Saving on taxes is important and having an RRSP and TFSA can help. You may be asking yourself what are they and what’s the difference? We’ll help make sense of this alphabet soup and how they can contribute to your financial success.
RRSP (Registered Retirement Savings Plan) is a tax-deferred account, which means you can contribute to it and you’ll only pay taxes when you withdraw your money – hopefully in a lower-income earning year. The Canadian government sets annual RRSP contribution limits which are based on the income you earned in previous years. RRSPs don’t mean you avoid taxes it means you decide when you pay the tax based on when you withdraw your money.
TFSA (Tax-Free Savings Account) is exactly the same as its name implies. It’s a savings account where your money can grow and you don’t pay tax on the interest you earned when you withdraw your money. A TFSA is a “savings holding tank” that allows you many investment options such as stocks, bonds and GICs. Unlike an RRSP, you can’t claim a tax deduction on a TFSA but you do save tax on the interest and investment growth from your TFSA.
Both the TFSA and RRSP shelter taxes on your investment returns. Your tax rate at the time you invest vs the time you withdraw will determine the best option. If you think your tax rate will be higher when you want to withdraw your money a TFSA may be the best option. If you think your tax rate will be lower when you want to withdraw, then a RRSP may be the better choice.
There are benefits to having both an RRSP and a TFSA and spreading out your savings across both accounts.
If you want to find out how RRSP and TFSA can benefit you contact a Financial Advisor at North Peace Savings & Credit Union. We are here to help you plan for your financial success and select investment solutions that are right for you. Give us a call: 1-877-787-0361
Thanks for reading!
Energeticcity.ca is the voice of the Peace, bringing issues that matter to the forefront with independent journalism. Our job is to share the unique values of the Peace region with the rest of B.C. and make sure those in power hear us. From your kids’ lemonade stand to natural resource projects, we cover it – but we need your support. Give $10 a month to Energeticcity.ca today and be the reason we can cover the next story.