Personal Finance

Does it make sense for retiree to contribute into TFSA?

  • Last Updated:
  • Jan 21st, 2018 6:03 pm
[OP]
Deal Addict
Apr 27, 2015
2019 posts
788 upvotes

Does it make sense for retiree to contribute into TFSA?

Next year I will fully retire and because majority of my dividends/interests in registered accounts, it's likely that I won't be paying any taxes on interest from non-reg accounts. So, does it make sense to contribute into TFSA?
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22 replies
Member
Dec 20, 2006
420 posts
25 upvotes
York
Why not? and don't forget you still have to pay tax when you withdraw from RRSP
Newbie
Feb 3, 2015
45 posts
20 upvotes
Kirkland Lake, ON
You have to look at your overall situation...
- Eventually (age 71) your RRSP must be converted to a RIF and you must start withdrawing; anything you withdraw will be added to your income and taxed at whatever rate applicable to you; whereas you are not taxed on any TFSA $$ you withdraw
- If your RRSP/RIF is large, chances are you won't run out; but if it's not that large, eventually the payments (based on a dwindling balance) will be reduced to a much lower amount, and you may need to supplement from your TFSA
-TFSA $$ can be rolled over to the surviving spouse, saving on probate fees, just as an RRSP/RIF can be (assuming you have filled in the proper paperwork)
- when the last surviving spouse passes, the TFSA $$ can go to the estate without paying Federal taxes; however, they will still count in probate taxes
- it is one of the best saving tools we have whatever you are saving for
Deal Fanatic
Nov 24, 2013
6213 posts
2960 upvotes
Kingston, ON
With your tax-deferred registered accounts, eventually you’re dealing with a RRIF with minimum withdrawals, but that doesn’t necessarily mean you spend everything you have to take out. Whatever difference there is between your RRIF income and what you actually need can be contributed to TFSA and grow tax-free until you do need it.

It’s sefinitely more useful for retirees with a pile of non-registered investments to move $x,xxx over every year, but it can still be useful depending on your circumstance.
[OP]
Deal Addict
Apr 27, 2015
2019 posts
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I understand that my minimum RRIF income also considered income for tax purposes. As per tax calculator, if my age < 65 and my income combined of RRIF minimum + interest fron non-reg less than Basic personal amount $11,635 currently, I don't have to pay taxes at all. In thi case, what is the point continue contributing to TFSA?
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Sr. Member
Jan 30, 2013
843 posts
171 upvotes
RICHMOND HILL
only if you have spare cash while retired
Deal Fanatic
Nov 24, 2013
6213 posts
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Kingston, ON
You won’t have any CPP or pension income? Just ~$11k gross from RRIF withdrawals? What are you living off of?

Sorry, I don’t mean to sound prying, just confused as to how you intend to live off <$1,000/mo.
[OP]
Deal Addict
Apr 27, 2015
2019 posts
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Mike15 wrote: You won’t have any CPP or pension income? Just ~$11k gross from RRIF withdrawals? What are you living off of?

Sorry, I don’t mean to sound prying, just confused as to how you intend to live off <$1,000/mo.
We have 1.5M in registered and cash accounts and my spouse has 200K+ income, no debt and fully paid house in GTA. So, no problems :), the only reason I want to convert RRSPs to RRIFs is to deplete value of registered accounts ....esp. from Spousal RRIF as my spouse may contine to contribute into spousal RRSP and significantly reduce her taxes....
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Deal Fanatic
Nov 24, 2013
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Kingston, ON
gibor365365 wrote: We have 1.5M in registered and cash accounts and my spouse has 200K+ income, no debt and fully paid house in GTA. So, no problems :), the only reason I want to convert RRSPs to RRIFs is to deplete value of registered accounts ....esp. from Spousal RRIF as my spouse may contine to contribute into spousal RRSP and significantly reduce her taxes....
Makes sense. Sounds like you have this well-structured for retirement income (as attribution rules on spousal RRIFs only apply on withdrawals above the minimum).

I’m still thinking there is a long-term, estate-planning benefit to utilizing a TFSA in your name. Eventually, the RRIF minimums will increase. Eventually, you’ll become OAS eligible and gain nothing from deferring it. I’m guessing you’re deferring CPP in order to draw down registered balance, but eventually you’ll reach a point where you gain nothing from deferring it too. So, absolutely make your RRIF withdrawals in the interim. Watch attribution rules on taking more than the minimum from Spousal RRIF. When you get to the point where CPP+OAS is greater than the basic personal amount though, then there’s a new strategy to consider, and this is where TFSA can make sense for retirees.

At that point, you’d want to maximize the RRIF withdrawals you can make and still be in the lowest tax bracket (including pension income splitting with spouse if applicable). Maximizing these and lowering your RRIF balance may be more than you need to live off of, but you can contribute what you don’t need to TFSA, effectively shifting some balance from RRIF to TFSA at the lowest marginal tax rate. This is good, because now you’re gaining tax free on that capital, versus growth in RRIF which will ultimately result in income tax and even probate at the death of the last living spouse. It also keeps your minimum RRIF withdrawal in check (by lowering the balance) while you’re living, so you don’t hit a point with a large RRIF balance where your minimum withdrawal already puts you out of the lowest bracket.
Deal Addict
Jul 27, 2017
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gibor365365 wrote: I understand that my minimum RRIF income also considered income for tax purposes. As per tax calculator, if my age < 65 and my income combined of RRIF minimum + interest fron non-reg less than Basic personal amount $11,635 currently, I don't have to pay taxes at all.

In this case, what is the point continue contributing to TFSA?
Different strokes for different folks

Wife & I are both 70 that stopped contributing to TFSA in 2016

We dont have RRSP's or RRIF's

Our income is primarily pension income

Our TFSA accounts is sitting with compounded investment, we have not taken out or drawn from the TFSA

We cash flow every month after we pay all our expenses

Our cash is sitting in a zero interest savings account

We have cash under the mattress/cookie jar/zero interest account, more than enough to cover us another 20 years even if all other income stops as of today....you get the idea

We are no longer saving for a rainy day
Member
Sep 16, 2017
346 posts
235 upvotes
TFSA is a great way to invest the cash you dont use and earn returns taxed free so that spare money isn't getting eroded by inflation. So yes, it makes 10000% sense.
Deal Addict
Jul 27, 2017
2180 posts
941 upvotes
gibor365365 wrote: We have 1.5M in registered and cash accounts and my spouse has 200K+ income, no debt and fully paid house in GTA. So, no problems :), the only reason I want to convert RRSPs to RRIFs is to deplete value of registered accounts ....esp. from Spousal RRIF as my spouse may contine to contribute into spousal RRSP and significantly reduce her taxes....
we melted down our RRSP prior to reaching 65

maybe too late for you to do now other than rolling it over to a RRIF

An option maybe to look at defer/collecting CPP & OAS, buy yourself some time.

Maybe melt down the non-registered accounts to a level of zero income tax

edit to post: your wife has $200k/yr earned income. what is she paying in income tax?

As for spousal contribution to you, what purpose does that serve other than waiting 3 years before you can draw it out, then repeat each year till you reach 71?

When your wife reaches 65 will she convert her RRSP to RRIF?

You are richer than you think....just saying
[OP]
Deal Addict
Apr 27, 2015
2019 posts
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When you get to the point where CPP+OAS is greater than the basic personal amount though, then there’s a new strategy to consider, and this is where TFSA can make sense for retirees.
That's what I was thinking about. I'm 51 now, so there is at least 9 years until I can start getting CPP and 14 years to OAS. So, there are many years to deplete registered accounts' amounts. If I don't contribute into TFSA now, at time of CPP/OAS eligibilty, I'd have pretty big TFSA acccunulated room and can transfer a lot of cash there.
So, in next 14 years, my plan to deplete SRRIF and ind RRIF (now they are still RRSPs) as much as I can w/o paying taxes or paying them at minimum
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Deal Fanatic
Jul 1, 2007
8477 posts
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If you have savings and/or investments in non-registered accounts (outside RRSPs/RRIFs), then contributing it all (up to the maximum) to TFSAs makes sense. Full stop.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
[OP]
Deal Addict
Apr 27, 2015
2019 posts
788 upvotes
Maybe melt down the non-registered accounts to a level of zero income tax
This is what I have now, all our equities in registered accounts, in non-reg we have only cash )GICs + HISA).
edit to post: your wife has $200k/yr earned income. what is she paying in income tax?
a lot :( , more than 80K
As for spousal contribution to you, what purpose does that serve other than waiting 3 years before you can draw it out, then repeat each year till you reach 71?
Don;t understand your question... For Spousal RRIF there is no attribution rule if you withdraw minimum, sono need to wait 3 years... Minimum I withdraw can be contributed to my new Spousal RRSP (as my wife is in the highest possible bracket)
When your wife reaches 65 will she convert her RRSP to RRIF?
My wife only GRRSP, LIRA, TFSA (maxed) and DB pension. I very hope :) that she will retire much earlier than 65, then she can convert GRRSP to RRIF, later to break LIRA and convert it 50/50 to RRIF and LIF and to defer DB pension , CPP and OAS (depends on our financial situation)
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[OP]
Deal Addict
Apr 27, 2015
2019 posts
788 upvotes
Thalo wrote: If you have savings and/or investments in non-registered accounts (outside RRSPs/RRIFs), then contributing it all (up to the maximum) to TFSAs makes sense. Full stop.
I'm not sure, as I said all investnebts is in registered, vast majority of HISA/GICs in non-reg. If for several years my SRRIF amd non-reg income won't exceed Basic personal amount , then what the point to contribute to TFSA, won't be better to accumulate TFSA room and do big investment into TFSA when I start getting OAS/SPP and RRIF minium will increaase?
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Jr. Member
Aug 29, 2011
193 posts
148 upvotes
GTA
gibor365365 wrote: So, in next 14 years, my plan to deplete SRRIF and ind RRIF (now they are still RRSPs) as much as I can w/o paying taxes or paying them at minimum
Something else to consider is your spouse loses the spousal deduction for you worth about $11,800 when you have RRSP/RRIF income. So it is really a wash. If you wait to 65 you will also qualify for the $2000 pension deduction on RRIF income.
Last edited by garytheduke on Jan 21st, 2018 4:20 pm, edited 1 time in total.
The Duke
[OP]
Deal Addict
Apr 27, 2015
2019 posts
788 upvotes
garytheduke wrote: Something else to consider is your spouse loses the spousal deduction for you worth about $11,800 when you have RRSP/RRIF income. So it is really a wash.
Can you please explain? Why this number (11,800) ? Is it only RRIF/RRSP income or total income?
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Jr. Member
Aug 29, 2011
193 posts
148 upvotes
GTA
gibor365365 wrote: Can you please explain?
You report $11,800 in RRIF or other income pay no taxes. Save about 20% in taxes. Because you have income your spouse loses the $11,800 tax credit for you. Worth about 20% as well. A wash. $11800 is the spousal amount allowed 2018.
The Duke
[OP]
Deal Addict
Apr 27, 2015
2019 posts
788 upvotes
$11800 is the spousal amount allowed 2018.
Is it regadless of the ages?
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