Personal Investor: Sometimes a TFSA is better than an RRSP
With the March first deadline, many are ready to contribute to their RRSP accounts, but you might want to put your money elsewhere. While RRSP investments grow and can be bought and sold with no tax consequences, they are taxed at withdrawal. TFSA has the benefit of growing tax-free and funds not being taxed at time of withdrawal. Those in the workforce might benefit from one account over the other depending on their personal financial situation, or they may choose to have both.
- The amount you contribute to your RRSP can be deducted from your taxable income. However, they are fully taxed at the individual’s current rate when funds are withdrawn from the RRSP.
- An RRSP generally has a larger contribution (18 per cent of your previous year’s income to $26,500 for 2019), while the TFSA only allows up to $6,000 for 2019.
- TFSA contributions cannot be deducted from your income, but withdrawals are never taxed including gains on any investments, and they can be withdrawn at any time.
“Before making a contribution, you might want to consider the relatively new kid on the block: the tax-free savings account (TFSA).”