Where to hold $2 million in retirement: asset location cuts the tax bill by thousands
Where to hold $2 million in retirement: asset location cuts the tax bill by thousands
A retired couple in Edmonton with $2 million spread across RRSPs, TFSAs, and a non-registered account asked their advisor a straightforward question: are we putting the right investments in the right places? The answer required rethinking what they owned and where it sat.
Asset location is the structure underneath asset allocation. Allocation tells you what to own. Location tells you where to hold it so the Canada Revenue Agency takes less of what it grows into. A $2-million portfolio misallocated across account types can bleed an extra $15,000 annually in unnecessary tax compared to the same portfolio properly structured. Over a 25-year retirement, that is $375,000 before compounding the lost opportunity cost.
The account hierarchy runs TFSA, RRSP, non-registered, in that order
The TFSA sits at the top because withdrawals are invisible to the tax system. Withdrawals do not count as income, which means they do not push you into a higher bracket and do not trigger the Old Age Security clawback that begins when net income exceeds $95,323 in 2026. The 2026 contribution limit is $7,000, and anyone eligible since 2009 has cumulative room of $109,000. Growth inside a TFSA compounds tax-free. Withdrawals stay tax-free. There is no better structural advantage in the Canadian tax code.
RRSPs come next, and they carry the opposite profile. Every dollar withdrawn is taxed as ordinary income at your marginal rate. At age 72, mandatory minimum withdrawals from the converted RRIF begin at 5.40 percent of the account value, rising to 20 percent by age 95. A large RRSP forces income you may not need, potentially pushing you past the OAS clawback threshold and raising your marginal rate from the mid-30s into the low 50s if you live in Ontario.
Non-registered accounts are last, but they are not uniform. Capital gains are taxed at 50 percent inclusion for individuals on the first $250,000 realized annually, jumping to 66.67 percent above that threshold under legislation that took effect in 2026. Canadian dividends receive a tax credit that often results in a lower effective rate than interest, though the gross-up mechanism inflates your reported income, which can nudge you closer to benefit clawbacks.
Interest goes in the RRSP, Canadian equity goes outside it
Interest from GICs and bonds is taxed at 100 percent inclusion, making it the least tax-efficient income type. It belongs in the RRSP where growth is tax-deferred. Canadian dividend-paying stocks, by contrast, benefit from the dividend tax credit in non-registered accounts, lowering the effective tax rate and making them the natural fit for taxable space.
US dividend-payers present a nuance. Held in a TFSA, they face a 15 percent non-resident withholding tax that cannot be recovered. Held in an RRSP, the Canada-US tax treaty often exempts them from withholding entirely. The RRSP is the cleaner home for US equity income because the treaty exemption works there and the withholding does not.
The meltdown strategy: withdraw more now to pay less later
If a couple is in their early 60s and has not yet started mandatory RRIF withdrawals, it sometimes makes sense to pull more from the RRSP than the minimum requires. Drawing the account down before age 72 levels out lifetime tax brackets and reduces the size of the RRIF before forced withdrawals push income higher. The math works when current marginal rates sit below where they will land once CPP, OAS, and RRIF minimums all hit simultaneously.
Pension income splitting allows couples to allocate up to 50 percent of eligible pension income, including RRIF payments after age 65, to the lower-earning spouse. This alone can prevent one partner from crossing the OAS clawback threshold while the other stays comfortably below it. The $2,000 pension income tax credit applies per person, making it worth ensuring both spouses have at least that amount of eligible income to claim.
The couple in Edmonton discovered they had $140,000 in Canadian bank stocks sitting in an RRSP and $95,000 in GICs inside their non-registered account. Swapping those positions saved them $4,200 annually. Same holdings, different tax bill.
Where to hold $2 million in retirement: asset location cuts the tax bill by thousands
A retired couple in Edmonton with $2 million spread across RRSPs, TFSAs, and a non-registered account asked their advisor a straightforward question: are we putting the right investments in the right places? The answer required rethinking what they owned and where it sat.
Asset location is the structure underneath asset allocation. Allocation tells you what to own. Location tells you where to hold it so the Canada Revenue Agency takes less of what it grows into. A $2-million portfolio misallocated across account types can bleed an extra $15,000 annually in unnecessary tax compared to the same portfolio properly structured. Over a 25-year retirement, that is $375,000 before compounding the lost opportunity cost.
The account hierarchy runs TFSA, RRSP, non-registered, in that order
The TFSA sits at the top because withdrawals are invisible to the tax system. Withdrawals do not count as income, which means they do not push you into a higher bracket and do not trigger the Old Age Security clawback that begins when net income exceeds $95,323 in 2026. The 2026 contribution limit is $7,000, and anyone eligible since 2009 has cumulative room of $109,000. Growth inside a TFSA compounds tax-free. Withdrawals stay tax-free. There is no better structural advantage in the Canadian tax code.
RRSPs come next, and they carry the opposite profile. Every dollar withdrawn is taxed as ordinary income at your marginal rate. At age 72, mandatory minimum withdrawals from the converted RRIF begin at 5.40 percent of the account value, rising to 20 percent by age 95. A large RRSP forces income you may not need, potentially pushing you past the OAS clawback threshold and raising your marginal rate from the mid-30s into the low 50s if you live in Ontario.
Non-registered accounts are last, but they are not uniform. Capital gains are taxed at 50 percent inclusion for individuals on the first $250,000 realized annually, jumping to 66.67 percent above that threshold under legislation that took effect in 2026. Canadian dividends receive a tax credit that often results in a lower effective rate than interest, though the gross-up mechanism inflates your reported income, which can nudge you closer to benefit clawbacks.
Interest goes in the RRSP, Canadian equity goes outside it
Interest from GICs and bonds is taxed at 100 percent inclusion, making it the least tax-efficient income type. It belongs in the RRSP where growth is tax-deferred. Canadian dividend-paying stocks, by contrast, benefit from the dividend tax credit in non-registered accounts, lowering the effective tax rate and making them the natural fit for taxable space.
US dividend-payers present a nuance. Held in a TFSA, they face a 15 percent non-resident withholding tax that cannot be recovered. Held in an RRSP, the Canada-US tax treaty often exempts them from withholding entirely. The RRSP is the cleaner home for US equity income because the treaty exemption works there and the withholding does not.
The meltdown strategy: withdraw more now to pay less later
If a couple is in their early 60s and has not yet started mandatory RRIF withdrawals, it sometimes makes sense to pull more from the RRSP than the minimum requires. Drawing the account down before age 72 levels out lifetime tax brackets and reduces the size of the RRIF before forced withdrawals push income higher. The math works when current marginal rates sit below where they will land once CPP, OAS, and RRIF minimums all hit simultaneously.
Pension income splitting allows couples to allocate up to 50 percent of eligible pension income, including RRIF payments after age 65, to the lower-earning spouse. This alone can prevent one partner from crossing the OAS clawback threshold while the other stays comfortably below it. The $2,000 pension income tax credit applies per person, making it worth ensuring both spouses have at least that amount of eligible income to claim.
The couple in Edmonton discovered they had $140,000 in Canadian bank stocks sitting in an RRSP and $95,000 in GICs inside their non-registered account. Swapping those positions saved them $4,200 annually. Same holdings, different tax bill.
Sources
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