Tax-efficient retirement strategy options for Canadians – MoneySense

However, the problems with this (extreme) strategy are that you’re in danger of dying with too much money and you risk letting tax dictate your lifestyle. So, you’re not doing the things you want to do. Plus, when you die, your estate pays the largest tax bill of your lifetime.

Gifting children an estate when you’re alive

Maximizing the wealth transfer to your children before you die sometimes means paying more taxes personally as you’re drawing from taxable accounts and gifting to children. There’s a risk of gifting too much, running out of money and reducing your lifestyle to quell those fears.

Registered investment taxes in retirement

Those were three extreme, broad examples of how to wind down taxable investments, but there’s a missing piece.

Carol, you have to start by identifying the lifestyle you want, the income required to live that lifestyle and how much money is enough. With that you can construct a tax-efficient income and, doing as you suggest, make extra RRIF withdrawals to contribute to TFSAs.

Once your TFSAs are topped up, the question is what to do next, if you continue to draw extra from your RRIF. Gifting to children or investing in non-registered accounts? If you have more than enough money, then gifting to children or charities may be the best option, but does making extra RRIF withdrawals to contribute to non-registered investments make sense? 

Think about the full investment life cycle when you draw money from a RRIF to make a non-registered investment. 

The money comes out of the RRIF and is taxed, leaving less money to be reinvested in a non-registered account. Every year, you earn interest and/or dividends and pay capital gains tax, reducing your investment growth. Your taxable income may be higher, thereby reducing access to tax credits and benefits. And, upon your death, there are likely capital gains tax and probate fees to be paid. 

Leaving money in your RRIF means a larger amount to grow and compound, the distributions aren’t taxed, and with a named beneficiary there is no probate.