Saving Options

Trying to save now that you’ve graduated? Tax Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP) are excellent saving options to consider; but, it can get confusing when deciding which the best fit is for you.

Here’s what you need to consider:

  • TFSA’s and RRSP’s let you put your money into any type of investment and shelter you from paying tax as long as the funds are held in your account.
  • TFSA limit for 2019 is $6000.00. TFSA’s allow you to carry forward funds so that you can “catch-up” on the years when you weren’t able to save.
  • If you maxed out your contribution limits since the introduction of TFSA’s in 2009, your cumulative balance would hold $63, 500.00
  • In a TFSA, you do not get a tax break but when you need your cash, it won’t be taxed when you take it out.
  • TFSA’s are flexible. If you need to take out funds there are no ramifications.
  • The accessibility of TFSA’s is an important consideration if you have different goals than saving for retirement. If your goals are saving for a wedding, a car, or travel, this may be a better option.
  • If you are carrying debt, be it a student loan or from credit cards, retiring the debt can be an excellent investment as well. Once you have cleared the debt, beginning a savings plan with the same funds can be a part of your budget.
  • TFSA’s and RRSP’s let you put your money into any type of investment and shelter you from paying tax as long as the funds are held in your account.
  • In an RRSP, your contribution is deducted from your income, which may result in a tax refund, but your money will be taxed when you use it down the road.
  • RRSP’s have a contribution limit of 18% of your income (to a maximum of $26, 500.00). RRSP’s allow you to carry forward funds so that you can “catch-up” on the years when you weren’t able to save.
  • If you need to access money from your RRSP, say for an emergency, there will be a tax liability payable that year. RRSP’s will allow first time home owners a $25, 000 withdrawal and for those furthering their education a $20, 000 withdrawal is also permissible. Note: This money must be repaid within 15 years or you will face serious tax problems! Each year you must pay 1/15 of the total owing.
  • Since withdrawals from RRSP’s have such a significant tax consequence, it makes it more difficult to remove funds. This added level of hardship deters many from taking this route and these funds remain invested until retirement. Employee matching programs are NOT called RRSPS’s but RPP’s – Registered Pension Plans.
  • If your employer matches your contributions to a workplace retirement savings plan you should take advantage of RRSP’s. This is essentially “free” money and should be priority over other options if you can’t do both.
  • If you’re trying to decide whether the RRSP tax break makes a better option, one consideration is to look at your taxable income (income after deductions). If it is above $43, 561 for 2013, your marginal tax rate jumps into another category, and therefore  your RRSP contributions will produce a larger tax refund. Below that line, the benefit of going with RRSP’s is not as compelling.
  • If you are carrying debt, be it a student loan or from credit cards, retiring the debt can be an excellent investment as well. Once you have cleared the debt, beginning a savings plan with the same funds can be a part of your budget.

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