TFSA or RRSP: Which is better depending on your situation?

Until recently, the RRSP was what most people swore by. Now the experts say the TFSA is the only way to go. Which one is better? The answer: it really depends on your needs. Read through the following situations to find the one that best reflects your reality. Along with our table, it will help you determine which savings program is the best fit for you.

I am 25 and just starting out my career. Therefore, my current income remains modest. Should I consider investing in a TFSA?

If you are 18 or over, at the start of your career and are looking forward to earning a higher income in the coming years, you should definitely consider investing in the TFSA. Once your revenues stabilize, you may want to think about using your TFSA savings to contribute to an RRSP. Your RRSP deductions could then be extended over more than one year, which could allow you to maximize your tax refund.

I am 42 and have $7,000 this year to invest towards my retirement. Which would be the better option, an RRSP or TFSA?

If you anticipate your effective tax rate at retirement to be lower than your current deduction rate, we recommend you maximize your RRSP contributions. The leftover amount, if any, can then be invested in a TFSA.

I am a single mother with three children, one of whom is younger than six, and child care expenses of $6,000. My salary is $45,000.

In your case, an RRSP contribution would enable you to benefit from several social tax programs as well as a tax refund (the combined benefits represent more than 80% of the contribution).

At 58, I have few accumulated assets, yet still manage to put away a small amount each year towards retirement. Is the TFSA right for me?

If you expect your retirement income to be low, the TFSA is practically a must. In fact, it should take precedence over an RRSP, since it will most likely allow you to retain your Guaranteed Income Supplement (GIS).

I am a retiree with an income in excess of $65,000. I have some non-registered savings and am currently reimbursing a portion of my Old Age Security (OAS) pension. What benefits can the TFSA provide me?

It would be in your best interest to transfer the maximum allowed annual amount to a TFSA. If you are in a relationship, it would also be a good idea to transfer the maximum annual amount to a TFSA in your spouse’s name in order to take full advantage of income splitting. Attribution rules do not apply in this situation.

The preceding cases are examples only and serve to illustrate the benefits of certain financial products under identical situations.
The client agrees to have the applicability of any procedure pertaining to the TFSA or RRSP confirmed by his/her accountant or tax advisor.

The Main Similarities and Differences Between the TFSA and RRSP.