Canadians can take advantage of tax planning strategies to optimize outcomes before the end of the year, an advisor says.
Jamie Golombek, a tax and estate planning managing director at CIBC Private Wealth said people should take out money from their Tax-Free Savings Accounts (TFSA) before 2025 closes if they know they have to make a big purchase next year.
“Let’s say you need to take $10,000 in February for some reason,” said Golombek. “Take it out in December, because if you take it out in December, you’ll have it for February. But then, should you have some extra cash anytime in 2026 you’ll be able to re-contribute it immediately back to the TFSA.”
TD Economics states the maximum TFSA contribution limit for 2025 is $7,000. Any unused funds roll over while TFSA withdrawal limits count towards next year’s limit. If you withdraw from your TFSA, you do not permanently lose your contribution room.
You can recontribute amounts you have withdrawn in 2026, 2027 of 2028 and your contribution room carries forward indefinitely.
“If, on the other hand, you wait till February, when you actually need the money, and you take the $10,000 out, you’re not allowed to re-contribute that until the following calendar year of 2027,” said Golombek.
Minimum taxes on Registered Retirement Income Fund (RIFF)
Canadians with a Registered Retirement Savings Plan (RRSP) must convert it to a form of a retirement income and close out the RRSP no later than Dec. 31 of the year they turn 71.
Canadians have three options to convert the account. One option is a Registered Retirement Income Fund (RRIF), a second option is an annuity and the third option is to withdraw all their funds from an RRSP as a lump sum. Withdrawing however will be subject to withholding taxes immediately after taking it out.
Golombek said most of his clients want the flexibility that comes with the RIFF that allows them to choose the investments inside that account and then take out the minimum.
“Of course, you could take out more of the minimum, but (at least) the minimum amounts every single year,” said Golombek. “Of course, you pay tax on that on an annual basis, starting after age 71.”
“Investments within a RRIF can grow on a tax-deferred basis with the option to select an account that protects principal amounts, allows access to mutual funds or take advantage of market opportunities in Canada and the U.S dependent on risk tolerance.
Strategy to maximize Registered Education Savings Plans tax free
Students with a Registered Education Savings Plans can see their savings grow tax free. Families can take further advantage of it with a matched education assistance payment (EAPs), such as the Canada Education Savings Grant (CESG).
Golombek recommends students, who don’t work, take out the taxable portion of a RESP up to their basic personal amount (over $16,000) each year to effectively make withdrawals tax-free. The strategy ensures government grants are maximized by falling within the student’s basic personal amount.
“The next couple of weeks of the year, take a look at the student’s projected 2025 income,” said Golombek. “See if there’s an opportunity to take out extra money from the RESP that will help pay for some of their post secondary education expenses.”
