Before asking yourself which account should I invest in? You have to ask is there more to consider than paying taxes now or later?
With an RRSP, although you get a tax break in the same fiscal year you still have to pay taxes on it when withdrawn.
If you choose instead to invest in a TFSA, the actual amount you get to invest will be less (Income earned - taxes). But here is the catch, no matter when you take money out it is tax free. It also does not count as income if you decide to take it out when you are retired, which means no claw backs on government benefits. Also even if you do take it out before retirement you always have the option to put it back the following year making it more flexible than an RRSP.
Unlike the TFSA, if you take out funds from an RRSP prior to retirement you lose the contribution room it never comes back and it will be added as taxable income that same year. If on the other hand you wait until you retire, the money withdrawn is still taxable and also counts as income. And if it is coming out of anRRIF, there are minimum withdrawals mandated by the government which could mean government claw backs.
The TFSA on the other hand can continue compounding without any government interference and you can withdrawal as little or as much as you like.
If your like me than running the numbers is the best way to see what option works best for you. Should you like some assistance with this process let me know I would be happy to help. I personally believe that TFSAs kill RRSPs when it comes to retirement investing and here are my top 10 reasons why.
To learn more about your options download one of these free guides.
Or visit www.protectingwhatmattersmost.com
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