Valley First


TFSA vs RRSP: Maximizing your investment dollars

When the new year rolls around and tax season begins, you might find yourself debating the best way to use your investment dollars: should you stash your cash in RRSPs before the tax deadline or contribute to your TFSA?

Deciding on the best option can be challenging. Both are tax sheltered investments but each offers different benefits and, depending on your financial situation, one may be a better option for you.

Maximize your investment dollars and consider the following:

Withdrawal penalties

You can make contributions to your TFSA throughout your lifetime and when you want to withdraw from your TFSA, you can do so without being penalized. Beware if you put money back into your TFSA account as you are liable to a tax of one per cent on your over-contribution each month it’s held in your TFSA—ouch.

Any money you put into your RRSP reduces your current taxable income. You usually don’t have to pay tax on your RRSP contribution or any gains you earn until you withdraw funds—typically when you are retired and are in a lower tax bracket.

Investment options

It’s well known that RRSPs contain a variety of investments including mutual funds, stocks and bonds.

TFSAs are commonly thought of low interest earning savings accounts, but that’s not the case. TFSAs can also hold stocks, bonds, mutual funds and term deposits, similar to RRSPs.

Current vs future tax rate

If your tax rate in retirement is lower than your current tax rate, then an RRSP is probably the way to go. If you are a low-income earner with no pension or a high-income earner with a healthy defined-benefit pension, then putting your money in a TFSA makes sense.

Ultimately, the best advice is to go get some complimentary advice to build a savings plan customized to your unique situation. Call or visit your nearest Valley First branch and speak to one of our expert advisors.

Talk to us

Whether you’re looking for more information, or you’d like to let us know how we can serve you better, we want to hear from you.

Contact us today to find out how we can make things simple for you!