What's the best strategy?

[laterbloomer]

This year I have $15,000 to invest in retirement. I am trying to decide whether to put it into my RRSP (the account that gives me a tax break) or my TFSA (after tax dollars) The RRSP will be taxed when it is withdrawn and will count as income when trying to qualify for any government benefit program. The TFSA will be treated as savings.
If I put the $15,000 into an RRSP I would get almost $4000 in a tax return that I would then put into the TFSA. I'd probably scrounge another $1000 somehow to make it an even $5000. This is the plan I am leaning towards but I wonder if I am overlooking anything. What say you?

ETA - I have never maxed my contributions so I have more than enough credits for the tax break.

[The Walk of the Penguin Mich]

Are you looking at early retirement?  Are there limits of what you can put into each?

[laterbloomer]

Sept 22, 2021 21:21:35 GMT -5 The Walk of the Penguin Mich said:

Are you looking at early retirement?  Are there limits of what you can put into each?

Early retirement is a dream. I have enough credit built up that the only limit is ehat I can afford.

[laterbloomer]

This article might explain my debate better m.ca.investing.com/news/stock-market-news/tfsa-vs-rrsp-dont-be-tricked-by-the-rrsp-refund-2453628#

[minnesotapaintlady]

Sept 22, 2021 20:23:34 GMT -5 laterbloomer said:

If I put the $15,000 into an RRSP I would get almost $4000 in a tax return that I would then put into the TFSA. I'd probably scrounge another $1000 somehow to make it an even $5000. This is the plan I am leaning towards but I wonder if I am overlooking anything. What say you?

This is the approach I've always taken.  Put most into pre-tax and any tax savings into post-tax. 

[tskeeter]

Sept 22, 2021 20:23:34 GMT -5 laterbloomer said:

This year I have $15,000 to invest in retirement. I am trying to decide whether to put it into my RRSP (the account that gives me a tax break) or my TFSA (after tax dollars) The RRSP will be taxed when it is withdrawn and will count as income when trying to qualify for any government benefit program. The TFSA will be treated as savings.
If I put the $15,000 into an RRSP I would get almost $4000 in a tax return that I would then put into the TFSA. I'd probably scrounge another $1000 somehow to make it an even $5000. This is the plan I am leaning towards but I wonder if I am overlooking anything. What say you?

ETA - I have never maxed my contributions so I have more than enough credits for the tax break.

It depends on how large your retirement portfolio will be when you retire and what portion of your portfolio will be in RRSP vs TFSA.  We made a mistake and put too much of our portfolio in RRSP type accounts.  As a result, when we hit the required withdrawal (RMD) age, we’ll be pushed into a very high tax bracket.

If you are at risk of finding yourself in our situation, you might consider trying to tailor your portfolio to keep your taxes at a comfortable level in retirement.

[The Walk of the Penguin Mich]

TD’s mom has so much money coming in from her RRSPs in RMDs that her Canada pension (similar to SS) has gotten clawed back.  So if you are heavy in RRSPs, you might want to adjust accordingly.  

[Tiny]

I am not Canadian... but I am looking at how all of my retirement accounts/income will play together.

In retirement or after some age do you have a way to convert pretax money (RRSP) to a something like a Roth (TFSA)?

Will you have some lower income years in retirement when you can do that before you have to take RMDs? Can you start planning now for when you MIGHT be able to do this efficiently?

My oldest sibling - didn't "retire" until 64 (his FRA) and was blindsided by how his substantial PreTax accounts were going to effect his taxable income when he started paying attention to it at 68yo. He says he should have paid more attention to his preTax accounts when he retired at 64 and when he took SS (or actually before - he could have stopped working a couple of years early). His pensions and SS covers all his expenses and then some - his 401K and taxable $$ are icing on the cake. Overall he's looking at it a "good problem to have".

I think you should think about how much money you will have in retirement and what types of accounts it will be in, and how these accounts will "play" with whatever other money you will have in Retirement - your own savings, pension from an employer, the "like SS" government pension. It can be overwhelming - but if you have a lot of retirement type income from a variety of sources - it is complicated.

I think you also need to look at your current income (where do you fall - median income, 2x, 3x,4x median income? ) If you are married you may have to consider how your income/tax brackets change when a spouse dies.

The most generic advice that I have gleaned from my "rabbit hole" exploring of "retirement income" is:
If you are in the median household income range (and expect to be so on going) and it's not too hard to guesstimate look to the future and see that you will be in that range in retirement and will be funding the bulk of your retirement income yourself - it seems the general advice/math says pretax money is the way to go.

BUT the other most generic advice that I have gleaned from my "rabbit hole" exploring of "retirement income" is: that you will want a mix of pre tax, post tax, and taxable accounts.

Because what you do is puzzle piece (or maybe Tetris is a better metaphor) your income sources together every year to keep your income within parameters you have set. So you might take some pre tax (and pay income taxes), some Roth or some from a savings account (no taxes) to meet your yearly expenses while still having the required taxable income levels you need.


FWIW: I will have an employer Pension, SS, a very BIG pretax 401K, a not so big Roth (post tax), a not so big HSA, and then a bigger than my Roth in taxable accounts when I retire. I am assuming I will need to plan some years of Roth conversions - otherwise by the time I am 67 or 70 when I have to or will have to take SS I will have way more income than I currently have from my MegaCorp job salary.... and I'm single (income taxes do not favor single people). I will be doing the "Tetris" thing for many years of my retirement.  I have some pretty big tax bills in my future if I do nothing.  If I pay some attention and plan a bit - I can make better choices on how to take my retirement income that will be a little more tax friendly.  I'm OK with paying taxes.   I just don't want to be the Bug (and not the Windshield) every year of my retirement.  

I'm still maxing out my pre tax accounts (401K, HSA) even though I'm coming down to the wire. Pre tax is still the biggest bang for my bucks. I'm expecting I will be using this money when I "retire" early - and will have some years between 59.5 and 65 (when my pension kicks in) to convert or get money into post tax accounts (roll over). I'm hoping to have a plan in place and be ready to go when I reach SS and RMD age to manage my income from all the sources I will have.