Quote:
Originally Posted by !LittleDragon
Here's my quick tip... top off your TFSA before your RRSP.
Inside your TFSA, invest in things that pay you monthly or sell call options on the things you already have in there.
Every month, withdraw the profits (dividends, options premiums, etc)
Put the profits into your RRSP. You're now essentially funding your RRSP with money you made tax free.
Your RRSP contributions should now trigger a tax refund. Take the tax refund and put it back into your TFSA and repeat.
Since you withdrew money from your TFSA, your contribution room for the next year is actually Previous Available Contribution Room + New Contribution Room For Current Year + Whatever You Withdrew the Previous Year.
That's the best tax cheat code I can give you without getting into incorporating.
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While I am not saying that your system doesn't have merit, I think for a lot of people, the refund provided by an RRSP contribution is more attractive as well as being simpler/having less ongoing maintenance needed in their busy life.
To illustrate this, let's assume a hypothetical person has $50k in cash and is choosing between a TFSA contribution and an RRSP strategy. Let's assume they can make RRSP contributions and get 35% refund on their contributions.
In your example above, they put $50,000 into their TFSA, and then let's generously say they earn 10% in a year ($5,000), which you suggest withdrawing and contributing to the RRSP. Then they get a refund of $1,750 (35% of $5,000) which they contribute back to their TFSA and repeat.
Therefore, after the dust settles and they get their refund, they'd have:
TFSA: $51,750
RRSP: $5,000
Total to start the next cycle with is $56,750.
In an alternative idea, they put the entire $50,000 into their RRSP first and then only fund their TFSA with the refund. They receive a tax refund of $17,500 (35%) and put this into their TFSA. The total to start the next cycle is now $67,500.
At the end of the day, there are pros and cons between both RRSP and TFSA, and the goal is to maximize both. There is enough personalization to these strategies that I recommend people try to not just watch generalize videos and what not about which is "better" as the answer truly is "it depends on what you need the money for." But for people who don't plan to touch either until later in life, generally the math favours simply having more money in the combined total.
-Mark