Recent Posts
Categories
- Bank Loan
- Bankruptcy
- Budget
- Children's Future
- Consumer Proposal
- Credit Cards
- Credit Counselor
- Credit Report
- Credit Score
- Debt
- Debt Collectors
- Debt Consolidation
- Early Retirement
- Financial Freedom
- Financial Literacy
- Financial Problems
- Financing For Renovation
- Gambling Debt
- Holiday Debt
- Income Tax Debt
- Investment
- Money
- Money Management
- Money Saving Tips
- online fraud
- Online Scams
- Owing A Car
- Pawnshop loans
- Payday Loans
- Refinance
- Running Out Of Money
- Save Big Money
- Saving Tips
- Secure Retirement
- student loan
- Tax
- Uncategorized
- Wage Garnishment
Archives
- October 2020
- September 2020
- August 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
- February 2020
- January 2020
- December 2019
- November 2019
- October 2019
- September 2019
- August 2019
- July 2019
- May 2019
- April 2019
- March 2019
- February 2019
- January 2019
- December 2018
- October 2018
- September 2018
- August 2018
- July 2018
- June 2018
- May 2018
- April 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- November 2015
- October 2015
- September 2015
- August 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
Feeds
TFSA Vs RRSP: Which Is Better For You?
Contributing to both a RRSP and a TFSA is a great way to capitalise on tax advantages to grow your savings. But if you can’t afford to invest in both, which one betters favours your personal financial and tax situation?
How TFSA compares to RRSP
A Tax-Free Savings Account (TFSA) shares some similarities with a Registered Retirement Savings Plan (RRSP). For instance, allowable contributions can change depending on various factors. TFSA contributions change each year ($5,500 for 2017). RRSP contributions, on the other hand, amount to 18% of the previous year’s earned income, minus any pension adjustment up to the indicated limit for the year.
You can easily find out your available contribution room for both your TFSA and RRSP using your account on the MyCRA mobile app Tax information Phone Service (TIPS).
These also have a few key differences that may affect your short or long-term savings goals, including:
-
A TFSA can be used for any type of savings goal, while an RRSP is specifically designed for retirement savings.
-
TFSA contributions are open to everyone, whereas only people with an earned income can make RRSP contributions.
-
TFSA contributions are not tax deductible, meaning that you can’t deduct them on your tax returns. RRSP contributions, on the other hand, should be deducted from the annual income reported on your tax return.
-
TFSA savings and withdrawals are tax-free because the payments are made from your net earnings. Conversely, RRSP payments are made with pre-taxed earnings, so you will pay tax on withdrawals – but not on the savings.
-
You can continue making TFSA contributions indefinitely.In contrast, any unused RRSP contribution room is carried forward to the next year until you turn 71. Since you won’t be allowed to make any more contributions, you will required to buy either an annuity or RRIF with your savings.
-
Although both options allow you to withdraw your savings at any time, the amount of TFSA withdrawals is added to the following calendar year’s contribution room. The same doesn’t apply to RRSP since contributions are based on your annual earnings (for the previous year).
Verdict
Financial professionals recommend TFSA for individuals that match the lower tax bracket, such as young people who are just starting out; people with little or no savings/pension, yet they’re close to retirement age; senior citizens who are not eligible to make payments to RRSP due to age or zero contribution room; or for those looking to save for a vehicle, down payment, appliances, or other items. RRSP, on the other hand, may be ideal for individuals saving for emergencies, or those who determine that RRSP withdrawals’ marginal tax rate is to be less compared to the marginal tax rate making the contributions.
If you are facing financial debt difficulties and haven’t started saving yet, you should consider speaking with a licensed insolvency trustee for assistance with getting your finances in order.