Year End Financial Cleaning

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?

8 thoughts on “Year End Financial Cleaning”

  1. Good advice! I used this low stock market period to rid myself of some dead end stocks and sell some other positions so that I could trigger a break even capital gain/loss and then bought back a bunch of other stocks I have been wanting to buy that were at historical lows to rebuild my portfolio to generate around 5% in dividends. Some Canadian bank stocks were at really good dividend payout ratios so I had to jump on them. I also wanted to get a more concentrated portfolio and now have that.

  2. Part of my year-end financial clean-up includes figuring out how much in estimated tax payments I have to make in order to avoid any penalties. I have no taxes withheld throughout the year, and I usually am on track to owe little for the year. So, if things happen, especially near the end of the year, I have to react and straighten thigs out by mid-January when the 4th quarter estimated tax payments are due.

  3. In the new year I want to try writing covered calls on my current long term hold dividend stocks. I sold some of my ETFs and preferred shares that were not eligible for options. Bought back 500 shares of AQN and added to my positions on LB and GWO

  4. I have a couple of questions (I’m just learning and reading up on FIRE):

    1) I thought once you maximized out your TFSA and withdrew money, you couldn’t replace it again or you would be penalized? Did that change or was I mistaken? I’m working on maxing out my TFSA now.
    2) In regards to withholding taxes, do you only buy US based stock / ETFs in your RRSPs to reduce these taxes? Do you ever have them in your TFSA or do you save the TFSA for only Canadian stock / ETFs?

    Thank you!!

  5. For year-end selling of equities or other investments, one must consider the business days required for the settlement.

    “With tax loss selling, the selling transaction must settle before the last business day of the year.”
    (CIBC Wood Gundy)

    “The last trading date for 2018 for Canadian and US publicly traded stocks will be Thursday December 27th in order to record the gain or loss in the 2018 taxation year. Canadian stocks purchased or sold after December 27th are settled in 2019, so any capital gains or losses on sale apply to the 2019 tax year instead of to the 2018 tax year.”

  6. Hi Connie,

    I believe the rule with TFSA is that you gain the room back for any withdrawals in the next calendar year. For example, if I had a maxed out TFSA on January 6 of this year, and then pulled out $2000 several months later, I would not be able to put it back in my TFSA in 2019 without penalty. However, I would have $8000 of TFSA room come January 2020 ($6000 annual limit + $2000). You may want to confirm this with others to be safe though. RRSP’s on the other hand don’t give back contribution room once withdrawn.

  7. Sorry on the delay on getting back to these comments. I took some time off during the holidays and I’m just getting back to the blog writing (I’ve been focusing on the next book).

    @Connie – Rich H is correct. You get your withdrawals back as contribution room the following calendar year. As to withholding tax – keep in mind it really isn’t a tax but rather a rough estimate of income tax owing on the amount you take out of the RSP and it applies to any withdrawal from an RSP. The TFSA really is tax free…ie: no withholding tax on those withdrawals.

    @Pipo – You really don’t cease to be FI during a market dip. It just means you might have to use a backup plan if the market stays down for an extended period of time.


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