Well with the Christmas over you might be focused on cleaning up the cardboard and packing up the tree before getting ready for the New Year’s fireworks. Yet this is also a good time of year to get some financial items in order before the New Year hits. The good news is many of these items only take a few minutes to take care of.
For retirees like myself you should consider pulling money from your RRSP and/or your TFSA for living expenses for next year. Why now? Well with the TFSA if you pull the money out now you regenerate the contribution room on January 1. Which may come in handy if you want to shift money around and maximize your TFSA to reduce your long term tax burden. After all, why keep money in a taxable account when you have contribution room in an TFSA? I would rather pay a small capital gain now and reduce the long term tax liability.
As to the RRSP, the fun part of those funds is if you have no other income for the year you can pull money out of it up to your basic income tax deduction and pay zero tax (the exact number can vary by province but generally you are safe around the federal deduction limit of $11,809 for 2018). The key point here is you eventually get your money back. You still have to pay the withholding “tax” when the money comes out but you get it back when you file your taxes next spring (it really isn’t a tax but rather an bulk estimate of income tax that is automatically deducted when you take the money out).
I already did both of those items. I pulled the cash sitting in our TFSA accounts out last month and then this month I pulled just under $7000 out of my RRSP. Which honestly felt more scary than it was…why? Because I pulled the money from the bond portion of my RRSP. That way I can ignore the noise of the stock markets which seem to acting closer to a yo-yo than anything else lately.
Finally, you might also plan to sell some of your investments, which I know sounds nuts given my last statement but there are situations where that is a good idea. For example, you might purposely sell off that dead end individual stock you own and that is worth a faction of its worth to create a tax loss which can be used to offset some capital gains from those investments that did turn out and you are getting out of. I’m personally not in this situation but it can be useful at times.
Finally, you likely want to gather any copies of tax documents you might need to get a jump on your taxes. So that might mean updating your accounting records for your small business or/and downloading digital copies of bills if you use your home for your business. Often this can be done fairly quickly and make the tax season a bit easier.
So what do you for a year end financial clean up?