RRSP or Tax Free Savings
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I continue to hear people talking about the choice between the two - RRSP vs Tax Free Savings Account (TFSA) - Which is right for
me? So, my colleague Scott Smith provided some information and I will pass it on to you.
This is the most common question I am asked since the government
introduced the tax free savings account earlier this year. The answer depends on your individual
situation but is likely a combination of both.
Both products provide tax free growth on your investment but have two
significant differences. With an RRSP
you receive a tax deduction that can lower your immediate personal income taxes. With the TFSA you do not receive a tax deduction
for your contributions but when you withdraw the funds from your TFSA you are
not obligated to pay taxes on any of the gains.
Anybody who has withdrawn funds from their RRSP has quickly discovered you
are required to pay personal income tax on all amounts withdrawn. This difference is very significant from a
financial planning perspective.
To determine which is better for you right now, you need to
ask yourself two basic questions.
What
is my current marginal tax bracket?
If you are early in your career and expect to be in a higher tax bracket
later in life, do not utilize your RRSP contribution room now, instead save
it for later when you will receive further benefit from your
contributions. Remember, you can
always take the funds from your TFSA later in life and put them into your
RRSP when its worth more to you. If
you are in a high tax bracket now, you may want to contribute to your RRSP
and invest your income tax return in a TFSA.
Will you require any of the funds prior to
retirement? Outside of the first time
home buyers program and life long learning program you can not remove funds
from your RRSP without paying tax on them.
With the TFSA, you can withdraw the principle and gains without any tax
consequences.
Scott Smith, CFP, BBA
Certified Financial Planner
Lidemark Financial Group Inc. for insurance and segregated funds
Investia Financial Services Inc. for mutual funds
3305 - 155B Street, Surrey
BC V3S 0K5
Cell: 604.505.8879
Phone: 604.538.6565
Fax: 604.538.6570
Toll-free: 1.866.538.6565
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Free Seminar - To Finance and Protect - Presented by Pauline Tonkin
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Our first presentation on April 23rd was a great success. We have been asked about future dates. Stay tuned. We expect to have another presentation within a few weeks. If you or anyone you know is looking to refinance or purchase or wants to learn more about protecting their assets, have them drop me a line and I will ensure they receive the next invitation.
Please RSVP to Pauline at 604 813 8402 or tonkin.p@mortgagecentre.com. Bring a friend!
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