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Can you save for the future and get a tax break? TFSAs and RRSPs both offer tax advantages that can help you achieve your saving and investing goals. So, which is right for you?
The truth is, how you should protect your income isn't always clear cut, but your savings plan can include a TFSA or an RRSP or both. But – if you must choose one over the other, it's important to understand how they differ.
Here are some important considerations to help you decide which option is right for you.
Looking for advice? We can help.
If you're saving for retirement, then an RRSP may be a great choice. When you contribute into an RRSP, you defer paying tax from your peak earning years to retirement, when your income and tax liabilities may be lower. Think of it as a strategy that can optimize your saving capabilities.
While a TFSA is not specifically designed as a retirement savings account, its flexibility potentially can make it an excellent complement to an RRSP. If you have already maximized your RRSP contributions, then a TFSA may be an option for you to save more money and get the benefits of tax-free growth and withdrawals.
Look at the different scenarios below. Both Albert and Golnoosh are saving for their retirement, but they have different strategies.
The Home Buyers' Plan (HBP) is a program that allows first-time home buyers to withdraw up to a maximum of $35,000 from their RRSP towards buying their first home2.
If you're saving for a new home, a good strategy can be to use the money from your RRSP to help pay for your down payment. The amount withdrawn can be paid back into the RRSP through instalments over a 15-year period.
Look at the different scenarios below. Both Samantha and John are saving for a down payment on a home, but they have different strategies.
The higher your income, the higher your personal tax bracket and the lower your income, the lower your personal tax bracket may be. If you're in a low tax bracket, consider putting your money into a TFSA to help build up your capital. As you enter higher income brackets, you can withdraw your TFSA funds and make contributions into your RRSP to help lower your income taxes.