If you’re scrambling to meet the March 1 registered retirement savings plan (RRSP) deadline take a step back – for a moment – and consider this: the long-term tax savings in a tax free savings account (TFSA) could be greater than the short-term tax savings in a RRSP.
The TFSA has come into it’s own as a legitimate tax saving tool now that the total contribution limit has reached $25,500. Under Canada Revenue Agency rules any investment gains in the plan are not subject to taxation - ever. If you invest well over the years, that could be a lot of tax free money.
There is no deadline to contribute to your TFSA because - unlike an RRSP - the contribution can not be deducted from your taxable income. Where the TFSA trumps the RRSP is the fact that any RRSP contribution, plus gains, are fully taxed when withdrawn (although the taxes are expected to be minimal because the plan holder is intended to be in a lower tax bracket in retirement).
So, which is better?
The answer is both. We may beRead More »from TFSA could trump RRSP for tax savings