Try This 1 RRSP to TFSA Trick to Keep More Money in Retirement

I’ve helped countless retirees cut their tax bill just by using this one simple RRSP strategy. 

It’s a common mistake—retirees leave money on the table by not properly managing their RRSP withdrawals. But with this smart RRSP-to-TFSA tactic, you can reduce taxes, boost tax-free growth, and enjoy a more comfortable retirement.

The Problem: Wasted TFSA Room in Retirement

Let’s start with some eye-opening numbers. Out of the 17.77 million Canadians who hold a TFSA, only 1.54 million manage to max out their contributions—that’s just 8.66%. This means the vast majority are leaving money on the table and missing out on the incredible tax-free growth potential that the TFSA offers.

What about retirees? Many enter their golden years with unused TFSA contribution room—often tens of thousands of dollars. Check out this table here: 

Breakdown of Senior TFSA Holders and Maximizers:

Among Canadians aged 60 and older, only a small percentage fully maximize their TFSA contributions. For example, while 1.56 million TFSA holders are aged 60–64, only 9.48% of them maximize their contributions. However, the percentage of maximizers increases as retirees age, with 18.71% of those aged 75–79 then drops slightly to 14.39% of those aged 80+ maximizing their TFSAs.

If you’re one of the vast majority of Canadian retirees who don’t max out their TFSA, you must try this strategy if it applies to you, so let’s go over it now.

The Challenge: Excess RRSP Balances

RRSPs are fantastic for saving during your working years, but they come with strings attached. Every dollar you withdraw is taxed as income, which can push you into a higher tax bracket. And when you hit 72, the CRA steps in and requires you to convert your RRSP into an RRIF and start mandatory withdrawals—whether you need the money or not.

The strategy: If you don’t need the money, put any excess funds that you withdraw into your TFSA and invest it, it could save you thousands in the long run. 

Let’s see how this plays out with an example.

Meet Eddie and His RRSP to TFSA Retirement Plan

Eddie is 71 and has just converted his RRSP into a RRIF. The CRAthen  says, “Eddie, you must withdraw $30,000 per year.” (Note: This will be taxable!) Since Eddie is in a 30% tax bracket, he’ll owe $9,000 in taxes on that withdrawal, leaving him with $21,000 after tax.

Here’s the situation: Eddie only needs $11,000 for his living expenses because his CPP and OAS benefits cover most of his costs. That leaves him with $10,000 of excess income.

Instead of letting that extra income sit idle in a savings account or investing it in a taxable non-registered account, Eddie contributes the entire $10,000 annually into his TFSA and invests it into a portfolio of stocks and ETFs.

Eddie’s Tax-Free Growth Plan

Eddie consistently puts $10,000 annually of his excess RRIF withdrawal into his TFSA, where it grows tax-free. Assuming Eddie earns an average of 6% annually, here’s how his TFSA grows over 10 years:

1. In the first year, Eddie contributes $10,000, and it grows to approximately $10,600 by the end of the year.
2. Each subsequent year, Eddie adds another $10,000, and compounding accelerates the growth.
3. After 10 years, Eddie has contributed $100,000 to his TFSA, and it has grown to approximately $132,000—all tax-free.

What If Eddie Didn’t Use His TFSA?

If Eddie didn’t use his TFSA and instead invested the same $10,000 annually in a non-registered account, his investments would still grow at a 6% annual return. However, since 30% of the gains would be lost to taxes each year, his effective growth rate would drop to around 4%.

Let’s break it down:

1. Each year, Eddie’s $10,000 grows, but 30% of his annual gains are taxed.
2. Over 10 years, Eddie’s non-registered account grows to approximately $120,000 after accounting for taxes—significantly less than the $132,000 in his TFSA.

Eddie’s Savings Comparison

Key Takeaways

By contributing all of his excess income into his TFSA:

• Eddie saves approximately $12,000 in taxes over 10 years by avoiding annual tax drag.
• His TFSA balance grows to $132,000, compared to $120,000 in a non-registered account.

This approach not only maximizes Eddie’s retirement savings but also gives him the flexibility to use his TFSA funds for future needs or leave them untouched to continue compounding tax-free.

Note that I used $10,000 to keep the example simple, you might be able to contribute more or less depending on your room and situation!

Pro Tip: Always prioritize your TFSA over a taxable non-registered account. If you have TFSA room, let your money grow tax-free instead of losing a chunk of your gains to taxes! 

Also, avoid withdrawing large RRSP amounts in years when you already have high income, like if you make a sale of a property or other asset. 

Want to save more on taxes in retirement? Download our retirement tax saving guide on our website, link is in the description : https://blueprintfinancial.ca/retirement-tax-saving-guide

Will this eliminate RRSP Taxes on withdrawal?

I had a few comments about this in some previous videos, so thought I’d address it here. No, this strategy does not eliminate the taxes owed on RRSP withdrawals. RRSP withdrawals are always considered taxable income and are subject to your marginal tax rate. 

However, by strategically combining RRSP withdrawals with TFSA withdrawals, you can reduce your taxable income and potentially avoid additional penalties, such as OAS clawbacks. The key is to minimize the tax impact while maximizing your overall retirement income.

Your retirement savings should be working for you, and not the CRA. At Blueprint Financial, we specialize in creating tailored strategies to maximize your income and minimize taxes. Visit our services to learn more about how we can help you secure your financial future.