I’ve spent a lot of time trying to educate myself since starting my investing journey at 50, and lately I’ve been hearing about a withdrawal strategy on podcasts, YouTube and from other investors. The idea is to withdraw money from your TFSA, wait until the following year and then sell investments in your non-registered account to fill that TFSA room back up. I’hear this frequently from investors using covered call ETFs as part of their retirement income strategy. I’m wondering. Is this actually the most tax efficient way to withdraw your money? Depending on your income and the capital gains in your non-registered account, couldn’t you end up paying more tax by doing this? And what about the tax-free growth you’re potentially missing while that money is out of your TFSA? I’m not saying the strategy is wrong. It might make perfect sense depending on your situation. I just wonder if people are actually running the numbers or simply assuming it’s more tax efficient because the initial TFSA withdrawal is tax-free. So for those using or planning to use this strategy, have you actually calculated the tax savings compared to withdrawing from your non-registered account first? Curious to hear what others think.
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17 Comments
Catherine
@ffcatherine · 6d
Personally it doesn’t make sense to me. I believe it’s best to leave TFSA funds as long as possible to keep it growing tax free then also it can serve as your pile to buy a new car etc when you’re retired & cannot qualify for a car loan etc I’d rather first convert RRSP to RIFF & pay taxes on that withdrawal first since it’s your most expensive $ in retirement.. But whatever works for you
Clantosa
@clantosa · 6d
This makes little sense. You're interrupting compounding in your TFSA to withdraw money from your non registered just to interrupt compounding there too and to pay taxes to then just add the money back into your TFSA while paying spread multiple times over each transaction? I'm going to say no to this
Matt Gray
@matt.41 · 6d
When it’s CC’s your income is the distributions not the growth factor. This strategy implies you’ve maxed out your TFSA/RRSP (or as Kyle said a way to maximize the funds in your retirement accounts). Tax efficiency is managing your income and working with the tax brackets. By selling your non-registered funds and moving the capital into your TFSA you buy a similar fund and continue to earn the same distribution but now it becomes tax free.
EVID Wealth@evidwealth · 5d
This seems like a misunderstanding of a niche financial planning component that people have mistakenly expanded into a universal truth. 🤷♂️ The math generally doesn't back it up. If you pull from your TFSA, you kill your tax-free compounding. ☠️ Meanwhile, the money sitting in your non-registered account keeps getting taxed. When you finally sell those non-reg investments next year to refill the TFSA, you trigger a capital gain anyway. You aren't 'creating' room… you're just forcing a taxable event to reclaim room you gave up, while losing a year (or partial year) of that tax-free growth. The only time this maybe works is for a retiree riding the OAS clawback line who gets hit with an unexpected expense. They pull from the TFSA so the withdrawal doesn't spike their taxable income and claw back their OAS. But even then, there's a trap. If they just sell a chunk of non-reg assets the very next year to refill the TFSA, that sale triggers the exact OAS clawback they were trying to avoid in the first place. 🤦♂️ Unless it's carefully managed across several tax years, pulling funds just to 'cycle' room is usually a tax inefficient strategy.
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