Q&A: Which Account?

Question: We are an older couple (I’m pushing 75). I do all my trading online with three accounts: a cash account, a RRIF, and a TFSA. My husband is also online with a cash account and a TFSA. We are both fully into (and happy with the results of) TFSAs.

I, of course, must take money from the RRIF which I tend to put into the cash account. For three years we both had money coming in from a sort of inheritance but that has ended. We are comfortable with pension, etc. Now we would like to spend some money on home upgrades and travel. Since we keep our money as active as possible, the money in the family savings account won’t cover our plans. Which account should I take money from first: cash, RRIF, or TFSA?

We are guessing that the 2014 TFSA contributions will be paid out of our respective cash accounts. The TFSAs are a problem because they’ve become competitive between the two of us. (I’m winning but not by much.) Getting up the nerve to take money out – how do we do that?

Thank you so much for your advice for many years now. – Kaaren B., Kingston ON

Gordon Pape answers: I would start by eliminating the RRIF as a source of extra money. All withdrawals are taxed at your marginal rate so only take out what you are required to by law and leave the rest tax-sheltered.

This leaves the cash account and the TFSAs. Although there are no tax consequences in taking money from the TFSAs, in principle I like to leave money tax-sheltered for as long as possible. However, if taking the funds you need from the cash account would trigger significant capital gains, with no offsetting losses, then use the TFSAs.

As a general rule, if you can legally put off paying taxes to the CRA, do so. The longer you keep the money in your own hands, the more you can make from your investments.

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