Q&A: Move money from RRSP to TFSA?

Question: I am a 56-year-old female with a spousal RRSP. I’m not really retired but I did not work in 2009 and have no income (my husband still works full time). Someone has suggested taking $5,000 from my RRSP to put into my TFSA and do this every year that I have no or little income to get the money out of the RRSP at a lower tax rate rather than leaving it in there until I’m 71. What do you think? – Cathy F.

Gordon Pape answers: I agree with the advice you received. You will pay no tax on the RRSP withdrawal because you have no income and you can then tax-shelter the money in the TFSA so that it will never be taxable. The one drawback is that your husband will lose some of the spousal tax credit he would otherwise be entitled to, so you won’t completely escape a tax cost. I suggest you calculate how much that will be before you make a decision. You can get an approximate figure by downloading Schedule 1 of the 2008 tax return from the Canada Revenue Agency website (the 2009 package was not available at the time of writing but that may have changed by the time you read this). For the 2008 version, go here.