Monday, February 8, 2016

TFSA vs. RRSP

TFSA or RRSP? 
As financial advisors, one of the most common question we get around this time of year is whether a TFSA or an RRSP is a better.  There isn’t any hard and fast answer. Both have pros and cons, but overall it depends on your own financial situation. Below is a chart that compares the two.


TFSA
RRSP
Primary Purpose
Saving for any purpose
Retirement savings, home purchase or education

Annual contribution limit
$5,500 PLUS amounts withdrawn in previous years
18% of previous year’s earned income (Max limits apply), less any pension adjustments

Contributions
Not tax-deductible
Tax- deductible
Unused contribution room
Carried forward
Carried forward
Growth
Tax-free
Tax-deductible
Withdrawals
You are not taxed on withdrawals.


Withdrawals do not affect federal income-tested government benefits such as Old Age Security
Withdrawals are taxed as income at your marginal rate.

Withdrawals are counted as income and may affect federal benefits such as Old Age Security

Withdrawn amounts
Added to contribution room in future years
Contribution room is lost for the amounts you withdraw

Plan maturity
None; no upper age limits on contributions

End of year when you turn 71
Spousal plan
N/A
You can contribute directly to a spousal RRSP

Eligible investments
You can hold savings accounts, GIC’s, mutual funds, segregated funds, stocks, bonds
You can hold savings accounts, GIC’s, mutual funds, segregated funds, stocks, bonds

Age Minimum
18
N/A


Want a better idea of which is better for you? Try TaxTips TFSA vs. RRSP calculator. This calculator can help give you a better idea of which is right for you based on your unique financial situation. The calculator can be found here: TFSA vs. RRSP calculator.

If you need advice on your savings plan, reach out to us today!

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