Archive for February 2018

The Classic Debate RRSP or TFSA ?

 

RRSP or TFSA ?

It is the classic debate for Canadians, should they contribute to their Registered Retirement Savings Plan (RRSP)  or Tax Free Savings Account (TFSA)? 

When it comes to making a choice between a TFSA or RRSP, many factors come into play and each individual circumstance is a little different. For some Canadians a combination of RRSP and TFSA is the best plan for retirement.

TFSA is after tax income

Your TFSA contributions have already been taxed and there is no tax break comes tax time. It doesn’t matter what your tax rate is when you withdraw, it is all tax free capital gains/interest. Any unused contribution room can be carried forward indefinitely.

You can invest in almost anything through your TFSA, including mutual funds, ETF, stocks, GIC, bonds, etc. Funds can be withdrawn from your TFSA at any time without tax implications and can be contributed back the following calendar year or later without penalty.

RRSP is tax deferred income

Your RRSP contribution is pre-tax income and you will get a tax refund when you file your tax return. All of the money, including the gains/interest in the RRSP will be taxed at your current tax rate when you withdraw. Unused RRSP contribution room can be carried forward from one year to the next without penalty.

You can invest in almost anything through your RRSP, mutual funds, ETF, stocks, GICs, bonds, etc. Funds can be withdrawn tax free with the First Time Home Buyer’s Plan and Lifelong Learning Plans but must be re-contributed back in 10 years for education loans and 15 years for home purchase loans.

Conclusion

Depending on your circumstances, the TFSA and RRSP both offer excellent investment opportunities. While the RRSP remains a favorite in retirement savings plans. Contributing to the RRSP makes the most sense when your marginal tax rate at the time of contribution is greater than your marginal tax rate at the time of withdrawal. The TFSA offers other retirement strategies for high and low income individuals, and seniors nearing retirement. I prefer to use a TFSA, as all money earned and contributed has no tax consequences with lots of flexibility. For high income earners one possibility is to contribute to the RRSP and use the tax deduction to fund your TFSA.

HERE is an article from MoneySense that gives you a good example of RRSP vs TFSA.

 

Don’t wait for retirement to enjoy life !!

Interesting Stuff on the Web

 

Interesting stuff on the web is what I have read through out the week. I read a lot of articles and there is always a few that I feel is worth you reading. Often I have a different opinion than the articles I post on Interesting Stuff On The Web but they are all well written pieces. Here are the links. Enjoy !!

 

House Prices Falling In Majority Of Canadian Cities As New Rules Kick In/HuffPost Canada House prices fell in a majority of Canadian cities in January, the first month of tough new mortgage rules at the major banks, new data shows. The latest edition of the Teranet-National Bank House Price Index shows prices falling in seven of the 11 cities covered.” 

How to Increase Your Net Worth by $700,000 in 7 Years/Marriage, Kids and MoneyOne fall night in 2010, my wife Nicole and I were watching the Suze Orman Show. (Yes, I used to DVR it). There was this fun segment where someone would call in and Suze would analyze that person’s financial health and give them a grade. It was called How Am I Doing.”

Why 60/40/Ryan Lewenza/The Greater FoolAll it took was a bit of volatility and a 10% market correction to wake investors up from their low volatility induced stupor. Well a “bit of volatility” is maybe downplaying what we’ve witnessed in recent weeks with the VIX or “fear index” rocketing higher from a near historical low of 9 in early January to a peak of 37 in early February.”

Benjamin Graham’s Timeless Advice/Money TalksBorn in 1894, Graham, author of the Intelligent Investor worked in managerial economics and investing which led to value investing within mutual funds, hedge funds, diversified holding companies. Throughout his career, Graham had many notable disciples who went on to receive substantial success in the world of investment”

 

 

Don’t wait for retirement to enjoy life !!