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registered retirement savings plans


by Glenn on January 6, 2009

InsureCan has just released a TFSA vs RRSP calculator. It compares and contrasts two scenarios; if you make an annual deposit (plus refund) into an RRSP, or if you make a partial deposit into an RRSP with the remainder going into a TFSA.

This currently is the only calculator of it’s kind online at this time.  Other Tax Free Savings Account calculators merely show how the tax deferred growth is beneficial, they don’t actually compare to deposits made into a Registered Retirement Savings Plan.  This new calculator however, shows deposits and growth, then the effects of taxation on withdrawals after retirement. It helps answer the question ‘Will I have more money at retirement if I invest in a TFSA or if I invest in an RRSP?’.


RRSP vs TFSA – Tax Free Savings Accounts

by Glenn on May 7, 2008

In the last budget, the federal government created a new savings plan called a TFSA (Tax Free Savings Accounts). These savings plans will be available starting in 2009. These savings plans are similiar to to RRSP’s, with some technical but important differences.

Deposts to fund are tax deductible? No Yes
Growth/interest earned is tax sheltered while inside the fund? Yes Yes
Withdrawals are taxable? No Yes
Withdrawals affect other government benefits (OAC, GIS, etc) No Yes
Maximum contribution $5000 lesser of $19,000 or 18% of your earned income

Because TFSA’s aren’t taxed on withdrawal as RRSP’s are, and the withdrawals aren’t treated as income and thus affecting your other government benefits, TFSA’s may be a very attractive option in conjunction with or in addition to RRSP’s. They’re less beneficial right now (since you receive a tax deduction for RRSP contributions but not TFSA contributions) however after retirement they have some very attractive benefits.

Unlike some other investments you cannot deduct interest costs if you borrow to contribute to a TFSA. You will likely be able to invest in similiar investments to RRSP’s once these savings accounts become available.

Upon death, your estate will receive the funds from the TFSA tax free. Alternatively (and probably a better idea) you can specify a spouse or partner as a successor account holder – pretty much a beneficiary. That transfer won’t affect their existing TFSA.

So, TFSA’s sound like a great idea in conjunction with RRSP’s. They give us additional ability to grow our retirement savings in a tax sheltered fashion and they won’t decrease our other benefits and income when we withdraw them after retirement.

Coming soon: a TFSA calculator.