Year-end planning for your RRSP and TFSA

October 10, 2020by AB

Most Canadians know that the deadline for making contributions to one’s registered retirement savings plan (RRSP) comes 60 days after the end of the calendar year, around the end of February. There are, however, some circumstances in which an RRSP contribution must be (or should be) made by December 31, in order to achieve the desired tax result.

The rules around TFSAs are more flexible, in that a contribution to a TFSA can be made at any time during the calendar year. Nonetheless, there are advantages which can be obtained by careful timing of TFSA withdrawals and recontributions based on the calendar year end.

What follows is an outline of steps which should be considered, before the end of the 2020 calendar year, by Canadians who have an RRSP and/or a TFSA.

Timing of RRSP contributions

Making a spousal RRSP contribution

Under Canadian tax rules, a taxpayer can make a contribution to a registered retirement savings plan (RRSP) in his or her spouse’s name and claim the deduction for the contribution on his or her own return. When the funds are withdrawn by the spouse, the amounts are taxed as the spouse’s income, at a (presumably) lower tax rate. However, the benefit of having withdrawals taxed in the hands of the spouse is available only where the withdrawal takes place no sooner than the end of the second calendar year following the year in which the contribution is made. Therefore, where a contribution to a spousal RRSP is made in December of 2020, the contributor can claim a deduction for that contribution on his or her return for 2020. The spouse can then withdraw that amount as early as January 1, 2023 and have it taxed in his or her own hands. If the contribution isn’t made until January or February of 2021, the contributor can still claim a deduction for it on the 2020 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2024. It’s an especially important consideration for couples who are approaching retirement who may plan on withdrawing funds in the relatively near future. Even where that’s not the situation, making the contribution before the end of the calendar year will ensure maximum flexibility should there be an unforeseen need to withdraw funds.

Turning 71 during 2020

Every Canadian who has an RRSP must collapse that plan by the end of the year in which he or she turns 71 years of age — usually by converting the RRSP into a registered retirement income fund (RRIF) or by purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that he or she has sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31st is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31st of that year. Once that deadline has passed, no further RRSP contributions are possible.

Planning for TFSA withdrawals and contributions

Each Canadian aged 18 and over can make an annual contribution to a Tax-Free Savings Account (TFSA) — the maximum contribution for 2020 is $6,000. As well, where an amount previously contributed to a TFSA is withdrawn from the plan, that withdrawn amount can be re-contributed, but not until the year following the year of withdrawal.

Consequently, it makes sense, where a TFSA withdrawal is planned (or the need to make such a withdrawal might arise) within the next few months to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from his or her TFSA before December 31st, 2020 will have the amount which is withdrawn added to his or her TFSA contribution limit for 2021, which means it can be re-contributed, where finances allow, as early as January 1, 2021. If the same taxpayer waits until January 2021 to make the withdrawal, he or she won’t be eligible to replace the funds withdrawn until 2022.

The month of December is a busy time for most Canadians, and usually not a time when the details of making contributions to an RRSP or withdrawals from a TFSA are top of mind. The deadlines for taking such actions are inflexible, however, and taking the time to take necessary steps now means one less thing to remember as the December 31 deadline looms.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.