RRSP then TFSA ?


I figured I’d cover one of the most asked questions, “Should I put my money in my RRSP first or my TFSA?”. For most Canadians, it is an interesting question to ask, but I think I have found the definitive answer the question on the order in which extra money should be used. I think the following explains it clearly:

Pay off your debt first¹

¹ – If you do not have debt please take the advice later on in this post.

Seems pretty straight forward doesn’t it? Maybe I am not being clear enough here, maybe I need a list of 10 Ways to Save ? I doubt it, you get my point.

Now that we have cleared up that one, let’s move on to the real question, which savings vehicle do you try to max out, if you are out of debt?

My opinion is that you should be putting as much as you can (within the guidelines and limits of the CRA) in your TFSA. If you have reached the maximum levels for your TFSA, then you can start thinking about your RRSP (which shouldn’t be too hard, given the low yearly allowances on the TFSA).


  • When you look at the balances of your TFSA you are (in most cases) looking at money that you can have, and use (after brokerage fees or whatever similar costs might be involved). Depending on your portfolio, a TFSA is available in a short period of time, and when you transfer funds out of it, you can use that money without having to worry about paying taxes or the like.
  • With an RRSP, you can withdraw money, however, on top of the brokerage fees you might pay, you are also going to have to pay the CRA. If you have made no money in the current year, the tax will be low, however, if you are John (or Jane) Paycheque, earning a normal income, taking this money out is going to cost a fair amount in taxes. The RRSP is there for when you have lower income (later in life) and thus taking money out of it will have you incur lower taxes (lower than when you were working). Yes, if you put money into an RRSP, you will get a tax refund, but, that “refund” will get repaid to the CRA when you take the money out of the RRSP (hopefully less than your refund initially).

What? Debt?

This is my opinion, I think there is no wrong choice here, maybe do both, but you must unburden yourself from debt first, then figure out how to save. Keep that in mind this RRSP season.


RRSP to TFSA Grand Jeté

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.

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 .. 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.

  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 a 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. Check your My CRA account on line. Do you have RRSP room and TFSA room? That is some of the information on that page.
  4. When you deposit your $5000 into your RRSP, you will receive a refund of about $1300 or so ( your mileage may vary).
  5. You receive this cheque as a refund for the CRA into your savings account (because remember cheques are going away very soon).
  6. 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:

  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’d call that a Modified Petit Jeté.


TFSA Retirement Welfare Bums

I wrote this in 2014 in reaction to Mr. Harper’s doubling of the TFSA limit to $10,000 per year and thinking of raising it to $11K.

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 media about Rich Canadians getting fat off Retirement Welfare.

Ottawa Fat Cat
That is a fat cat

It 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). It is diabolical. Someone who could save $11,000 a year until they retire might appear to be a pauper and attempt to get government handouts? 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. I would guess that the government (as part of announcing the doubling of the TFSA limit (possibly)) will force folks applying for GIS to report their TFSA holdings, and that will then disqualify them from getting the GIS. Still, if you believe the statement, it is happening right now, and the Harper Government™ is doing nothing about it! #OMG

Of course, it is not the case, but having a higher TFSA limit does make for some fascinating questions about where to put your retirement funds, especially if you are younger (for someone like me, I have about ten 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 compelling arguments on both sides, and I am not entirely sure which is better. However, I will be proposing tomorrow (teaser) an exciting 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, I wrote this (a little) tongue in cheek.


What is my TFSA Limit?

How Hard is it To Find Out my TFSA Limit on My CRA Account?

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. First you need to get a MyCRA account, so do that one before you do the next few steps.

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). This is your CRA login.
  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.

Your tax and benefit information are also on this page. It is also possible to find out if you qualify for employment insurance.

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?


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. One of my favourites the TFSA two-step.

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 the previous year.

TFSA Two Step?

TFSA 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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