TFSA VS RRSP – Which Should You Invest Into?
author: busines pictures
Today Canadians are saving more than they have been at any point in the last decade, and more importantly there is no shortage of investment options for them to consider.
The Tax Free Savings Account (TFSA) has been recently introduced and it has proven to be one of the more popular investment choices.
The Retirement Registered Savings Plan (RRSP) is currently in season and people are beginning to pay more attention to their investments, and a question comes up as to which fits better in their overall portfolio.
People begin to question whether they should contribute more to a RRSP or a TFSA.
To help you discover the answer a series will be starting on Banknerd.ca which will give you the differences from either investment option down to the advantages of each.
To properly examine both investment choices, we have to understand what the differences are from a TFSA and an RRSP.
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TFSA |
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| You do not need to have any form of income to accumulate the $5,000 per year contribution room. | You must have an income in order to accumulate contribution room. |
| Withdrawals made are tax free, and any amount withdrawn is then added to your contribution room to the following year. | Withdrawals from an RRSP are taxed in the year of the withdrawal. Any amount you withdraw cannot be added to your contribution room in the following year. |
| Contributions are not tax deductible on your income tax return. | Contributions are tax deductible on your income tax return. |
| There is no requirement to convert the TFSA to an income payment option. | Your RRSP must be fully withdrawn or transferred to a RRIF or annuity by the end of the year you turn 71. |
By just looking at the differences of a TFSA and RRSP you can get a start on determining which of the investments you might want to focus more on, however to help make a better decision more information will be coming in upcoming weeks.
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About the Author
Sensei has written 1086 stories on this site.
My favorite weapon of choice is the samurai sword. I use it to cut my chicken during dinner, cut my hair and periodically carve my name into stone when I am bored. I love meditating on top of a 15ft high pole and eating those sushi’s with smoked salmon on top.
One Comment on “TFSA VS RRSP – Which Should You Invest Into?”
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I must say I don’t understand why people make such a big deal about these TFSAs.
If I were a retired person who was obligated to take money out of my RRIF each year, and wanted to shelter some of it from tax when withdrawing it, okay – but for most, there is no reasonable taxable benefit for using TFSAs. For example, with any RRSP, you immediately receive a tax benefit which can really add up. But TFSAs only benefit from tax shelters on the INTEREST you make off the deposited investment. For most individuals, it would obviously be best to take the RRSP tax shelter and benefit immediately.
I think the TFSAs are actually a clever way to get people to declare their undeclared income! If someone is making 20K a year and suddenly deposits 5K each year into a TFSA, the CRA might want to start investigating!