Advertisement
Start with a TFSA, when your income goes up add an RRSP.
Confused by another set of letters? Don’t be. TFSAs, or Tax-Free Savings Accounts, are simply one more way to shelter your money from the taxman. The difference is that with RRSPs, you get a tax break when you contribute. When the money’s withdrawn, you’re taxed. For TFSAs, the process reverses. There’s no tax break up front, but the government can’t get its paws on your money when the funds are withdrawn.
So which is better? It all depends on how much money you make. Canadians earning less than $36,000 should use TFSAs, says Gordon Pape, author of The Ultimate TFSA Guide. The reason is that people with lower incomes can make more in retirement than they do when they are working, due to the government benefits you get at age 65. You always want to pay income taxes when your income is lower, so if you make less than $36,000 it’s better if the money is taxed before you put it in your retirement savings, as is the case with a TFSA. Plus, when you retire, the money you take from TFSAs isn’t considered income, so it won’t result in clawbacks to Old Age Security and the Guaranteed Income Supplement.
The same isn’t true for RRSPs.
If you’re just starting your career and earning in the $30,000 range, you could start with TFSAs and when your income goes up, you could switch to RRSPs. Not only will you get larger tax breaks, but you’ll have built up lots of extra RRSP contribution room from the years you were using a TFSA instead.
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Nvidia doubles revenue in one year, Canadian inflation moves in the wrong direction, Target misses badly, Walmart beats earnings...
Here’s how to get your free ticket to attend the MoneyShow virtual expo.
Practical advice on how to build your retirement savings for employees at mid-career, the self-employed, single parents and more.
The Trump effect and Trumponomics, Shopify’s huge earnings beat, it’s sunny days for Suncor shareholders and more.
You started investing in your 20s, and you feel pretty good about doing it. But now what? Consider impact...
Here are the best accounts to hold your savings and investments.
Want an idea of how much tax you paid—or will be paying—for 2024? Here are the federal and provincial...
The U.S. election made the market go up—for now. Is volatility keeping you up at night? Here are some...
Apple and Nvidia vie for global market cap crown; Google, Microsoft and Meta crush earnings; Amazon’s Bezos takes WaPo...
