Wednesday, February 18, 2015

RRIFS or TFSAs


I am at the point now when I can no longer contribute to my RRSPs. For the first time since I was about 12 I have NO EARNED INCOME!! What a lazy a-- I've become eh? 

The last few days I've been going over my RRSP options. There are many different lines of thought and most have to do with whether to let my RRSPs sit and earn interest until I'm 71 at which time the RRSPs would convert to an RRIF and there would be a minimum amount withdrawn and added to my annual income....OR....withdraw so much a year NOW and add to my Tax Free Savings Account or Tax Free GICs. 

The crux of the matter is which option saves me the most in tax dollars? I'm leaning towards starting RRSP withdrawals NOW while my income is at its lowest. Right now I'm just living on my school pension with additional bump ups to my income coming when I start to receive Canada Pension and then Old Age Supplement. If I wait til I'm 71 to start taking money out of a RRIF then I will be pushed up into a higher tax bracket. For the rest of my LIFE!!

On the other hand if I can get my money out of my RRSPs over the next few years and tucked safely away into a TFSA my tax bracket will remain lower, thus paying less in taxes.  We Canadians are currently allowed to put $5,500 per year into a TFSA where it is tax-sheltered forever. I'd like to start removing $5,000 per year from my RRSPs and place it into my TFSA. Of course there is withholding tax when I remove $$ from my RSP which increases based on the amount withdrawn. The tax rate for $5,000 is 10%. So I would receive $4,500. However, at tax time I might see some of that withholding tax come back to me. 

I feel that this is the right way to go. The consensus is that it's best to withdraw RRSPs when your income is at its lowest. Which is now. 

Decisions, decisions...

8 comments:

  1. I have gone to a few seminars on what order to take things out, as a one day retired teacher. It's a haze of details and procedures which I totally forget. I know I will have to visit someone who understands all of this when it's my time to go.

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  2. livingrichonthecheapFebruary 18, 2015 at 12:55 PM

    I agree, start taking it out now - definitely as you don't even have any cpp or oap coming in. Plus, you will be spending more now than later in life - definitely on things like entertainment and travel. I don't want to end up an 80 year old with a bunch of money in the bank like my Mother-in-law who hardly spends any money at all except on gifts. Put any extra in the TFSA to earn interest free :)

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  3. I will face all these decisions soon, AHHHHHHH!

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  4. It does tend to make me go a bit cross-eyed!!

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  5. Hopefully you and hubs can agree what to do...or does he give you much input?

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  6. Age plays a huge factor! I had a vision of me (not unlike your Mother-in-law) - the money piling up when I'm in my 80's and 90's and what do i do with it? I'd rather spend it NOW!! while I'm still "slightly" youthful :)

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  7. dh still has another 8 1/2 years to work, so we are "trying" to increase our contributions. I like the idea of withdrawing money from your RRSP's to put into your TFSA, good idea,

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  8. UFFDA! I hate taxes. Robb does them all and of that I am TOTALLY appreciative! I rue the day...

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