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 may take a RRIF withdrawal and deposit the after-tax proceeds to your TFSA, Soheir. In case your withdrawal constitutes your minimal withdrawal for the 12 months, there isn’t a necessary tax withholding, though you may request voluntary withholding tax.
In case your withdrawal is in extra of the minimal, there can be withholding tax. The tax charge relies on the magnitude of the withdrawal: a charge of 10% applies to extra withdrawals of as much as $5,000, a charge of 20% to extra withdrawals from $5,000 to $15,000, and a charge 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. If 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 had been transferred to a TFSA. TFSAs are tax-free as soon as your deposit is made, however the contributions themselves don’t have any bearing in your tax return.
In case your withholding tax charge in your RRIF withdrawal was too excessive or too low, it could 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 12 months.
There might usually 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 might be in a low tax bracket early in retirement and you might be deferring pension revenue like Canada Pension Plan (CPP), Previous Age Safety (OAS) or office pensions. Taking further withdrawals might reap the benefits of your low tax brackets, clean your revenue in retirement, and help you contribute to or keep your TFSA.
One other instance could be if you’re married or common-law and your associate’s well being isn’t good. RRIF withdrawals may be break up along with your partner and reported on two tax returns, sometimes at a decrease charge. That chance now not exists after the primary loss of life within the couple. All future revenue is taxed on only one tax return.
