It is readily apparent to those in the financial sphere that RRSPs cause consternation to many, with a fair amount electing to not contribute to them, calling them a waste of time and effort. However, at least one financier has to note that the decision is not one that should be written in stone in his opinion. Rather, it is dependent on the situation of each possible contributor. There is, for example, one quite logical reason why older single, seniors might elect to stop contributions. In such a case, upon the death of the person holding the RRSP, a widow, or widower, for example, taxes take a phenomenal bite out of the remaining RRSP balance. Another example where contributing to a TFSA could be a better choice is when a contributor is currently working at a low-paying job, but has expectations of an improved income within a few years time. It is more sensible, given such a scenario, to await the higher earnings before switching to an RRSP. If the reverse is actually the case, it can be most beneficial to contribute to the RRSP now and remove earnings when the income does the anticipated and drops. In the case of couples with a significant age gap, it is important to understand how much income is taxable in the case of each spouse. With care, it is possible to skew the benefits inherent in such a situation as required for the benefit of each spouse.
“While you will be taxed on these withdrawals as income, if the tax rate is very low because you have little other income, it usually makes sense to withdraw the money in those years and put it back when your income is much higher.”