The difference between the two is how you are taxed or not taxed when you eventually access your funds. In many cases, when you look at what you will get in retirement, an RRSP alone is not enough. And pension plans, depending on what company you work for, have evolved — putting more pressure on you to save for retirement on your own.
In most cases, you are better off seeking the benefits of the tax reduction with the RRSP now and paying it later. But the challenge is you don't know what your income tax rate will be in the future and you don't know what government tax rates will be overall.
In other words, if you expect to have a higher tax rate at retirement, maximizing your TFSA first may be the better option. The contribution on the TFSA accumulates annually. Treat the TFSA like a long-term investment vehicle where you can benefit from tax-free dividends and gains.
Make the first sixty days of the last time you make a lumpsum contribution to your RRSP as a last-minute effort to bring down your taxes. Putting money aside for your savings or investment, such as your RRSP, is paying yourself first. Based on your budget, designate a certain amount of your pay cheque to your RRSP. To make it easier, you can set up a recurring transfer from your chequing to your RRSP.
The only caveat is to ensure that all your contributions do not exceed your RRSP contribution limit. Depending on your use of the TFSA, you may look at shorter term investments. To reap the full benefits of your TFSA, you want to invest within your risk tolerance, which is the degree of risks you are willing to take on to achieve potentially greater rewards.
That generally means looking at longer-term investment solutions, which include stocks, bonds, exchange traded funds and mutual funds. And if your income is lower in a year, you can carry forward the deduction for your contribution to a future year when your income may be higher.
This tax-free Tax-free Money that you do not pay tax on. Instead of spending the money you make investing, you reinvest it so it can grow. Make sure your RRSP fits into your overall financial and retirement plan. Learn more about retirement planning. Ultimately, the decision to invest in an RRSP will be a very personal one based on your unique financial situation.
To plan a financial literacy session in your community, see Planning for retirement. Looking to make a year-end donation? Assess where and how you give so every one of your hard-earned dollars has an impact. Missed payments and overspending are two mistakes to avoid when using this trending e-commerce option, experts warn.
Use these practical pointers to develop smart spending and savings habits when attending university. She is the recipient of many business press awards, and is also a certified member of the Association of Translators and Interpreters of Ontario.
Facebook Twitter Linkedin Email. When you want to make time work for you. When you have minimal or no employer pension. When you want to contribute now and claim later.
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