It is well known that saving money is the best way to plan for your future, however, the method in which one does this can sometimes be confusing. Many clients end up asking the question: Tax Free Savings Account (TFSA) or Retirement Savings Plan (RRSP)?
TFSA vs. RRSP
TFSA contributions are not tax deductable
Withdrawals from your TFSA are not taxable (including income/gains earned on the investment)
Max. annual contribution to your TFSA is $5000
TFSA does not have a maturity date in which you have to start withdrawing
TFSA withdrawals can be re-contributed in the following calendar year
It is important to evaluate a few key components before choosing TFSA or RRSP:
• Clients with lower tax brackets would be advised to contribute some of their money towards a TFSA, as they are not yet receiving the full tax benefit of an RRSP. Tax savings will become more important when a clients income rises, therefore a RRSP would become a better option.
• Certain tax benefits are determined by a client’s level of income and RRSP withdrawals are included in this income calculation whereas withdrawals from a TFSA do not apply.
• RRSP is a long term investment that is not as suitable as a TFSA for withdrawing funds, clients are advised to consider whether or not their investment plan is short or long term.
Matthew Gustavson Chartered Accountant can help advise clients as to which savings plan best suits their needs.
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