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Transferring TSFA to RRSP?

2K views 6 replies 7 participants last post by  CPA Candidate 
#1 ·
My income last year was at 43% marginal tax rate. I have a TSFA of about 20K that I want to use it against my principal at the time of refinancing my mortgage in 2.5 years. When I opened the TSFA last year I was hoping I could get better than my current 2.54% mortgage rate but with the drop of market I couldn't and I'm not sure I will get a better return in the remaining 2.5 years.

Is it a good idea I transfer the money to my RRSP considering my high marginal tax rate and use the 8-9 K refund against the mortgage? (I have 15 years to retire)

Or should I keep it inside my TSFA hoping to get a better return this time and in 2.5 years put it against the mortgage?

Or should I use it as a lump sum payment against my mortgage today?

Thank you!
 
#2 ·
Putting your money into the mortgage will guarantee you a 2.54% after-tax return. Given your tax bracket, that's like a 4.5% pretax return. Not incredible, but guaranteed. IOW, a conservative choice.
Putting it into your RRSP and applying the refund to the mortgage is also conservative.
The major caveat is whether that $20K serves as an emergency fund. If your roof suddenly needed repairing, or your car needed replacing, do you have other accessible funds?
 
#5 ·
I wouldn't put the TFSA into mortgage or RRSP. Keep the TFSA intact and invest in Canadian Banks with growing dividends which should give you at least 3.5% and grows almost every year. Max the TFSA. If you put into RRSP you'll get that wonderful refund but you'll only be a few grand ahead once you pay tax on the RRSP/RRIF withdrawls. Your money is then tied up. Mortgage rates will grow slowly but not by much. Putting 20 K into mortgage now only saves you $500 per year. When mortgage interest rates are low grow your savings. When they are high (7%+) pay down your debt. We are a long way from 7%. Of course this depends on lots of other factors such as how long left on ammoritization, job security, other savings, how tight is the budget etc... If you are in a 45% tax bracket you are making good money so perhaps find the mortgage money somewhere else. Growing the TFSA gives you more options down the road.
Best wishes.
 
#6 ·
If he puts 20k down on house now,and mortgage rates rise to 7 percent down the road,isnt that 20k now saving interest at a 7 percent return?The value of paying down your mortgage can only be given a definite number once the load is completely paid off and the interest savings can be fully calculated to give hindsight unless I am missing something?
 
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