Let’s first understand the difference between Registered retirement savings plans (RRSPs) and Tax-free savings accounts (TFSAs).
=Registered retirement savings plans (RRSPs) are designed for retirement savings.
Tax-free savings accounts (TFSAs) are designed to help you save for any purpose.
=RRSP offer tax-deductible contributions.
TFSA offer tax-free investment growth.
=RRSP have a feature of tax-deferred savings (you won’t have to pay taxes until you withdraw funds).
TFSA have a feature of no tax payment on funds withdrawal.
=Contributions in RRSP can be made until December 31 of the year you turn 71.
There is no upper limit for contribution in TFSA but you must be 18 or older and a Canadian resident in the year when contribution is made.
=Contribution room after withdrawals cannot be regained in RRSP.
The amount withdrawn will be added back to your contribution room in the following year in TFSA.
Now let’s walk through the tax implications of RRSP and TFSA
==Tax is payable on withdrawals of RRSP whereas no tax is payable on TFSA withdrawals
==Tax on investment growth in RRSP is applicable only after you make withdrawals whereas any growth in
TFSA is non taxable
==Withdrawals are a part of taxable income in RRSP unlike TFSA whose withdrawals do not count in your
taxable income
Do you further want to know about the components that can further impact your decision on RRSP and TFSA?
Consider the RRSP and TFSA as complimentary rather than competing options for your funds. Each has unique benefits and downsides. For example, TFSA’s flexibility makes it ideal when saving for short-term goals like a vacation or home renovation. For retirement savings, RRSPs might take priority.
Choice depends on your unique situation. For instance, someone relatively early in their career may be better off sheltering money in a TFSA to start, and then transferring those funds to an RRSP and claiming a larger tax deduction once they’re earning a higher income.
If you’re already maximizing your RRSP contributions or have limited contribution room , a TFSA can boost your tax savings.
If you want frequent and easy access to your sheltered funds, the TFSA is the way to go. You won’t pay tax on every withdrawal like you will with an RRSP. And, you can re-contribute the funds in future years so they’ll be there when you need them.
Best Planners Inc., your financial advisor, can review your situation and goals to help you use TFSAs and RRSPs to your best advantage.
Book an appointment today to reach us at :
M +1 (416) 523-2821
P +1 (905) 454-6452
E info@bestplanner.ca
195 Queen St E, BRAMPTON
ON L6W 2B3, CANADA
www.bestplanner.ca
