Transcript: Money Minute: RRSP or TFSA?


Money Minute: RRSP or TFSA?
Length: 1:20

Jamie Golombek
Managing Director, Tax & Estate Planning
CIBC Financial Planning and Advice

“Let’s take a minute to compare the two main tax preferred savings plans available to Canadians.

The Registered Retirement Savings Plan, or RRSP, is likely the best choice if you’re in a high tax bracket now and expect to be in a lower tax bracket later when you retire. This is because contributions you make to an RRSP can be deducted from your income, which means that you can lower the amount of income tax you pay that same year, and you will only be taxed upon withdrawals in the future. In the meantime, your RRSPs grows sheltered from tax.

The Tax-Free Savings Account, or TFSA, is likely better if you’re in a low tax bracket now and expect to be in a higher tax bracket later on. This is because, you would pay tax now on your income before you put it into the TFSA and never pay tax again on the income and growth in the plan or on TFSA withdrawals.

Another consideration when deciding to invest in an RRSP or a TFSA (or both), is your available contribution room in a given year. You could face a harsh tax penalty if you contribute more than your allowed amount.

A final thought – It’s likely wise to pay down any high interest debt (think credit cards debt) before you consider investing in an RRSP or a TFSA.”

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