RRSP, TSFA or Both

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Did your income go down in 2013? If so, it might not be the best time to invest in your Registered Retirement Savings Plan. But it might be the perfect time to invest in a Tax-Free Savings Account.This is because your tax savings  from an RRSP could be higher when your income rises. On the other hand, with a Tax-Free Savings Account you’ve already paid taxes on the capital you’re investing.

Confused? You’re not alone! Many Canadians don’t understand the nuances of TFSAs and RRSPs, which means they are unable to maximize savings on these investments.

An RRSP gives you a way to invest in your retirement while saving on income tax right now. RRSPs are designed around the idea that your income will probably be lower once you’ve retired than it is while you’re hard at work. So, once you retire, your tax payable will be lower since you’ll most likely fall into a lower income tax bracket.


Essentially, an RRSP helps you defer taxes to maximize savings. It lets you increase the funds you’ll have later – when you’re paying less in income taxes and lowers the taxes you pay now, while you’re at a higher income tax bracket.

But does it actually make sense for you to put money toward an RRSP with your current financial situation? Maybe it would be wiser to invest in a TFSA.

A TFSA is a method of investing where you pay no income tax on the money earned in that account. When you take money out of this account later, you get tax-free funds – you’ve already paid the taxes at the time of investment!

With this information in mind, you should ask yourself, “Would it be better for me to pay taxes now or later?”If you decide to go the “pay later” route,  the deadline to purchase RRSPs for your 2011 tax return is March 1, 2014.