (Sep 16, 2016)

gardner said:


> Is it worth planning to retain some unused contribution room into a post-employment future?
> Does this make any sense? Is there a reason this would not be a reasonable strategy?


I actually did this. It wasn't really planned, but I had been carrying about $20K room for maybe 15 years, and one year it came in handy when I had an unusually large income.

hboy54


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## redsgomarching (Mar 6, 2016)

gardner said:


> Is it worth planning to retain some unused contribution room into a post-employment future? I am thinking that in my last year of employment I would be accumulating contribution room that I wouldn't necessarily want to use up in retirement. I would have contribution room of ~27K coming online in 2018, but if that is my first year of retirement there would likely be no point in using it since I would have low income -- in fact I would be drawing down my RRSP at a rate to keep the income in an optimal range for taxes.
> 
> But if in some year I have a large income -- say I sell a rental property and have a $200K CG --> $100K taxable income, then I might want to USE the RRSP room to transfer part of the tax burden ahead into the next year. As long as I am still below 71 I think I could use contribution room strategically in this way.
> 
> Does this make any sense? Is there a reason this would not be a reasonable strategy?


the only thing you need to wary of is if certain transactions generate RRSP room. For example, dividends are a form of income but is not qualifying income for the purpose of generating RRSP contribution room.

edit; sorry - this would be fine if you have unused contribution room**************


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