Should You Invest In Your RRSP or Your TFSA?

Retirement Transition, Calgary

Should you be putting more money into your RRSP or should you contribute to your TFSA (which by-the-way has no deadline)?

Here's a couple of ideas to consider:
1.) If you have made a significant amount of employment income in 2016 and you will be paying a large chunk of that in income tax, then the RRSP is your best choice for where to make a contribution. You will receive a nice tax refund and you can grow that money inside the RRSP on a tax-deferred basis. This is preferential tax treatment, which is good.
It may even be worthwhile to borrow some additional cash to top up your RRSP. It's very important to make sure you have contribution room before dumping in a bunch of money (you can always call CRA and ask them if you don't know). If you use an RRSP loan to top up your RRSP you should then use the resulting "tax refund" to pay down the loan. This is the smart thing to do. Interest rates are low right now making this is a great strategy to consider. (Our RRSP loans are at 3.2% right now.)
If your marginal tax rate is 39% that means that for every $1000 you contribute to your RRSP you get a refund on your taxes of $390. Sweet right?!
Here's an example:
Let's say you're an Albertan and you made $75,000 of income.
If you contribute $15,000 to your RRSP (assuming you have room & a 32% Marginal Tax Rate)
You will receive a tax refund of $4800. 
Want to try your own numbers? Here's an online calculator we like: RRSP savings calculator
2.) If your income for the past year was low it means you haven't paid a lot of tax, therefore, there isn't much benefit to contributing to your RRSP.  In this case, it would make more sense to contribute to a TFSA (Tax-Free Savings Account). The maximum contribution room for a TFSA to date is $57,500. If you are a high-income earner and you've maxed out your RRSP then it makes sense to work towards maxing out your TFSA. 
Keep in mind that the main benefit of a TFSA is that the growth that you receive within the account is tax-free. If you have a TFSA and aren't getting any growth then the account is pointless (ie: This is the case if you have a TFSA at the bank invested in a High-Interest Savings Acct. Don't be deceived by the name! Getting 0.8% or 1% is not high interest!). Some of the segregated funds that our clients are invested in grew over 10% last year and these are conservative investments. 
So, to review: an RRSP is the best account type if you earned a significant income last year and have paid a lot of taxes. The TFSA is the best account if you are either a lower income earner or if you have maxed out your RRSP contribution room.
When it comes to investing and using the account types available there isn't a one-size-fits-all solution. You need to be aware of your options and what is best for you in any given year.
That's where we can help! We work with you to create a worry-free retirement plan with guaranteed lifetime income.
Your Retirement Income & Investment Advisors,
Willis & Nancy Langford





Share This Post:

Related Posts

Latest Testimonial

My wife and I realized a long time ago the value of a financial planner over just a bank representative. We just felt like a number to the banks as every year it seemed we saw a different adviser with a different view. But finding a trusted, knowledgeable and personable financial planner took a lot of time and effort. It just seemed, so many large corporate Financial Planners were more concerned about what they could make off of us rather than what they could make for us.
What we wanted, was not just reasonable returns now, but good personal advice in our preparation for retirement and what happens when retirement actually arrives. We wanted someone who would be walking with us, guiding us on our way to retirement.
From the first time, we found the web site for Langford Financial Inc, we could see the knowledge of Willis and Nancy and a real effort to educate and pass on their knowledge through seminars, workshops and their personal service. Once I reached out through their web site for more information, Willis was quick to respond, offering and giving whatever information I was looking for and never was there pressure to commit to anything.
The feeling of comfort and ease when talking with Willis was inviting enough for us to want to meet with Willis and Nancy, just to see firsthand if there was a connection and what working with them would look like.
And when we did meet for the first time, that feeling of comfort and ease was very evident. It was a unique experience for us to be able to sit down and get to know a financial planner (or a team of both Willis and Nancy) and not have any sales pressure on us. Just getting to know Willis and Nancy was important for us. We needed to be comfortable with them and see their competence in the business, and it was obvious that Willis and Nancy wanted to know us better so they could know how best to help us.
Once we decided to move our accounts over to Langford Financial, we found their process was comforting and refreshing as Willis and Nancy first worked at evaluating our complete situation. They dug down to get a complete picture of where we were at, where we wanted to be and how to get there. This took some reflection on our part but once we saw how they put it all together in our “Financial House In Order” binder, we were confident we made the right decision to go with Langford Financial.
Since the time we started working with Willis and Nancy I have attended many of their seminars and can say the information they have been teaching has been amazing. Always relevant, and consistent with their desire to help those coming up to retirement, and covering so many different situations as everyone has a different life situation. I know more than one of the tax-saving strategies they taught at their seminars will work for my wife and I, so we are very happy about that.
We would definitely recommend Langford Financial, not just for all your retirement planning needs, but they have great ideas on savings for your grandchildren too!
Paul and Elaine Radder

Paul & Elaine Radder
Long-term Clients

Contact Us

Questions? Comments? Call us today at 587-755-0159 or fill out the form below:

Have Questions? Call Us Today At

Call Us

Join Our Newsletter