If you’re undecided about whether you should stash your money in an RRSP or a TFSA it pays to weigh the pros and cons of each product. Here are 5 key differences to help you decide which one is best for your long term plan- you may even decide a mix of both is right for you.
- When you contribute to an RRSP (it could be through your employer or on your own) it is tax deductible. TFSA’s, on the other hand, are not tax deductible and can’t be claimed when filling out your tax return. Any money deposited into your TFSA will be with after tax dollars. RRSP contributions are tax deductible and can result in a bigger tax return for you with a higher marginal tax rate.
- RRSP’s have been advised as a way to save for retirement for many years, and under a small sub set of circumstances it might be beneficial when there are large variations in personal income and efficient income splitting can be done. Be sure you have a clear understanding before implementing this at tax time.
- TFSA’s are paid for with after tax dollars which means they are tax free anytime you make a withdrawal.
- When the time comes to withdraw your RRSP’s, you will be required to pay tax because your contributions were made with pre-tax dollars. The percentage of tax deducted will vary depending on the amount of the withdrawal.
- To contribute to RRSP’s you must report earned income for the year, while no earned income is necessary to contribute to a TFSA.
Retirement savings may still be a long way off, but did you know that for some home buyers it’s possible to borrow against your RRSP when purchasing a home? There are lots of options to help you make home ownerships a reality. When you need a Brampton and surrounding area mortgage broker, I am the mortgage specialist you want to call.
