- Reader Case: From Cancer Survivor to FIRE - September 1, 2026
- The FIRE Guide to America’s Health Care System (2026) - July 7, 2026
- Planting Your Money Trees - February 23, 2026
Note: The winners of last week’s FIRE album giveaway will be announced at the end of this post.
I’ve been asked on numerous occasions how we deal with taxes in retirement. Spoiler alert, if your portfolio is structured properly, you should be able to get away with paying $0 (or pretty damn near close to $0) in taxes after you retire. But how much of that is aspirational, and how does it play out in reality?
So let’s break down how the MR portfolio is optimized to pay as little taxes as possible, and let’s use some real numbers behind it.
First I’ll walk you through how we manage our own personal portfolio as a Canadian, then next time we’ll do one for the Americans. Sound good? Great.
Our Portfolio
One of the (many) great things about investing in passive index funds is that passively managed funds don’t do very much buying and selling. Actively managed funds can buy and sell their underlying investments many times over the year, and it can result in a surprisingly high tax bill when they report their activities on your year-end tax slips. With passive funds, no surprises occur, so it makes taxes easier to plan and, therefore, optimize.
Last year, our portfolio paid us about $70k in dividend income, and this is the yield we harvested to fund our living expenses for 2025.
However, not all of this income is directly taxable. As part of my tax optimization, I put as much VTI and IEFA, which both pay foreign dividends, into my RRSP as possible, so these dividends are tax sheltered. Some of the Canadian funds are also held inside my TFSA, so those dividends are also not taxed.
So my directly taxable dividends are limited to the ones that were earned inside my taxable accounts, like so.
By the way, one of my favourite features of Passiv is the ability to visualize my dividends as they come in. It’s made planning our retirement income (and tax optimization) so much easier. No more building my own spreadsheets!
Anyhoo, these 7 funds pay dividends in 3 different ways. Canadian funds like ZPR and ZCN pay eligible dividends, foreign equity funds like VTI and IEFA pay foreign dividends, and the money market funds (CMR, SHV, DLR) pay interest. Grouping our taxable income by type looks like this. All figures are in CAD.
Income Type | Funds | Amount (CAD) |
Eligible Dividends | ZPR, ZCN | $20,908 |
Foreign Dividends | VTI, IEFA | $11,754 |
Interest | CMR, SHV, DLR | $860 |
Let’s start with the Foreign Dividends and Interest. Both get treated as regular income, so when they get entered into our tax software, they get taxed at your marginal rate. However, in 2024, every Canadian taxpayer gets $15,705 of personal exemption each. And because there’s two of us, this personal exemption gets doubled to $31,410. So any income earned below this amount is essentially tax-free, even if it’s taxed as regular income.
So adding up our foreign dividends and interest, we get a total of $12,614. That fits well within our personal exemption, so our total tax payable so far should be $0.
Next, we add in our eligible dividends.
In Canada, eligible dividends are reported on your taxes by multiplying the amount you received by 1.38. This is known as “grossing up” the dividend. It seems kind of random, but don’t blame me, I don’t make up the rules.
Anyway, this “grossed up” dividend amount is then offset by a federal and provincial dividend tax credit. This tax credit works out to be about equal to the tax rate of the 1st federal tax bracket. For 2024, the 1st tax bracket is from $0 to $55,867. That means that if you take the dividends you earned for the year, multiply it by 1.38, and add it to your other income, as long as that total is below $55,867 per person, or $111,734 per couple, then the dividends are effectively tax-free since the tax credit completely offsets any taxes owed.
In this example, we are reporting $20,908, which is $20,908 x 1.38 = $28,853.04. Here’s what that looks like.
As you can see, our regular income (Foreign Dividends + Interest) of $12,614 is below the personal exemption line, and our total income of $41,467.04 is below the tax-free dividend line. Therefore, so far, our tax bill should still be $0.
Cash Asset Swaps
That takes care of the income we’ve earned in our taxable accounts. But what about our retirement accounts?
TFSA’s are simple because money can be withdrawn at any time tax-free, so accessing this money is as simple as withdrawing it. No taxes are owed and no tax receipt is issued.
RRSPs are a bit more complicated, since any withdrawal is taxed as normal income. That’s why we came up with the Cash-Asset Swap strategy, which allows us to access the dividends in our tax-sheltered accounts at the far more advantageous capital gains tax rate rather than regular income.
For 2024, we had about $25k in dividends generated inside our RRSPs according to Passiv.
To do a cash-asset swap, you take the cash that’s accumulated in your tax-sheltered account and buy an ETF that you own outside your tax shelter with that money. At the same time, you sell the same ETF that you own in your taxable account. So in this case, I took some VTI that I owned in my taxable trading account and sold $25k worth. Simultaneously, I bought $25k in VTI inside the RRSP account where I had all my cash sitting.
After this is done, the cash that was sitting in my RRSP is now sitting in my taxable, yet my overall portfolio hasn’t changed (since you bought and sold the same number of ETF units).
The cool thing about this strategy is that just because you freed up $25,000 doesn’t mean you have to pay capital gains taxes on $25,000. You have to deduct the Adjusted Cost Basis, or ACB, to calculate how much those units went up in value. For us, those particular units of VTI had an ACB of $13,000. So, our actual capital gain was $25,000 – $13,000 = $12,000.
And because this is a capital gain, only half of that is taxed in Canada, which means we only report $6,000 of taxable income.
Here’s what our income graph now looks like.
Our Interest, Foreign Dividends, and now the taxable portion of our capital gains is still below our personal exemption line, and our total income including grossed-up eligible dividends is still below the tax-free dividend line, so it looks like we’re still good!
Additional Free Income
Now wait a minute, you might say. There’s still space inside our personal exemption that we’re not using! To be precise, of the $31,410 personal exemption, there is still $31,410 – $12,614 (foreign dividends + interest) – $6000 (capital gains) = $12,796 left. We don’t want to let that go to waste, since that’s tax-free income room.
There are two ways that we can use that up. One is to simply withdraw half of that amount ($6,398) from each of our RRSPs. That would use up the rest of our personal exemption, and let us withdraw money from both of our RRSPs for free.
Here’s what our tax return now looks like.
So now we’ve reported all our taxable income, performed a Cash-Asset swap to access the dividends that were earned inside our RRSPs, and done an RRSP withdrawal as well.
I plugged in all these numbers into the tax software we used, and here’s what it calculated.
Net federal tax owed is $0. But why is there still $300 owed to on our provincial taxes?
That’s actually the premiums the Canadian government collects for our government-funded health care plan. Everyone has to pay into the system, and in return we get our sweet-ass socialized health care, so this is effectively the lowest our taxes can get.
So that’s the first way to use your unused personal exemption towards an RRSP withdrawal. The other way to use it up is to harvest some additional capital gains. We actually chose to do that this year, so we deliberately realized more capital gains since we could do it for free.
To create an additional taxable income of $12,796 in capital gains, we would need to realize twice that, or $25,592 (again, since only half of the capital gains are taxed in Canada). Here’s what our tax return now looks like.
Once again, $0 in federal taxes, and the minimum $300 in provincial taxes for our government-funded health care plan, which is the lowest our taxes can effectively go.
Conclusion
This is a simplified example of our own personal tax return. Our actual tax return also includes all the stuff related to us having a kid, medical costs, and the passion project income we earn from our writing activities. Passion project income is treated as regular employment income, so we do pay additional taxes on that. However, those taxes are paid for by the passion project income itself and not by our investments. If our passion project income were to disappear, our tax bill would revert to the ultra-low version that we showed in this article.
So that’s how we manage the taxes on our FIRE portfolio. I was going to do one with the American tax system as well, but because this article is already pretty long, we’re going to split that out into its own article, so stay tuned for that!
Announcement:
Here are the winners of our FIRE soundtrack giveaway from last week:
What motivates on your FIRE journey?
1) Crystal N: “A huge motivation for me to achieve FIRE is to not end up like my parents who currently live only on social security and food stamps. I make up the rest so they can have internet, electricity, garbage service, toilet paper, and cat food.
While I was still an unemployed college student I watched them nearly starve to death and see how poverty negatively affects health in so many ways.
Learning about FIRE has given me so many tools regarding personal finance. I used to wonder why all the money I made just seemed to vanish. People at work now approach me and ask me questions about our company”
2) Bill B: “Really great post. I truly enjoy your content. Motivation was never difficult for me, but I can see this challenge in so many others. I will be FI and retiring in 2 weeks at age 53. I have found as I am approaching my final working days I am getting a little separation anxiety, specifically with my work connections and my income. Based on my lifestyle I don’t need the income and value my remaining years more, but I will mostly miss “the journey” as you described so well.”
3) Eileen C: “I love this post Kristy! I feel like I have the feeling of “the boring middle” every year since I discover FIRE in 2018. Every year, I read your “How we got here” series and that helps motivate me to one day feel that moment, I’m done/I quit FREEDOM feeling, where I can put in my resignation letter. Once that happens, I feel like I can finally take back my 40-50 hours a week and have time to focus on things I enjoy doing, like traveling, photography, and content creation. 🙂 Thank you for perking up our Mondays. “
Congrats to all the winners! You’ll be receiving an e-mail shortly with the link to download the entire track.
If you didn’t win, the good news is that the track is out now and you can order it on iTunes or BandCamp. Hopefully it’ll give you that extra bit of energy to push through the “boring middle” (which, incidentally, is also one of my favourite songs on the album).
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Curious, why did you choose to maintain Canadian tax residency while living a nomadic life? Would these rules apply if you become a non-resident (for tax purposes) and get residency somewhere like UAE where there are no taxes? I assume once you pay departure taxes you don’t have to file any more tax returns.
Departure taxes would be a HUGE disincentive when you can still travel and pay virtually zero in tax.
Of course, I’m concerned that any future government (federally or otherwise) will clamp down on this and jack taxes up on it. All in the name of “fairness” of course.
If you declare yourself non-resident, you have to become tax resident somewhere else, which meant immigrating to that country. We weren’t prepared to take such a big step, so we retained our Canadian tax residency.
We retired in 2023 part way into the year so 2024 was our first tax year of full retirement. I was excited to do taxes to see if we’d gotten it close to zero. When all was said and done we got our first tax refund in many years, due to overpaying early in the year for ACA insurance since it was based on 2023 income. Aside from that, the income side did in fact come out at zero taxes owed! It was such an awesome feeling to have done that since I managed the entire plan myself (with input/questions from my wife!). So yes it absolutely can be done in the US.
Very cool! Congrats on retiring, that’s a huge accomplishment 🙂
This can be quite useful but I don’t understand Canadian taxes. Can you do it for the UK taxes too please? Thanks!
Sure, I’m working on that now. It’s absolutely possible to get $0 investment taxes in retirement for Americans as well, it just takes a bit of extra planning. Article will be up on the blog shortly.
Thanks for the album! I can’t wait to listen to all the songs 🙂 I look forward to the American version on this article. Another great topic of discussion. This will be really helpful for anyone on the FIRE path and looking for some pointers to plan their portfolio.
Yay! And yes, American one coming soon 🙂
I don’t quite understand the cash asset swap you describe and I think it may be the language you use to describe it.
You say, “…the cash that was sitting in my RRSP is now sitting in my taxable…”. That’s not quite true is it?
In order to have the cash that is sitting in your RRSP as uninvested dividend income become cash sitting in your taxable account, you’d have to withdraw the cash from your RRSP first and then move it to your taxable account. That would trigger taxes upon the withdrawal from your RRSP.
So if I understand things correctly, you’ve not directly swapped anything. What you’ve done is sell $25K of $VTI in your taxable account and bought $25 of $VTI in your RRSP. No swap between accounts has actually occurred.
Do I understand things correctly?
Additionally, you would need to have RRSP room from previous years or be making an income to have room to contribute back into RRSP.
If you were retired like this and not making any income.. you wouldnt be able to contribute the cash to the RRSP. Unless I am missing something too.
There is no contribution into the RRSP here. Just a buy inside the account and a matched sell outside.
Should note that there is not additional contribution room. There is cash in the account because it was earned from dividends. This is Wanderer buying additional ETF with that cash rather than withdrawing it and incurring taxes.
Correct. It’s a way of accessing the cash that was inside the tax shelter without actually triggering a taxable withdrawal.
I understand that you are trying to maximize your tax withdrawals within the first federal income bracket, but assuming you have a chunk of your assets in NRSPs, wouldn’t it be beneficial to keep your net income as close to 18K (36K as a couple) to maximize the Federal and Provincial child benefit and GST/QST credits? You would be leaving over $10,000/year on the table until your son reaches age 18.
Child benefits do get clawed back as you earn more income, so you’re right in that I am giving something up by doing this now rather than after he turns 18, but the risk is by that point those RRSP accounts will have grown so big that you’d withdraw at a higher tax bracket than when you contributed. I’d rather pay the taxes now at 0% and give up a small amount of CCB, but that’s just me. You may choose differently depending on your personal situation.
I am curious the benefits of not using a DRIP especially where you say you had the cash in the RRSP and bought ETF’s there anyway. Is it because it makes rebalancing easier and not having to sell to rebalance?
Using DRIPs is fine when you’re accumulating, but it makes it hard to see how many dividends you’ve earned if you keep using it in retirement. The tax treatment is the same either way.
In that tax sheet, i dont see any T3’s? is it not QT releases T3 for dividends/income in unregistered accounts?
Also i see T5’s, Are they form HISA/GIC from FI or from QT money market funds?
Watch for your Questrade non-registered T3s showing up in your account around April 1st.
Yes, T5’s are for interest earned in non-registered accounts, and also for dividends earned on individual stocks, i.e. not ETFs.
T3’s haven’t been issued yet, so I just manually put the dividend numbers into the right fields of the T5.
Just wondering, by picking etfs based on yield and not reinvesting their dividends, would you be sacrificing long-term growth? I guess I’m confused on if there is a big difference in the end-results between reinvesting dividends of your etfs and then selling a portion to withdraw (by auto-reinvesting one could argue you’re driving prices and your returns up) vs just collecting the dividend as income? Especially given dividend prices and distribution amounts change which could fluctuate income over time. In a downturn we could just lower the withdrawal rates to 3.2%, live in cheap places etc. no? Is there a material difference in the end results of the typical withdraw 3-4% fire and dividend-fire strategies?
Could you create a dividend yield calculator similar to how you setup the rebalacing google sheet calculator? If possible, that’d be amazing
There’s a nifty tool called https://dividend.watch/ you can try out.
These are just index ETFs, everyone should be getting the same yield as me if they’re investing in the same indices.
While you’re accumulating, you should absolutely by reinvesting your dividends since you want long term growth. In retirement, the game changes and you need income to live. By relying primarily on dividends rather than capital gains, you eliminate the need to sell in a downturn, so it actually makes your retirement safer.
“Is there a material difference in the end results of the typical withdraw 3-4% fire and dividend-fire strategies?” Could you please math this up for us? Would be great to see results with a 60-40, 70-30 and 80-20 portfolio
Check out https://ficalc.app/ . Free website where you can play around with all the scenarios you are talking about.
The big advantage of Dividend FIRE is that it has a 100% success rate, since I never sell anything to cover my living expenses, only to rebalance. The down side is that requires a larger starting portfolio, since my dividend yield/withdrawal rate is 3.1%, vs the 4% rule that FIRE community uses.
With the Cash Asset Swap, if I understand correctly, you are essentially withdrawing from your taxable account while maintaining balance by purchasing the same stock in your RRSP.
If you continue this strategy, could you potentially deplete your taxable account while inflating your RRSP? This might eventually require you to withdraw entirely from your RRSP, which long term could increase your tax liability by pushing you into a higher tax bracket.
Or am I missing something?
I’m keeping the balance in my RRSP the same and withdrawing only from my taxable. You are correct that long term, this will result in a depleted taxable account, which is why it’s important to also pair this with tax-free RRSP withdrawals like I demonstrated so the RRSP still gets melted down over time.
Do you have any concerns that by the RRSP growing too much, and not withdrawing from it now, that when you have to withdraw from it later in life it could mean that you earn too much and not be eligible for OAP? I realise its unlikely as currently these rates are high, for eg currently I believe if your overall income is $148,000 you aren’t eligible for OAP and if its below $90,997 you can get full OAP and in between is different rates. And I guess you guys live off $55k at the moment, so factoring in, inflation in theory you should be well below these amounts no matter how it grows.
I guess when you convert to RRIF there are minimum withdrawals required from age 71 and these are relatively small. But the fact you are paying income tax, rather than capital gains tax on these, does it still make sense to put VTI in here? Am curious the benefits of saving the US 15% tax on dividends, vs keeping VTI in TFSA or even a margin account and losing that 15% tax, but getting the 50% off on capital gains so that you don’t essentially pay income tax later on.
Also curious even though you guys don’t plan on buying a house, do you have any plans to invest in FHSA so it can be converted to RRSP in 15 years.
Actually sorry. I reread there that you did withdraw from the RRSP. Sorry I missed that. I guess I was focusing too much on your repurchasing with the dividends.
Great post, as always. Just 2 comments: 1) the fact that you pay nothing in taxes is more due to your being married than being fire’d. Most of your thresholds would be MUCH lower if you were single (even if fire’d) and you’d most likely pay taxes (even while spending less, because you wouldn’t spend half of what you spend as a couple. For example, you wouldn’t be able to split housing, which of course is one of the largest expenses). 2) For every American who screams about the “socialized” Canadian healthcare 🙄 check out how much MR pays in taxes for the privilege of being able to go to the doctor anytime they want in Canada, for free, without dealing with co-pays, premiums, deductibles, in/out of network, fear of being denied, and the other wonderful absurdities of the American sickcare-for-profit system. Americans are sooooooo brainwashed when it comes to healthcare, it’s a disgrace. Sorry for the rant and thanks for your awesome post, as always!
Be careful not to romanticize the Canadian healthcare system. It is broken in it’s own way too with long wait times being the trade off for affordability.
https://nationalpost.com/news/canada/canadians-faced-longest-ever-health-care-wait-times-in-2024-study-finds
So true !!!
Correct, being married to FIRECracker has many advantages, and doubling our deductions and tax credits is definitely one of them. It’s definitely easier to FIRE as a couple than a single person.
And while our health care system isn’t perfect, it’s way easier to use than the American one.
So “going to the Doctor anytime you want” isn’t exactly accurate, maybe see a Doctor eventually?
It took me 3 years to see dermatologist, 4 years for an allergist and 4 long years for a MRI. On average I wait about 2-3 weeks to see my Family Doctor.
On my fifth year waiting for surgery I gave up and went abroad to get it done.
I could be unlucky and others could tell you otherwise but that’s been my personal experience.
If you’re fine waiting then it’s great. I once heard nothing is more expensive than something that is free, that has been my personal experience with the Canadian Healthcare system. I paid in pain and years of my life.
And one other thing, sorry. As an American myself, and one who doesn’t post much on your site, I just want to apologize for the disgusting way our asshat of a president has been treating your country and people. I feel nothing but rage and contempt for everyone who didn’t vote Dem, who are now all directly responsible for making everyone, both in and out of the USA, forced to fear the whims of the mentally ill tangerine and his crew for God knows how long. Know that there are millions of Americans who feel as I do. Thank you for even offering to re-do your tax analysis for us, when clearly we don’t deserve that kindness. Hope your Carney wins his election and sticks it to the tangerine!
As a Canadian, thank you for saying this!! It’s nice to hear an American’s perspective.
🩷
Aww, thanks. Yeah, it’s been a stressful time for us (and the world), but it’s always nice being reminded that there are so many kind, decent Americans that are still our friends, even if your government isn’t.
An other US citizen here – and I could not agree more with Fille Frugale. The orange clown is an epic embarrassment and I too, apologize for the chaos caused by him and his team. I have zero idea why 70 million Americans would vote for this monster, but here we are. Know that, we hope to turn over the house in 2026. It will be no small feat with Musk inserting his money at every turn (if Dems did this, people would be taking the to street), but the Republicans are allowing this without any issue. Try not to lose hope Canadians, you have many friends and supporters her in the US, we just have to remove the clown yet again.
If I understand the Cash-Swap idea correctly you had 25K cash in your RRSP and 25K of VTI in your nonReg. You use the cash to buy 25K VTI in your RRSP and sell your 25K in NonReg to get cash. As such you are left with 25K VTI in your RRSP and 25K cash in nonReg. So no money actually was removed from your RRSP and the tax you are paying is the capital gains tax on the VTI you sold in your NonReg. So while your net assets are the same, you are just deferring the tax burden of the RRSP withdrawal till later where you will be fully taxed on the withdrawal amount at your marginal tax rate and possibly run into OAS claw back once you turn 71 and have to make mandatory minimum withdrawals. I must be missing something as this doesn’t seem like a great benefit. What am I missing ?
This is how I see it too. The asset allocation (to VTI in this case) is maintained overall but no RRSP funds are actually withdrawn and their embedded tax burden is deferred. Ultimately deferred taxes must be paid — this is the pact with CRA that the RRSP refunds we enjoy in our working/contributing years represent. An alternative strategy, though perhaps one for older retirees, is to “defuse” the RRSP deferred tax bomb and melt them down gradually to avoid a high taxable income and possible OAS clawback later.
Correct, I am accessing the cash now while paying capital gains tax rates and will still have to pay taxes when I withdraw from my RRSP later. However, if those withdrawals are done gradually using the personal exemption, you can do both for free.
Appreciate the detailed breakdown and very much looking forward to the American version! Thank you as always for the meaningful and informative content.
Great article! Wanderer can you elaborate on what your tax savings is from doing the Cash Swap? In other words, how much taxes would you have paid on that $25K of dividends (inside your RRSP) without using the Cash Swap?
I would have to withdraw the amount and get taxed at marginal. This way, I can do both (access the cash, AND potentially do an RRSP withdrawal) for free because of the personal exemption.
Retired 4 years, paid $21 fed this year.
Nicely done. We’ve paid enough in taxes while we were working, no need to pay more 🙂
Yes, please do an American version! Thank you so much!
Great article. Noticed that the ETFs shown on the chart in the article don’t include VUN, VCN, XEC which were part of the workshop and I’ve invested in these 3 quite a bit (assuming other readers have as well). Am I doing this incorrectly/going off course as compared to the ETFs you’re invested in above? Thanks
Note: I’m still in the working/accumulation stage and estimate 4 more years of buying- would sticking to VUN, VCN, XEC, XEF (some VAB) get me in striking distance to what you’ve achieved?
I am overall ok with the European tax system (I know it´s a little different from country to country) but seeing this I am a little jealous. It´s a different story over here. I am prepared to pay more than 25% for capital gains. And I will also pay income tax on my pension.
Thanks for the detailed breakdown! I have been looking everywhere for a real scenario of how much taxes would be paid based on the different combinations of income and dividend earned. Can you recommend a software/website you use to validate/project taxes to be paid? I’ve been using wealthsimple tax calculator and it’s has been pretty good but wondering if you can recommend any other you use?
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This is a fantastic breakdown of tax-efficient retirement strategies. It’s rare to see such a clear framework for achieving a $0 tax bill by leveraging the right accounts and capital gains rules. The interplay between RRSPs, TFSAs, and non-registered accounts is exactly what most retirees overlook. For anyone building their financial independence plan, understanding how to structure withdrawals is half the battle. Contextual AI creation hub offers tools that could help visualize these tax scenarios with ease. Thanks for making this complex topic so accessible.
Great breakdown of how tax-efficient investing works in retirement. The $0 tax scenario is compelling, but your point about the TFSA being a “government tracking device” is key—many overlook how future policy could change the rules. For those building portfolios with modern tools, Flux AI can help visualize tax scenarios through AI-generated charts. The residency question is also crucial; non-resident status in a zero-tax jurisdiction like the UAE would indeed change the calculus, especially regarding departure tax and ongoing filing obligations. Thanks for the detailed analysis.
This is such a practical breakdown of a topic most FIRE bloggers gloss over. I love how you emphasize that the real tax win isn’t just about the account type, but about controlling your *realized* income each year. The point about harvesting gains up to the zero bracket is a game-changer for anyone with a taxable account, and it’s rarely explained with such clear math. multimodal content synthesis I’m curious if you’ve considered how this strategy shifts if you were to add a side hustle or consulting income in retirement—does the sequence of drawing down accounts change dramatically, or does the core principle of staying under the standard deduction still hold?