Should I invest in an RRSP or a TFSA?

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For many people, there is a decision to be made if you want to invest into either an RRSP or a TFSA. This decision is dependent on a few different factors so please discuss these options with your accountant to determine the best solution for your situation.

If you are looking for a long-term investment, then the RRSP is a great option.  The deadline to contribute to an RRSP for the 2017 tax season is March 1, 2018. A major point to consider with an RRSP is when you withdraw money from this account, then you will be taxed. However, you can get a nice deduction from your taxes if you are a high-income earner and keep the funds in the RRSP. The maximum contribution to an RRSP in 2017 was $26,010. The idea is to withdraw these amounts out when you retire, and more than likely are in a lower tax bracket. Another way of using an RRSP to your advantage is to contribute to a spousal RRSP. That way you can get the deduction and the other bonus is that your spouse has money that they can withdraw upon retirement. Please be aware that your contribution room would decrease when contributing to your spouse’s RRSP. I have been contributing to an RRSP since I started working full-time.

If you are looking for a short-term investment, then the TFSA is a great option. Withdrawals are tax-free! However, there is no deduction on your tax return like there is for an RRSP. The only quirk is that if you were to withdraw money from the account during the year, you could not get that contribution room back until the following year. If you were to contribute too much, there are penalties.

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Shawn Oldridge


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