Q.Should I invest in an RRSP or TFSA?
First, let’s review RRSP and TFSA
What is the primary use of an RRSP and TFSA?
Retirement. Many see the TFSA and think it is about savings. That is not the whole truth. An RRSP and TFSA are two great tools to plan for your retirement.
The Key to remember is with an RRSP you are differing to pay income tax to the future. The advantage there is when you go to withdraw it, you will be in a lower tax bracket. So you will pay less tax.
Money put into a TFSA has already been taxed. Any increase in your TFSA investment, you are not taxed on that. You also can withdraw tax-free.
If you are starting out and already in a lower tax bracket, start with a TFSA. The reason is this allows you to save contribution room for your RRSP when you are making a higher income.
When you put money into an RRSP, this brings down the amount of gross income you are taxed on for that year.
Withdrawals of RRSP and TFSA
An RRSP is taxable when you withdraw it, and a TFSA withdraw is not taxed.
If you withdrew from an RRSP before retirement, you will lose that contribution space and have to pay taxes on it what it is taken out.
If you withdraw from a TFSA, you will not pay taxes. However, you can put the contribution limit back in the following year.
What type of investment can you use for RRSP and TFSA?
Some institutions advertise the TFSA as a saving account, but it is more than that. First, remember the purpose is retirement. Second, you can disperse the assets in the same places as a RRSP.
Both can invest in cash, GIC, savings bonds, mutual funds, ETF, equities, etc)
Should I invest in an RRSP or TFSA? Which one?
Remember investing should be part of a holistic financial plan.
This image though not complete can give you a start in figure out which direction.
How I can Help?
- We start with a complimentary financial analysis that gives us a big picture of where you are at and creates a plan based on your goals of how to get to a destination.
- Life time Coaching to help you stay on track to reach your goals.
- Show you Financial solutions to meet your needs and goals.
Do want to learn how you can have great returns and have a death beneficiary’s benefit on your TFSA or RRSP?
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