Columnist image
Dale Jackson

Your Personal Investor

|Archive

Canadians love to complain about taxes but even the most die-hard cynic has to agree the registered retirement savings plan (RRSP) and the tax free savings account (TFSA) are valuable tax-saving tools.

RRSPs provide tax free investment growth until retirement, and gains on TFSAs are never taxed. They can even be used together as part of a broader tax strategy but moving funds from one to the other can be tricky, and doing it the wrong way could land you in hot water with the Canada Revenue Agency.

TFSA TO RRSP: GREAT IDEA

Funds can be withdrawn from a TFSA at any time, for any reason, without tax consequences. In fact, the contribution room will be returned to you the following calendar year. If your TFSA investments have done well and you’re looking for a tax break for the current calendar year, that money may be better invested in your RRSP. 

You cannot transfer investments directly between TFSAs and RRSPs but you can sell for cash in one and repurchase them in another. Just be sure you have the contribution room in your RRSP, which is usually posted in your latest filing statement from the Canada Revenue Agency. Remember, RRSP contributions are fully taxed when they are withdrawn (ideally in retirement), but they can be deducted from your 2018 taxes if you make the contribution before next March.

RRSP TO TFSA: BE CAREFUL 

If you withdraw from an RRSP before you’re 65 the funds will be subject to an immediate withholding tax. Once you file your taxes for the year you could wind up paying more or you could pay less, depending in your income level. It makes more sense to withdraw from an RRSP if your income is low. Unlike a TFSA, the re-contribution space from an RRSP withdrawal will be lost. 

Assuming you have not maxed out your TFSA, you can put the funds right back in your TFSA. The CRA also keeps a record of your TFSA contribution space.