RRSP OR TFSA: Which is better?

Before TFSA introduced to the public, RRSP is always the first choice for saving the tax. However, right now a lot of people may wonder which one is better.  Read the article below from Hometrader.ca to get more information. 


RRSP OR TFSA: Which is better?



The arrvial of tax season leads many Canadian to think about what investment vehicle is right for them: a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA).

A recent BMO study, conducted by Leger Marketing, found:

»More than two-thirds (69 percent) of Canadians are knowledgeable about RRSP's

» 64 percent are knowledgeable about TFSAs

» However, more than a third (40 percent) of Canadians remain unclear on the differences between the two

An RRSP is a tax-deferred savings vehicle that allows Canadians to help fund their retirement. Contributions are tax deductible, which means the individual's taxable income is reduced by the amount contributed in a given tax year. A TFSA is a flexible, registered general-purpose savings vehicle that allows Canadians to earn tax-free investment income to meet lifetime savings needs more easily.

"While you present finanical situation and life stage will impact how you contribute and the benefit derived from making a contribution, both the TFSA and RRSP are strong and flexible savings vehicles that together can help you reach short-term and long-term finanical savings goals," says Tina Di Vito, head, BMO Retirement Institute and author of 52 Ways to Wreck Your Retirement...and How to Rescure It.

Di Vito adds that Canadians should be aware of their financial goals and how long they expect it will take to achieve them. RRSPs are an excellent tool to save for the long term; meanwhile, TFSAs can help Canadians reach some of their shorter-term investment goals faster because they won't be paying any income taxes on the investment earnings. However, leveraging both accounts simultaneously can provide even greater value over the long term. 




» With a TFSA, you do not need to have any earned income to acumulate the annual $5,000 contribution room

 » With an RRSP, you must have earned income in order
  to accumulate contribution room.  

» Withdrawals from a TFSA  are tax-free. Any amount withdrawn is then added to your contribution room in the following year, so
that you can later recontribute the amount that you withdrew. 

 »Withdrawals from an RRSP are taxed in the year of 
withdrawal (with the exception of the Home Buyer's Plan
and Lifelong Learning Plan, which are not taxed provided they are repaid on schedule). Any amount withdrawn cannot be added to your contribution room in the following year. 
» Contributions to a TFSA are not tax-deductible on your income tax return.

 » Contributions to your RRSP are tax-deductible on your 
income tax return. 
» Investments held in a TFSA include cash, stocks, ETFs, mutual funds, securities, government and corporate bonds and term deposits.   » Investments held in an RRSP include cash, stocks, ETFs, mutual funds; securities, government and corporate bonds and term deposits.
» There is no requirement to convert the TFSA to an income payment option (i.e. a RRIF or an annuity) at any age.   » An RRSP must be fully withdrawn or be transferred to a RRIF or annuity by the end of the year you turn 71.

If you still looking for more information about the RRSP or TFSA, visit your bank for more information.

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                                                                                                                                              By Antiao H

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Eric Tiftikci

Eric Tiftikci

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CENTURY 21 Leading Edge Realty Inc., Brokerage*
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