Q&A: TFSA dilemma
Question: My wife and I are both 66. We are fortunate to have the CPP, OAS, and a defined benefit pension. We have about $75,000 in each of an unregistered investment account (mostly monthly income paying mutual funds) and a spousal RRSP (mostly monthly paying income funds) but no TFSAs. We keep thinking that some of the money should go to the TFSA but can’t decide which account to withdraw from first. Sometimes we think the RRSP account should go first to reduce the amount that will have to flipped at 71. Other times we think that it should be the non-registered account. Your thoughts, please? – Mike T.
Gordon Pape answers: I vote for the non-registered account. My rationale is simple. I don’t like paying tax any sooner than I have to. Taking the money from the RRSPs would mean adding it to taxable income several years before that will be necessary. It will also reduce the amount available for the TFSA because the government will claim its share of the RRSP withdrawal. The only tax implication of using the non-registered money is that you may trigger a capital gain if any of the mutual funds you transfer to a TFSA are showing a profit. But the tax rate will be a lot less than on an RRSP withdrawal.
Don’t transfer any money-losing funds to a TFSA because you won’t be allowed to claim a capital loss. Sell the units first and transfer cash.