Can you transfer a RRIF to a TFSA?
A RRIF is a tax-advantaged account. A TFSA is a tax-free account, so you may’t make a direct transfer between the 2.
You could make a RRIF withdrawal and deposit the taxed proceeds into your TFSA, Soheir. If your withdrawal represents your minimum withdrawal for the 12 months, no withholding tax is mandatory, but you may request a voluntary withholding tax withdrawal.
If your withdrawal exceeds the minimum amount, withholding tax might be withheld. The tax rate relies on the quantity of the withdrawal: over-withdrawals as much as $5,000 are subject to a ten% rate, over-withdrawals between $5,000 and $15,000 are subject to a 20% rate, and over-withdrawals over $15,000 are subject to a 30% rate. (In Quebec, the rates are 5%, 10%, and 15%, respectively.)
Impact of transferring your RRIF in your tax return
But withholding is only the start, Soheir. When you file your tax return, you will report your income from all sources, including RRIF withdrawals, whether or not the withdrawals were transferred to a TFSA. TFSAs are tax-free once your deposit is made, however the deposits themselves don’t affect your tax return.
If your withholding rate was too high or too low if you made your RRIF withdrawal, it’s possible you’ll receive a refund or have an excellent balance. So withholding is simply a short-term tax impact; the actual tax might be calculated in your tax return for the 12 months.
It can generally be useful to make greater than the minimum withdrawals from the RRIF, whether or not you contribute the surplus to your TFSA, Soheir.
For example, to illustrate you are in a low tax bracket if you start your retirement and also you’re deferring retirement income corresponding to the Canada Pension Plan (CPP), Old Age Security (OAS), or company pension plans. Taking additional withdrawals can benefit from your low tax brackets, smooth your income in retirement, and mean you can contribute to or maintain your TFSA.
Another example is likely to be for those who are married or cohabiting and your partner’s health just isn’t good. RRIF withdrawals may be split together with your spouse and reported on two tax returns, often at a lower rate. This option isn’t any longer available after the primary death within the partnership. All future income is taxed on only one tax return.
