[CAN] Buying house, optimal way to withdraw money from Taxable/TFSA

[Bob123]

Hello mustachians,
What do you think is the most optimal way to juggle money around in our situation?

We're planning to buy a townhouse this year (spring/summer, under $400K), and then sell our current paid-off condo (worth around $150K).
We want it to be a two step process to not feel rushed and to ease everything.

All our money is currently invested, and I don't know what's the best way to withdraw it.

Joint Taxable — $250K
TFSA — $265K, total
RRSP/RESP (both maxed out, value doesn't matter because we won't touch them)
Emergency fund — $20K

My plan is to sell $100K in the next couple of days from taxable account, withdraw it and keep it in cash for downpayment, will be enough to avoid PMI because it'll be more than 20% of the price. I think it's necessary to make sure that we have this money in cash, just in case stock market tanks.

When it's time to buy, we will do the following:
- If stock market drops before we buy (more than 10%), then we will take a mortgage. When we sell our condo, we will put the proceeds into taxable account, because stock market is low. We wouldn't want to have a mortgage ideally so we will try to pay it off as fast as possible.

- If stock market stays the same as it is now (+/– 5–10%) or grows, then we will sell the rest of taxable account and some of TFSA to pay for the house in cash. When we sell the condo, we put money back into stock market.

What do you think about this plan? Am I missing something? Anything you would do differently?

[Bob123]

Additional reason why I want to sell taxable first is that my income will be lower than usual this year, so I'll pay less tax on capital gains.

[Chaplin]

I'm having trouble seeing any reason to withdraw from a taxable account and have to pay the taxes when you have TFSAs. If you withdraw from the TFSAs you can refill them subject to some timing rules. Also, do you have, or could you apply for a line of credit on the condo? You can probably get about 60% of the equity, so close to $100K. You then pay that off at the time you sell it.

[Bob123]

I thought it's better to withdraw from taxable account and pay less taxes now when I have less income this year (approximately 50% less than usual). And it'll also reset the cost basis of my taxable investments.

Or is it better to avoid tax altogether and withdraw from TFSA? I know I can contribute the withdrawn amount next calendar year.

I thought that TFSA should be left growing.

I have a couple of line of credits, total available is $50K.
I've just applied for HELOC on our condo.

That's why I'm asking, don't have a 100% certainty of what's the most optimal way to fund the purchase.

[Chaplin]

If you have an opportunity to take some money out of the taxable account at a lower marginal rate that's definitely worth considering. If you withdraw from the taxable you lose some gains to tax and then you miss some investment growth until you replenish. If you withdraw from the TFSA you don't take the upfront hit, but you miss out on some higher value (since it's tax free) investment growth. Unless I'm missing something obvious (entirely possible) it looks like you'll have to cost out both options to decide.