As we already know, RRSPs are a fantastic opportunity to invest your money in a very tax-friendly way. As well, a Tax-Free Savings Account (TFSA), is a type of account that allows Canadians to earn tax-free investment income to better meet their savings needs. The confusion lies in deciphering which is best for your financial circumstances and goals. Let us break it down….
Introduction
The RRSP was created in 1957 and has gone through a number of changes to reflect how Canadians save for retirement.
The TFSA was first introduced in 2009, Canadian residents age 18 and older are able to contribute up to a certain annual amount into their TFSA.
Contribution Limits
Your RRSP contribution limit depends on your earned income for the previous year. For 2020 your limit will be 18% of your 2019 earned income to a maximum of $27,230 less any 2019 pension adjustment, plus any carry forward of unused contributions.
The TFSA does not require you to have earned income to make a contribution. The maximum you can contribute is currently $6,000 per year. Your contributions allow your investments to grow tax free.
Over Contribution
RRSP: You are subject to a penalty tax of 1% per month on the part of your RRSP contribution that exceeds your lifetime over-contribution limit of $2,000.
TFSA: Over contributions are subject to a 1% per month above the yearly maximum limit.
Eligible Investments
For your RRSP and TFSA, you have the ability to choose from a wide range of investment options such as.
Mutual Funds
ETFs
Stocks
GICs
bonds
and more
Tax Benefits
Your RRSP contributions are tax-deductible on your income tax return.
Contributions are not tax-deductible on your income tax return.
Withdrawals
Withdrawals from your RRSP are subject to a withholding tax. They also must be declared as income on your annual tax return. Amounts can be added back to your contribution room the following year.
Withdrawals from your TFSA are tax free. Any amount withdrawn can be added back to your contribution room the following year.
As you can easily see, both provide excellent avenues. Deciphering which is best for you, however, warrants a further honest, technical, and expertise approach rather than an emotional response to market, trends, and friendly advice. This is where you and I should talk further about whether a TSFA or RRSP is best for YOU!
A TFSA can be an important part of your investment strategy. If you need to set up a TFSA or RRSP, or if you have not yet contributed the full amount, it's time to contact me.
Henry Foradori
Senior Investment Advisor
Argosy Securities Inc.
101-1725 16th Avenue
Richmond Hill, ON L4B 0B3
T: 905-709-7066 Ext: 2236
www.Argosy-Foradori.com
This material shall not be construed as a solicitation or an offer. The securities mentioned may not be considered suitable for all clients. Before making any investment decision, contact your investment advisor to discuss your investment needs.” “The information contained in this report has been drawn from sources believed to be reliable. Argosy Securities Inc. However, its accuracy or completeness is not guaranteed, and Argosy Securities assumes no responsibility or liability. Argosy, its directors, officers and other employees may hold positions in the securities mentioned herein.
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