Are you able to switch a RRIF to a TFSA?

A RRIF is a tax-deferred account. A TFSA is a tax-free account. So, you can not do a direct switch between the 2.

You possibly can take a RRIF withdrawal and deposit the after-tax proceeds to your TFSA, Soheir. In case your withdrawal constitutes your minimal withdrawal for the yr, there isn’t a obligatory tax withholding, though you may request voluntary withholding tax.

In case your withdrawal is in extra of the minimal, there shall be withholding tax. The tax fee is dependent upon the magnitude of the withdrawal: a fee of 10% applies to extra withdrawals of as much as $5,000, a fee of 20% to extra withdrawals from $5,000 to $15,000, and a fee of 30% to extra withdrawals of greater than $15,000. (In Quebec, the charges are 5%, 10% and 15%, respectively.)

Tax return implications of transferring your RRIF

Withholding tax is simply the beginning, although, Soheir. While you file your tax return, you report your revenue from all sources, together with RRIF withdrawals, no matter whether or not or not the withdrawals have been transferred to a TFSA. TFSAs are tax-free as soon as your deposit is made, however the contributions themselves haven’t any bearing in your tax return.

In case your withholding tax fee in your RRIF withdrawal was too excessive or too low, it might result in a refund or a steadiness owing. So, the withholding tax is only a short-term tax implication; the precise tax is calculated in your tax return for the yr.

There could typically be a bonus to taking greater than the minimal RRIF withdrawals, whether or not you contribute the surplus to your TFSA or not, Soheir.

For instance, let’s say you’re in a low tax bracket early in retirement and you’re deferring pension revenue like Canada Pension Plan (CPP), Outdated Age Safety (OAS) or office pensions. Taking further withdrawals could make the most of your low tax brackets, easy your revenue in retirement, and assist you to contribute to or preserve your TFSA.

One other instance could be in case you are married or common-law and your associate’s well being will not be good. RRIF withdrawals will be break up along with your partner and reported on two tax returns, usually at a decrease fee. That chance not exists after the primary loss of life within the couple. All future revenue is taxed on only one tax return.