August 17th, 2012
One common tax question I get is this: should I put money into a Tax Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP)? Â There is of course no easy answer, and I won’t even pretend to answer that question in a blog post. Â It’s best answered on an individual basis.
There are some things you just can’t make a TFSA do that an RRSP does quite nicely, and there are some problems that an RRSP can create that a TFSA will never do to you. Â So the best place to start is to learn the differences between the two plans. Â If you want some basic advice, start off here:
I’m going to say one more thing: Â if you think you may someday qualify for what is called the Guaranteed Income Supplement (GIS) from Old Age Security, consider investing through the TFSA. Â Why? Â Because withdrawals from your TFSA account won’t affect your Supplement. Â You have no idea how many seniors say to me: Â “I would never have invested any money in an RRSP if I’d known how it would affect my Supplement”
Now, the government of Canada really,Â really doesn’t want you to plan your retirement around the Supplement – after all, the Supplement is there to protect the lower income seniors. Â But if you think the Supplement is in your future, consider avoiding the RRSP and go with the TFSA.
Qualifying for even a small Supplement brings with it a whole raft of other goodies (lower cost Senior’s PharmaCare, municipal property tax rebates, provincial heating rebates in Nova Scotia, etc.) Â So while the government of Canada doesn’t want you to build your retirement fund around the Supplement, you might be tempted to do so anyway.Filed under: Personal Tax by David Boese No Comments »