Should You Contribute to Your RRSP or TFSA?

Tax kids calculating RRSP and TFSA contributions!My first post at BankNerd.ca…

At the beginning of February I was delighted to be accepted into the Guest Authorship Program at BankNerd.ca. I’ve written my first article, fortuitously launched on Valentine’s Day. 🙂 The post is titled Should You Contribute to Your RRSP or TFSA?

In this post I look at the basic differences between the TFSA and RRSP, and why I think the TFSA is a better option for most Canadians. I also bring up the point that RRSP Withdrawals become taxable income, and that the RRSP is really a tax deferral plan.

“Not only can Canadians contribute to your RRSP, but you can also take advantage of the Tax Free Savings Account (TFSA) introduced by the government in 2009. Many Canadians are still unfamiliar with the TFSA and how it works, continuing to contribute to their RRSP. Both plans shelter your income tax-free, both plans have benefits, and both the TFSA and RRSP work in different ways. The biggest difference is the treatment of taxes in each plan… “

“However, a RRSP contribution is nothing more than a tax-deferral plan and this is the way you really need to view it. The string attached most people forget, is that you get taxed when you make withdrawals from your RRSP. That’s because RRSP withdrawals become taxable income. So the tax man cometh back for the refund he gave you! There’s no way around this – it’s about as absolute as gravity…”

I also bring up two different RRSP strategies from two of my favourite bloggers, one being to maximize your RRSP, and the other being to optimize your RRSP. If you are thinking of contributing to your RRSP this year, instead of the TFSA, have a read through this post and get the basics:

Should You Contribute to Your RRSP or TFSA?

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3 Responses to “Should You Contribute to Your RRSP or TFSA?”

  1. Modest Money

    Feb 15. 2012

    I’m heading over to BankNerd to read your post right now. Your previous post on this subject here was quite enlightening. I could definitely use more education about the whole rrsp vs tfsa debate. Congrats on the new opportunity.

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