TFSA gains. Pull them out or leave them be?

[16hypen3sp]

Lets say you have a maxed out TFSA that's fully invested. You have gains of $3k from those investments. Do you guys just leave it alone or do you do anything with those gains? I'm thinking of pulling my gains out from my TFSA and putting it into my RRSP for tax purposes. But I've never touched my TFSA before so I'm unsure of the consequences or if there are any.

[shakalaka]

There are no tax implications for the money accrued in a TFSA. So you can make however much income in your TFSA or withdraw it ultimately there are no tax consequences of that.

Based on that I wouldn't advise taking your income out of TFSA and putting into RRSP because you wouldn't be taxed on that income anyway and the entire purpose of RRSP's is to defer taxes on taxable income for a later time.

I am no expert but that's my understanding of this. I am sure someone else will correct me if I am wrong.

[16hypen3sp]

The main problem I have here is that I have a nasty tax bill coming, I'll owe about $10k on top of what I've already paid in income taxes. Because of this, I am trying to consolidate any extra cash I have into my RRSP before the Mar. 1 deadline to reduce the tax bill.

My last resort is using my line of credit to add into my RRSP. Really don't want to do that tho.

The taxman cometh.

[ThePenIsMightier]

That money is supposed to help you in retirement. If you take it out now to pay this shitty tax, you'll never end up replacing its value in your retirement plans and you've lost what that $3k would've grown into.
I'd suggest a Net Present Value sort of analysis comparing taking this money out with borrowing money to pay the Tax Man. If you buckle down and set an aggressive repayment schedule on your loan, I suspect you'll come out far ahead in the long run.

[lasimmon]

Depends how you really use your TFSA. I don't really see an issue with pulling it out and throwing it in your RRSP. You are not throwing the money away and reducing your tax obligation at the same time.

[bjstare]

He's not reducing his tax obligation, he's deferring it. My vote goes to leaving it in TFSA. Let it grow and still never incur any additional taxes.

[KPHMPH]

I vote pulling it out as cash and then investing in RRSPs to reduce your tax bill.

You basically have tax free money turning into extra tax free money.

[buh_buh]

TFSA is also tax free money turning into extra tax free money.
In a way, it's almost the same thing if you invest in the exact same stock in your TFSA vs. RRSP, except in a RRSP you will pay taxes on it at a later date.
The difference is you are lowering your current tax bill by purchasing RRSP but having to pay taxes again on it at a later date.

[ExtraSlow]

The idea of a net present value analysis is pretty good. I think you'll find that your tax bill due this year will override considerations of things decades away.

I'd be very hesitant to borrow money to invest in RRSP.

[arcticcat522]

If he were to withdraw from his TFSA, would that contribution room be added next year, or do they track income generated? I think whatever he takes out, he would be able to add back next calender year. Correct me if I'm wrong. I would take out the money to reduce the tax burden.

[sabad66]

It really depends on how you plan living in your retirement. If you're going to be living modestly and not pull out a lot of money from your RRSP (would be a RIF at that point) every year and thus would be in a low tax bracket then i'd say move into RRSP is better. If you want to really enjoy life and pull bigger amounts out of your accounts then TFSA is a better place to leave your money as its completely tax free regardless of how much you pull out every year.

[sabad66]

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If he were to withdraw from his TFSA, would that contribution room be added next year, or do they track income generated? I think whatever he takes out, he would be able to add back next calender year. Correct me if I'm wrong. I would take out the money to reduce the tax burden.

yes, by pulling out gains, you are "creating" new room in your TFSA. for example say he's contributed the max since it started which would be 63,500 since the program started in 2009 until 2019 but it has grown to 70,000 his room would be 0 at that point. but then if you pull out all 70,000, his room would now be 70,000 + whatever the max is next year in 2020. Not just 63,500 + the max for 2020.

[prae]

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The idea of a net present value analysis is pretty good. I think you'll find that your tax bill due this year will override considerations of things decades away.

I'd be very hesitant to borrow money to invest in RRSP.

I don't get the hesitation on borrowing to invest in an RRSP. In the past I frequently borrowed small four figures to max out my RRSP contributions and paid the loans back immediately upon receipt of my tax refund. In OP's case I suppose it's a bit different as he'll just be reducing a net obligation, rather than having line of sight to an immediate refund to be used for repayment.

[ExtraSlow]

I forgot this was beyond. 85% of Canadians will not have enough saved to worry about it in retirement. However on beyond.ca, only the lowest 1% would be considered average elsewhere.

[msommers]

I would only pull it out if it's going to bring you down from the top tax bracket to the 2nd highest tier, assuming you have a lot in the highest tax bracket to begin with.

Keeping it in the TFSA is a sure-fire way to avoid paying tax indefinitely on that money. Overall that would be my preference because there are the few oddball people out there still making a lot of money when they are required to withdraw from their RRSP and don't actually defer much, if any tax.

[Buster]

Borrowing money to put into your RRSP is generally a bad idea. So don't do that.

Without knowing your actual tax bracket, it is hard to determine the degree to which the RRSP transition will help you.

The fact that the tax bill is coming really doesn't change what your overall tax strategy should be. That is, if you had paid appropriate installments throughout the year, your overall strategy on this would remain the same. My guess is that you would benefit from putting money into your RRSP.

[ExtraSlow]

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I don't get the hesitation on borrowing to invest in an RRSP. In the past I frequently borrowed small four figures to max out my RRSP contributions and paid the loans back immediately upon receipt of my tax refund. In OP's case I suppose it's a bit different as he'll just be reducing a net obligation, rather than having line of sight to an immediate refund to be used for repayment.

Yeah, I didn't clarify that. What I should have said is I would be hesitant to borrow money LONG TERM for an RRSP contribution. If you can pay back soonish, that's different.

[Buster]

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Yeah, I didn't clarify that. What I should have said is I would be hesitant to borrow money LONG TERM for an RRSP contribution. If you can pay back soonish, that's different.

You were right originally. RRSP loans are generally a bad idea, pushed by banks who like the sweet (non tax deductible) interest.

[HiTempguy1]

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Borrowing money to put into your RRSP is generally a bad idea. So don't do that.

Without knowing your actual tax bracket, it is hard to determine the degree to which the RRSP transition will help you.

The fact that the tax bill is coming really doesn't change what your overall tax strategy should be. That is, if you had paid appropriate installments throughout the year, your overall strategy on this would remain the same. My guess is that you would benefit from putting money into your RRSP.

This is the confusing part. No one should be getting whacked with $10k in tax (unless massive capital gains or something), he needs to fire his accountant.

[prae]

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This is the confusing part. No one should be getting whacked with $10k in tax (unless massive capital gains or something), he needs to fire his accountant.

He drives for uber. Do they withhold income tax? I don't believe they do. That's no fault of his accountant, simply a reality of how he generates his income.

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You were right originally. RRSP loans are generally a bad idea, pushed by banks who like the sweet (non tax deductible) interest.

Agree with you both there.