Dale Jackson

Personal Finance Columnist, Payback Time

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Many Canadians have become familiar with the decades-old registered retirement savings plan. You deduct contributions from your taxable income and over the course of your working life it can grow tax-free in just about any kind of investment. When you retire it can be withdrawn in a lower tax bracket.

Fewer Canadians are familiar with the relatively new tax-free saving account. Contributions cannot be deducted from taxable income, but gains from the investments in the account are never taxed.

Investors who use both are just beginning to see the advantages of using these different, but effective, tax-saving tools. The reasons and strategies for moving money from one to the other could vary, but the actual transfers can be tricky. You may need to talk to a professional but here are the basics:        

TFSA to RRSP

Moving money from a TFSA to an RRSP can give a double punch to the tax man. If a TFSA investment doubles in value, the account holder can withdraw the cash without paying tax on the gains, and that same money can be deducted from his taxable income when it is contributed to his RRSP.   

The TFSA contribution space can also be reclaimed the following calendar year.

Before making the RRSP contribution, be sure you have enough space in that plan. Each year, the Canada Revenue Agency sends taxpayers a statement including their current RRSP contribution limits.  The CRA can also provide information on your unused TFSA contribution room. 

Remember: you must pay tax on RRSP holdings when they are withdrawn.

RRSP to TFSA

Moving money from an RRSP to a TFSA can be even trickier. Any withdrawals from an RRSP are subject to a withholding tax based on the amount withdrawn. When tax time comes around you are taxed on the amount withdrawn according to your current personal tax rate.  Unlike a TFSA, you will permanently lose that contribution space in your RRSP.