RRSPs vs. TFSAs: Your Savings Tips
When it comes to investing your money, it’s natural to wonder which savings method is the best.
A good savings plan allows you to save money while growing your assets! Trying to choose between an RRSP and a TFSA? These two savings options are popular because of their tax advantages.
EB Conseil Fiscal Inc., a firm of chartered accountants and tax specialists in Montreal can advise you on the different types of savings options available to you. Together, we will determine which option is best suited to your profile, with two objectives in mind: to help you save as much as possible and grow your funds.
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RRSPs vs. TFSAs
Choosing Between an RRSP and a TFSA
To choose between an RRSP and a TFSA, it’s important to be familiar with both options.
As a reminder, the RRSP, or Registered Retirement Savings Plan, is a program designed to allow you to save for retirement. It is therefore mainly used to prepare for this phase of life or for long-term projects such as building a house or going back to school.
The TFSA, or tax-free savings account, is more likely to be used to cover all kinds of expenses, such as vacations or unexpected costs. However, it can also be used to purchase a home.
Both of these investment options have many advantages, especially in terms of taxation. Both are tax-sheltered.
For example, the RRSP allows you to defer taxes on the money you invest. You will therefore only be taxed at the time of withdrawal. For the TFSA, as its name suggests, any returns generated by investments will not be taxed.
So, each account can save you a great deal of money. The trick is to understand what makes them different!
RRSP vs. TFSA
RRSP vs. TFSA: What Sets Them Apart
First, you need to have an income to contribute to an RRSP. This is not the case with the TFSA. The annual contribution limit for the RRSP is determined by your taxable income: it is equal to 18% of your income.
Then, as mentioned above, your RRSP will be used as retirement income, in addition to your pension. The TFSA, on the other hand, can be used for various shorter-term projects, such as a trip or home repairs.
You should also know that while contributions to an RRSP are tax-deductible, contributions to a TFSA are not. So, with the RRSP, you can deduct the contributions from the income reported on your tax return. This is not possible with the other savings vehicle.
In addition, as mentioned earlier, RRSP withdrawals are taxable, unlike the TFSA, which is tax-free.
Finally, there are different age limits for contributing to an RRSP or a TFSA. There is no minimum age for an RRSP, as long as you are earning income, but you must be at least 18 years of age to open a TFSA. The RRSP also sets the maximum contribution limit to age 71.
RRSP vs. TFSA
Considerations for Making an Informed Choice
After these clarifications, it’s time to choose between an RRSP and a TFSA. To make the right decision, there are several factors to consider:
- Your age: The closer you are to retirement, the more advantageous it is to contribute to an RRSP. A TFSA will be ideal for young workers or families with a variety of plans.
- Your plans: Do you want to save for your retirement? Buy a house? Go back to school? Saving in an RRSP is probably more appropriate. If you’re planning to go on vacation or have your kitchen repainted, a TFSA is a better choice.
Your income: Depending on your resources, one option may be more attractive than another. Of course, it is also possible to contribute to both
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Make an Enlightened Decision with EB Conseil Fiscal Inc.
EB Conseil Fiscal Inc. is a firm of chartered accountants and tax specialists in Montreal. We can help you with all aspects of your savings goals, including the HBP (Home Buyer Plan) and the RRSP loan.
To help you choose between an RRSP and a TFSA, come and meet us! We will put our expertise to work for you by examining your objectives, your situation, and your possibilities. Together, we will find the right answers to your savings and investment questions.