Should I invest in TFSA or RRSP?
By Mauricio Dreher
On the previous article I’ve wrote about the RRSP and the importance it has in your financial life. But many people ask me: Should I invest in TFSA or RRSP?
Well, the answer might be: “Invest in both”.
RRSP and TFSA have certain tax advantages and have their right place in your financial plan, but if you are not sure which one to choose, take a look below a comparison between them as well as how to invest in both in the same year.
TFSA and RRSP comparison chart
One of the reasons to choose where to invest, either in TFSA or RRSP, would be your tax situation.
If you have a low income today and a high income in the future, you could start by investing in TFSA and later in RRSP, because if you do the opposite, you would not have a lot of tax savings due to RRSP deduction and could end up paying more taxes in the future, while by investing in TFSA, in the future you would withdraw the money tax free.
On the other hand, if you have a high income today and a low income in the future, you should start by investing in RRSP instead of TFSA, because by doing so, you could have a lot of tax savings due to RRSP deduction and would end up paying fewer taxes in the future.
The problem is that you don’t know how your income will be in the future; if it will be lower or higher than today. So, if you are not sure which one to choose, why not invest in both? Perhaps you could do the following: invest in RRSP, and then take any tax refund you might have, and invest it in TFSA. This way you may have tax advantages from both sides.
Talk to your CFP – Certified Financial Planner; he or she will be happy to assist you to decide which one you should use to have the best tax advantage possible.