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TFSA vs. RRSP?

in Bank of Canada, Bank Rates, Nortel, Retirement Savings, TFSA

This was written in 2009, where the world was recovering. The Financial Crisis was still raging, I was still unemployed, so keep that in mind.

Larry MacDonald will be publishing a story about TFSA’s and their new found popularity and for some odd reason he is quoting me, so read your Globe and Mail and send me a note when the article gets published. All I told Larry is that given right now where I have little or no RRSP room left thanks to my pension, the TFSA is the next logical choice for me to use as a savings vehicle, otherwise I get to pay the CRA more taxes on any Capital Gains or Interest I might earn on my savings/investments.

I still don’t have a definitive answer of whether you should put your money in an RRSP or a TFSA (if you have the option to be able to choose), but I think if you are in a high enough Tax Bracket, it might be good to put money in your RRSP but the TFSA is after tax money and thus a useful vehicle to use for saving for the near future as well (where RRSP savings is a LONG term thing in my mind (unless you are as old as me, then it is nearer term)).

Nortel News

I will attempt to stay away from my former employer after last week’s articles as a few folks have suggested that old beat down unemployed former employees might not want to come off as twisted and bitter, especially if future employers find these commentaries on line. Enough said on that topic.

A good place to get all the good info on Nortel is All About Nortel, and yesterday’s post about the Private Jet made my stomach turn (whoops, bitter and twisted alert). This blogger seems pretty tightly coupled to the inside scoop on Nortel.

New Hope with Obama

Maybe, but unless he is a combination of Lincoln and FDR I suspect the love affair with this President will not last as long as some might have you think, if you end up with double digit unemployment (and inflation or deflation thrown in for the fun of it).

In Canada we don’t get that enamored with our politicians. Gone are the days of Trudeau-mania, we now hold all our politicians and public figures with a certain degree of mistrust or at least disdain, and I think I like it that way.

Bank Rates Due Today

I will have a posting about the new rates on Wednesday, I am curious to see if the banks continue to not lower their rates to increase their margins in this area. If they continue to do that, I may buy more Bank stocks as they are finding new areas to grow their income (on the backs of people who are in debt, so no it is not in a nice way, but it is effective).

{ 5 comments }

  • TFSA Fees January 23, 2009, 1:52 PM

    Larry Macdonald (in Canadian Business online) made a link to our web page that shows all the fees associated to the TFSA at banks etc. Diana has just updated it, and there is even a chart that shows the TFSA incentives that are being offered….

    Reply
  • sundae1888 January 20, 2009, 6:32 PM

    I haven’t opened my TFSA yet, but planning to do so with my tax refund (already maxed out my RRSP).

    I like TFSA and its reusable room. Retirement is a little too far off right now, I prefer the immediate tax refund of RRSP. I have also started out with RESP, so there are a lot of special savings vehicle to take care of.

    Reply
  • Money Minder January 20, 2009, 9:23 AM

    RRSPs give Canadians the option to income split more than $5k per year(assuming you have a spouse, RRSP contribution space and income differential).

    If you have a great pension and retirement income and you anticipate that your tax rate in retirement will be just as high/higher than your pre-retirement tax rate, you will be heavily taxed on RRSP/RRIF withdrawals and TFSAs might be a better choice from that perspective.

    Reply
  • Tax Admin January 20, 2009, 8:20 AM

    I’m glad to hear you made it through the Nortel crisis. Its a blessing you were let go when you were eh?

    When looking at the TFSA vs RRSP, consider this. The RRSP is a “retirement account” and you should consider it for your retirement plan. The TFSA is for everything else in your life: Saving for a new car, emergency fund, or a vacation. The TFSA gives you the flexibility to save for other things without tax implications.

    The theory underlying the RRSP is that you will be in a higher income bracket before retirement and a lower income after. You can lower your taxable income now and include this deferred income to a later point in life. You can also use the RRSP as an income averaging tool (contribute when income is high and draw it off when income is low – commission sales or self-employed persons benefit from this).

    That said, I feel that you first must consider your retirement and contribute to an RRSP to meet that need. Then you use the TFSA to save for other things. All said and done, it makes more sense to contribute to an RRSP first, particularly if your income if high.

    Reply
    • bigcajunman January 20, 2009, 8:58 AM

      It’s odd to say, but yes I was lucky I was laid off when I was, because I have too many friends who are in a bad situation right now.

      Reply

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