I like the title as Mrs. C8j is a former ballerina. Any time I can figure out to use a ballet term, I get extra points. One day, I will figure out how to put Benesh Movement Notation in an article. What does Grand Jeté from RRSP to TFSA have to do with dancing? Nothing as you will see, but it is still a fun title.
What do I mean by this odd title? For a long time, folks have talked about how to deal with RRSP tax refunds if you get them. Some folks have that built into their taxation deductions, so they enjoy their rebate all year round. This is another exciting idea that I am sure many folks are already using. Still, I will see if I can sum it up.
My first assumption is that you are out of debt or have little left on your mortgage. If you have debt to pay off, please refer to the RRSP to Debt Pas De Deux method. In my process, you substitute the word “Pay Debt” for “Put Money in TFSA.”
The Grand Jeté is done, but let me wander through the steps for you if you are unsure.
- You have extra money. You wish to save it for your retirement. Good on you for thinking of this. Let us say the amount is $5000 (you got a Bonus).
- You decide to put that money into your RRSP. Or choose a Spousal RRSP if you want to add some exciting savings pirouettes before the Grand Jeté.
- Check your My CRA account on line. Do you have RRSP room and TFSA room? That is some of the information on that page.
- When you deposit your $5000 into your RRSP, you will receive a refund of about $1300 or so ( your mileage may vary).
- You receive this cheque (or direct deposit) as a refund for the CRA into your savings account. Remember that cheques are going away very soon.
- Time for the actual Grand Jeté. You now take this money and transfer it to your TFSA. It will then grow without tax repercussions, assuming you have room in your TFSA. If you cannot do the Grand Jeté, in this case, you may only be able to do a Petit Jeté.
That Simple ?
That is it, folks, that simple. You must have RRSP room to make the contribution. Additionally, you need space in your TFSA to make the deposit. But that is about it. At the end of it, you have two viable savings plans with money in them. You might be able to automate this if you:
- Make per pay cheque RRSP deposits, then you can estimate how much tax you are "saving"
- Set up a per pay cheque deposit to your TFSA to put the savings there.
I'd call that a Modified Petit Jeté
Other TFSA then RRSP Resources
RRSP then TFSA ?
It is that time of the year where the argument about RRSP or TFSA starts. How about RRSP then TFSA as a possible solution? If you can do both without incurring debt, you are doing quite well.
RRSP to TFSA Grand Jete
Remember that an RRSP is simply a tax deferral program. Plan on moving that RRSP to TFSA. Do this in terms of the tax refund at least.
I did my RRSP and TFSA Now What?
Seriously, I have friends ask me that exact question, with little or no context to explain much else.
TFSA vs. RRSP?
TFSA or RRSP is a question many folks ask, but both have their place in. your financial plans. The TFSA seems better for short-term savings.
RRSP: Tax-Deferred Savings Plan
Your RRSP is a tax-deferred savings plan, you will eventually have to pay the CRA for your deposit, one way or another (yes death & taxes). #RRSP
The Spousal RRSP the Forgotten Savings Tool
Is the concept of the spousal RRSP now an outdated idea? No, the spousal RRSP is as important as it was before pension income splitting was available.
I have seen a similar suggestion elsewhere but going from TFSA to RRSP.
Take annual tax-free gains from TFSA and contribute to RRSP and then reinvest tax return in TFSA. Makes tax free gains tax deductible and tax deferred. It assumes that TFSA and RRSP have same rate of return and that tax rates do not rise in the future. Not sure those are safe assumptions but it is an interesting idea. I ran the numbers and I came out ahead in this scenario (also assuming TFSA is maxed out every year and there is contribution room.) A lot of money shuffling but could be more lucrative if annual TFSA limit is raised.
Interesting reverse Grand Jeté idea.
I like the move, the only problem is, if you are not reinvesting the RRSP-generated refund back into the RRSP, you are defeating part of the benefits of this account.
You are essentially making the government loan tax-free now but you’ll need to pay tax on your own RRSP money, since it’s no longer the government’s money.
I prefer to reinvest the RRSP as much as possible, and then max out the TFSA based on good savings habits.
This is a particularly graceful move because when you withdraw money from your RRSP in retirement you will have to pay tax on it. This way you put the full $5000 to work not just ($5000-the temporary refund).