RRSP to TFSA Grand Jeté

I like the title as Mrs. C8j is a former ballerina, so any time I can figure to use a ballet term I get extra points (one day I will figure out how to put Benesh Movement Notation in a post). 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 simply have that built into their taxation deductions, so they enjoy their refund all year round), and this is another interesting idea, that I am sure many folks are already using, but I will see if I can sum it up.

rrsp to tfsa
The Full RRSP to TFSA Grand Jete
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 (and thus nearly out of debt), if you have debt to pay off, please refer to the RRSP to Debt Pas De Deux method, where you substitute the word Pay Debt for Put Money in TFSA in my method.

The Grand Jeté is simply done, but let me wander through the steps for you in case you are unsure.

  1. 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 an Atta Person Bonus from work).
  2. 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).
  3. When you deposit your $5000 into your RRSP, you will receive a refund of about $1300 or so ( your mileage may vary).
  4. You receive this cheque as a refund for the CRA into your savings account (because remember cheques are going away very soon).
  5. 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 room 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:

  1. Make per pay cheque RRSP deposits, then you can estimate how much tax you are “saving”
  2. Set up a per pay cheque deposit to your TFSA to put the savings there.

I think I’d call that a Modified Petit Jeté.

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TFSA Retirement Welfare Bums

I am borrowing an expression that David Lewis made about Canadian Corporations getting far too many tax breaks (his phrase was “Corporate Welfare Bums“), however, I feel it is correct, given the furor in the main stream media about Rich Canadians getting fat off Retirement Welfare (again to paraphrase and add alarmist tenor to the argument).

Typical Rich Fat Cat Canadian

Typical Rich Fat Cat Canadian™ lying around with his TFSA and his tax loopholes!

This all seems to be a reaction to The Harper Government™ proposing (or maybe only socializing) a doubling of the current TFSA yearly limit to $11K, and thus the fear of “Rich Fat Cat Canadians™” taking advantage of this unfair change to hide income and possibly end up getting paid the Guaranteed Income Supplement if they retire (GIS is really to help those who are retired with lower-income, if you have a higher income it typically is clawed back). This is diabolical, someone who could save $11,000 a year until they retire might appear to be a pauper and attempt to get government hand outs? How dare they exploit this “tax loophole” ! #OMG

Now let’s all calm the heck down given  I have just whipped you into a fury of moral indignation about the Rich Fat Cat Canadians™ out there. My guess would be that the government (as part of announcing the doubling of the TFSA limit (possibly)) will simply force folks applying for GIS to report their TFSA holdings, and that will then disqualify them from getting the GIS , but if you believe what is being currently written, it is happening right now, and the Harper Government™ is doing nothing about it! #OMG

This (of course) is not likely the case, but having a higher TFSA limit does make for some very interesting questions about where to put your Retirement funds, especially if you are younger (for someone like me, I have about 10 years before retirement, if they DID double the rate and I DID max out my TFSA‘s I could have about $140K or so (with growth) in my TFSA). I have seen many interesting arguments on both sides, and I am not completely sure which is better, however, I will be proposing tomorrow (teaser) an interesting hybrid solution (that is neither brilliant nor new, just me rehashing old ideas (as usual)).

So all you Rich Fat Cat Canadians™ can thank the Harper Government™ for yet another break being given to you, you oppressors of the proletariat

Full Disclosure: I believe if I use the definition of Rich Fat Cat Canadians™ I must disclose that I am (most likely, depending on the income line used) a member of this club too, and yes this article was written (a little) tongue in cheek.

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What is my TFSA Limit?

How Hard is it To Find Out my TFSA Limit?

There has been a lot of electronic ink written about TFSA limits, and how Canadians are depositing over their limits (and paying a dear price in penalties), but just how hard is it to actually find out your credit limit?

Step by Step

Do it One Step at a Time
(picture courtesy Microsoft ClipArt)

It is not that hard, if you use on-line banking. Let me walk you through the steps here:

  1. Go to the CRA’s My Account Page (yes that is the link for it). From there you can either try to create a CRA user id, if you wish, or you can use your On Line Banking Credentials (if you trust the CRA with them).
  2. Click on Continue to Sign-In Partner
  3. Click on your current bank (BMO Credit, BMO Access Card, Choice Rewards Mastercard, Scotiabank, TD, or Tangerine) or the one you wish to use (if you have multiple accounts to choose from).
  4. You will need your log in credentials on the login page, type them in (on a safe computer, not in an Internet Cafe or a library) and “Log In” to your CRA MyAccount.
  5. You are now at a CRA page with all the info you need, but you wanted your TFSA room right? Click on RRSP and Savings Plans tab near the top of the page.
  6. You then choose on the next page Tax-Free Savings Account (TFSA) and on the next page choose Contribution Room, and there you will see your limit.

You can also see what transactions you  have done for your TFSAs, so all in all very helpful. It will pretty much show every single transaction, so check that out while you are there as well.

If you wish to find your RRSP room, start again at step one and replace RRSP for TFSA in the instructions :-).

Doesn’t seem very complicated does it?

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TFSA Two Step

TFSA and Deposit Penalties

Seems the TFSA idea is getting misunderstood by a few investors and savers, so let’s wander through a few simple examples.

First go read TFSA.gc.ca and make sure you at least understand that site, and then come back here for our Arithmetic games.

Let’s also remember that as of now (2014) I can put in as much as $5500 into my TFSA this year (2014) (the total of all deposits, cannot exceed this value).

NB: Each of these scenarios makes the naive assumption that you start 2014 with no excess TFSA room transferred from earlier years and no carried over withdrawals from previous year .

TFSA How To

TFSA Two Step?

Scenario 1:

  • I put $2500 into my TFSA on January 12th 2014 and buy a money market fund (to make this simple)
  • On June 23rd, 2014 my car needed new brakes, so I cashed out $1800 to pay for this job (money taken from my TFSA)
  • September 17th, 2014 I find some money and deposit back the $1800 I took out and add another $600 for a total deposit of $2400

Scenario 2:

  • January 19th 2014 I deposit  $4766.00 in my TFSA (which is a savings account set up)
  • August 19th, 2014 I need some money to pay for my kids’ tuition, so I withdraw $3500 to help pay for fall tuition
  • December 1st, 2014 I find some extra money and decide to pay back the tuition money taken out of $3500

Scenario 3:

  • February 11th, 2014, I open a new TFSA and deposit $5500 into it (assuming it is a savings account configuration)
  • September 3rd, 2014, I need some extra cash for an impromptu vacation and I withdraw $2000 from the TFSA
  • January 15th, 2015, I deposit back the $2000 that I took out in September, 2014

Which of these scenarios may leave you with a Penalty for over depositing?

Scenario 1 is OK, because the total amount deposited in 2014 was only $4900 under the maximum for that year.

Scenario 2 is a big NO-NO! Your total contributions for that year would add up to $8266.00 which is WAY over the yearly contribution rate (even though you took out $3500). You may then have to pay the 1% over payment penalty on $2766.00

Scenario 3 is OK, you deposit your maximum in 2014, and if you want to “pay back” any withdrawals, you wait until the next year to do so (and you check with the CRA to see what THEY think your TFSA limit is).

The formula to remember is:

Maximum deposit into your TFSA for year = ( Previous Year Limit Carry over (if more than zero) )
+ ( $ 5500 )
+ ( Identified withdrawals from previous year )

 If you are not sure what your TFSA limit is, check with the CRA first before devising any plans.

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TFSA Now and Then

A few years ago when TFSA‘s were a new and exciting thing, our friend Larry MacDonald did an article featuring me (and my son in the picture). The article discussed what TFSAs could be used for. The article was just after I had been laid off from Nortel.

At the time I thought that the TFSA was going to simply be another place to save for my retirement. At the time my RRSPs had no space left to add. As time has passed my opinion of what you can do with a TFSA has changed.

TFSA then and now
A much thinner, younger me, and of course my son’s bum

I am using the TFSA as a “safe haven” for middle term (3-5 years) savings. Money sitting in a standard savings account would only be taxed. Putting it into a TFSA shelters any possible growth with that money.

Given I have so many savings vehicles that I currently use (i.e. RESP, RRSP, RDSP, and TFSA), the TFSA’s advantages (for me) are a little less, as I tend to put more money into my son’s RDSP for now.

Yes, that is a real photo of me (many years ago), and if you read the article linked to it, you will learn my actual identity (and you will also get to read a very good article written by Larry MacDonald ).

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