I like the title as Mrs. C8j is a former ballerina, so 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 could I possibly 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.
Image courtesy of Danilo Rizzuti, at FreeDigitalPhotos.net
My first assumption is that you are out of debt or have not much left on your mortgage .. If you have a debt to pay off, please refer to the RRSP to Debt Pas De Deux method. That is where you substitute the word Pay Debt for Put Money in TFSA in my process.
The Grand Jeté is done, but let me wander through the steps for you if you are unsure.
- You have extra money that you wish to save for your retirement future (and good on you for thinking of this). Let us say the amount is $5000 (you got a Bonus from work).
- You decide to put that money into your RRSP (or 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 as a refund for the CRA into your savings account (because remember cheques are going away very soon).
- Time for the actual Grand Jeté you now take this money and transfer it to your TFSA for it to then grow without tax repercussions (assuming you have room in your TFSA, 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. So you must have RRSP room to make the contribution and 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.
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).