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How to get TM to withdraw TFSA Distributions and recontribute to TFSA from RRIF and NR accounts in new year

SheltieLover

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(Last modified: by SheltieLover)
#1

Hi Elisabeth, 

I want to be able to run a scenario to do the following:

1. Withdraw monthly earned distributions from our TFSA accounts to cover expenses,

2. In January the following year, fully recontribute to our TFSA's from our RRIF's, then from our Non-Reg accounts using all available room.

3. Repeat each year until RRIF and NR accounts are depleted.

4. Continue to withdraw TFSA distributions to cover expenses. 

Could you advise how to set up this scenario in MR?

admin

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#2

Hi,

You can set up to withdraw all distributions from the TFSA accounts in AUTOMATIC WITHDRAWALS. Once started these withdrawals will never end, and will add to your contribution room for the following year.

You can then set up AUTOMATIC DEPOSITS to the TFSAs. To cover the fact that you have that extra contribution room due the previous distribution withdrawals, enter a larger amount than the yearly allowed increase in TFSA room (currently, $6,500). For example enter $10,000, indexed. The TIME MACHINE will only make contributions up to the contribution limit it calculates in every future year.

Set up your WITHDRAWAL PRIORITIES to your RRIFS as the top priority, then the Non-reg accounts, then the TFSAs.

That should achieve the scenario that you want. Once you run it, can also try running the WITHDRAWAL OPTIMIZER to see if it can beat it.

 

 

 

SheltieLover

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#3

Thank you for your help with the scenario I asked for your help with.  It is working quite well and, so far as you might have expected, the optimizer results are better.  I have managed to narrow the gap somewhat, but not fully as yet.

One of the things I have noticed when comparing the normal run with the optimized run is that not all of the TFSA room is being utilized in the normal run.  There are funds that could be taken from the non-reg accounts, but the TM isn’t using the available contribution room in several, if not all years.

(I have attempted to include a screenshot comparing both TM runs, however, have been unable to add it)

Would you please advise why this might be happening?  If you need access to my data, please go ahead as necessary. Thanks in advance for your assistance with this.  

 

admin

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#4

Try increasing your TFSA contributions amount in AUTOMATIC deposits, if there’s room and other sources of cash it will make the contribution, but won’t go over the limit. Also check there is money to cover it in the accounts of the same spouse that has room.

SheltieLover

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#5

Okay I have doubled the contribution amounts for both partners and beleive there is enough money available to make the contributions (I'm assuming by money you mean available funds from NR and/or RRIF accounts? TM will sell securities when there isn't cash, correct?). 

When I look at the Cash In and Account Deposits details for specific years the TFSA accounts are not showing any withdrawals (cash in) and often the deposits to the TFSA's aren't utilizing the new contribution room, let alone the available room. 

 

admin

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#6
I finally got a chance to look at your scenario in detail and everything checks out. Both spouse have indeed enough money in the other accounts to make the TFSA contributions. The points of confusion are:
1. The TFSA room graph shows the room at the beginning of the year, so will include your previous year’s withdrawals plus the additional room added every year. 
2. The reports shows net deposits to the accounts (deposits minus withdrawals). For your regular TIME MACHINE run, I have checked that you do indeed make the maximum deposit of all your TFSA room in every year as instructed. However you also then withdraw the distributions, also as instructed, which increase you room for the following year. The net deposit amount in the year varies due to the yielded distributions that change with the account balance, and the yearly added TFSA room, which due legislation is indexed and rounded to the nearest $500, it does not increase evenly. Sometimes the room deposited is higher and sometimes lower than the distributions withdrawn in a year, so you may end up with either a deposit or a withdrawal from the account in any year.
 
The Optimized run in your case makes very few withdrawals from the TFSAs, on the contrary it deposits the max room to it mostly every year, so the deposits and the room at the beginning of each year stays about even.