How to Maximize RRSP and TFSA on $0 Income

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I have $119,000 room allowed in my RRSP and $81,000 room in my TFSA.

I am 47, live in B.C., currently not earning income as a caregiver for a parent. I have a business with a registered GST number to claim income now or in the future. But for my question, let’s assume I will be claiming $0 for the next three years.

I have a sum of $250,000 coming to me as a gift, and I am looking to invest/save it.

I plan to use the portions not contributed into my TFSA and RRSP in investments that will be earning interest as income—likely mortgage investments.

Based on my income projections, what amount makes the most sense to invest into RRSPs at this time?

Should I spread the amount out over a period of time? Same question for TFSA.

—Jennifer

Maxing out registered accounts: TFSAs and RRSPs

Jennifer, given your situation the straightforward move is to maximize your TFSA first, then consider an RRSP depending on your future income expectations. With no current taxable income, you’re in a tax-free position today: interest, dividends and capital gains earned outside registered plans would not push you into tax. That makes the TFSA particularly attractive because all growth and withdrawals are permanently tax-free.

However, RRSPs remain an important tool. The choice between TFSA and RRSP depends on what your taxable income will look like when you begin earning again, and how you expect to draw retirement income. Below I’ll outline the trade-offs and a few practical strategies to consider.

Should you contribute to an RRSP or a TFSA?

Remember the core differences: TFSA contributions are made with after-tax dollars, and withdrawals are tax-free. RRSP contributions are pre-tax and reduce your taxable income when claimed, but withdrawals are taxable when taken out.

If you contribute to an RRSP while you have little or no taxable income and claim the deduction that year, you won’t get much benefit because there is little tax to refund. Conversely, you might prefer to make the contribution now and defer claiming the deduction until a future year when you have a middle-class taxable income — that way you’ll receive a larger tax refund when rates are higher.

Your TFSA room of about $81,000 is effectively a permanent tax shelter for growth and withdrawals and is a logical first priority. You will also accumulate new TFSA contribution room each year (currently $6,500), so topping up the TFSA first generally makes sense, especially since TFSA withdrawals do not affect eligibility for government benefits and can offer creditor protection depending on beneficiary designation.

So: aim to use your TFSA capacity before committing large sums to non-registered accounts. That handles the tax-free growth piece cleanly.

What do you do with extra money: Pay off debt or invest?

Always pay high-interest debt first. If you are debt-free, the remaining funds can be split between registered accounts and non-registered investments. You mentioned investing in mortgages, which produce interest income that is fully taxable. That is fine while you have no taxable income, but once you return to work you will pay tax on that interest, potentially at ordinary marginal rates.

One practical approach is to place as much as possible in your TFSA first, then use remaining funds in a combination of non-registered investments and RRSP contributions. The timing of RRSP claims matters: you can contribute to an RRSP now and carry forward the deduction to a future year when you will benefit from a higher marginal tax rate. You are not required to claim the RRSP deduction in the year you make the contribution; you can spread the claim across multiple years.

Be careful not to convert tax-free money into taxable money unnecessarily. If you contribute large RRSP amounts and claim them while your income is near zero, the immediate tax benefit will be minimal and you’ll eventually pay tax on withdrawals.

When to claim RRSP contributions when you have no income to report

If you expect to earn a middle-class income in future, a useful tactic is to contribute now and defer claiming the deduction until that higher-income year. This preserves tax-sheltered growth in the RRSP while allowing you to choose the optimal year to claim the deduction and receive the largest refund.

Have no income? What to know for tax time

Two questions to ask yourself before putting too much into an RRSP today:

Will you ever have a middle-class taxable income?

If you don’t expect to, avoid large RRSP contributions for now — you could be better off relying on TFSA and non-registered sources in retirement to minimize tax.

Will this be your only RRSP money in retirement?

If so, having only taxable RRSP withdrawals could increase your tax bill and reduce eligibility for income-tested benefits. A mix of TFSA and non-registered income can help keep taxable income lower in retirement.

Contributing to an RRSP this year

One practical option is to contribute a portion to an RRSP now — for example, about $45,000 — and keep the deduction unused until you have taxable income. You could then withdraw modest amounts (for instance, up to roughly $15,000 per year while you remain non-taxable) from the RRSP; although withholding tax applies to withdrawals, you would recover that when you file your tax return if your taxable income remains low. This allows some flexibility: you get tax-sheltered growth, maintain the option to claim the deduction later when it’s more valuable, and can manage small withdrawals tax-free while income is nil.

Ultimately, the best path depends on your future income expectations and how you want to balance tax-free and taxable sources in retirement. These suggestions are intended to outline options, not substitute for personalized tax or financial advice. If you want to optimize the outcome for your specific circumstances, consider speaking with a fee-only financial planner or tax professional who can model scenarios based on your anticipated income, investment returns and retirement goals.

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Allan Norman provides fee-only certified financial planning services through Atlantis Financial Inc. and offers investment advisory services through Aligned Capital Partners Inc. (ACPI). ACPI is regulated by the Investment Industry Regulatory Organization of Canada (IIROC). Allan can be reached at [email protected].