Whatever is in your RRSP at death gets added to your final tax return. This could leave you paying tax at a rate of around 50%. If you are married or have a common law partner, your RRSP can roll over to theirs without any tax, but they’ll face the same issue when they die. So, if half your RRSP goes to tax when you die…was it really yours?
That perspective should influence how you think about withdrawals, taxes, and how your retirement accounts are invested.
Prefer to watch the video?
The Problem with Portfolio Allocation
One issue we see often is how retirees allocate their investments across different accounts.
Let’s say you plan to draw from your RRSP first, then move on to your TFSA. That can be a reasonable plan. But a common mistake is leaving the TFSA in cash while the RRSP is fully invested.
In that setup, you are taking all the investment risk inside your RRSP, where a significant portion of the growth may one day be taxed. Meanwhile, your TFSA, which offers tax-free growth and withdrawals, is not being used to its full advantage.
Who Is Benefiting from the Growth?
Think of the taxman as your silent partner in the RRSP. When your investments go up, they benefit too, since a portion of that growth will eventually be taxed.
Compare that to your TFSA. Any growth there is yours to keep. When you withdraw from a TFSA, you do not pay tax, and the growth stays in your pocket.
This does not mean you should avoid investing in your RRSP. But it does mean you should regularly review how your portfolio is allocated across your different accounts. RRSP tax planning in retirement is about more than just choosing the right investments, it is about placing them in the right accounts.
Final Thoughts
A well-built retirement plan looks beyond just the rate of return. It considers how much of that return you actually get to keep.
If you want help reviewing your portfolio and building a smarter approach to RRSP tax planning in retirement, visit our website and book and appointment with us.
