I often get asked by readers whether they can transfer their RRSP to a TFSA without incurring penalties.
While the funds in your RRSP and TFSA can be withdrawn at any time (except for locked-in RSPs), there are significant differences in how these withdrawals are treated by the Canada Revenue Agency (CRA).
RRSP withdrawals are generally taxed at source, while TFSAs are not.
Read on to learn about the RRSP transfers you can do without paying taxes immediately.
RRSP to TFSA Transfer
Registered Retirement Savings Plans (RRSPs) are designed to hold assets that fund your retirement.
To discourage you from using your RRSP as a piggy bank you can dip into at any time before your retirement years, the government levies a withholding tax each time you withdraw.
Thus, there is a penalty or withholding tax when you transfer money from your RRSP to your TFSA.
Your financial institution withholds tax on behalf of the CRA as follows:
| RRSP Withdrawal Amount | Tax Rate | Tax Rate in Quebec |
| Up to $5,000 | 10% | 5% |
| $5,001 – $15,000 | 20% | 10% |
| $15,000+ | 30% | 15% |
The withdrawing tax is 25% if you are considered a non-resident of Canada for tax purposes.
In Quebec, provincial withholding tax rates also apply to the amount withdrawn.
In addition to taxes withheld, you must declare the RRPS funds as part of your taxable income for the total income for the year.
Depending on your total income and marginal tax rate, extra taxes may be due at the end of the year.
RRSP to TFSA Transfer Strategies
As already noted, you will normally pay taxes when you transfer money from an RRSP to a TFSA.
For example, if you withdraw $5,000 from your RRSP, you will have $4,500 left to contribute to your TFSA after paying a 10% tax (excluding Quebec).
When do RRSP to TFSA transfers make sense?
If you are in a lower tax bracket or have no other taxable income, you could potentially withdraw RRSP funds tax-free.
For example, the federal basic personal amount for 2023 is $15,000 if your net income is below $165,430. You could withdraw up to $15,000 from your RRSP and not pay federal taxes.
Note that provincial basic personal amounts vary and are generally lower than the federal amount, so some provincial taxes may apply.
Although, after deducting the various tax credits, any tax due will be minimal.
It is important to remember that your bank will withhold taxes on your RRSP withdrawal regardless of your personal tax rate.
When you file your taxes, you can claim the tax deducted from box 30 of your T4RSP slip on your income tax return.
Penalty-free (tax-free) RRSP withdrawals are allowed when you take money out of your RRSP for a home purchase (Home Buyer’s Plan) or to pay for school (Lifelong Learning Plan).
These two programs are not meant for you to move RRSP funds into your TFSA.
RRSP Transfers To Other Registered Accounts.
While RRSP to TFSA transfers are not possible without penalty, there are several other RRSP transfer scenarios that do not incur taxes.
RRSP Transfer To Another Bank
You can transfer your RRSP account from one financial institution to another without tax implications.
You will need to complete Form T2033 (or a form supplied by your bank) and decide whether you want to move the assets “in kind” or “in cash”.
Transfer fees often apply; however, you can ask the receiving financial institution whether they will cover the transfer costs.
RRSP Transfer To RRIF
You must collapse your RRSP account and convert it into an RRIF, an annuity, or withdraw the cash (or some combination of these options) at age 71.
Your assets continue to grow tax-free within an RRIF until you make a withdrawal.
RRSP Transfer to RDSP
You can rollover RRSP funds into a Registered Disability Savings Plan (RDSP) without tax consequences.
The maximum lifetime contribution or rollover to an RDSP is $200,000, so ensure this limit is not exceeded.
Government grants are not paid on amounts rolled over from an RRSP.
RRSP To TFSA Transfer FAQs
You can withdraw money from an RRSP and re-contribute it to a TFSA without paying taxes if you have a low taxable income. Taxes withheld will be refunded when you file your tax return if no tax is owed.
It depends on several factors, including your tax rate now and in retirement. Here is a TFSA vs RRSP guide.
Yes, RRSP to TFSA transfers are possible. You must first withdraw the funds from your RRSP and then contribute what’s left after taxes to your TFSA.
Related:
I only have 2 funds. Mutual TFSA and a Mutual RRIF. As a senior I pay myself monthly from my TFSA. However, the TFSA will be depleted within 12 months. I am entitled to transfer in-kind the max $6,500 into my TFSA, but I will have to pay 25% Is there a better way for me to do this?
@Penelope: Unfortunately, I am msssing context here. It would be best to discuss this with a financial advisor.