Not all investments are created equal.
This isn’t necessarily defined by their merits, but rather by their suitability for your personal financial situation and long-term goals.
I often get asked to compare Tax Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP).
For years RRSPs have been hailed as the golden nugget of Canadian investing, while TFSAs are a relative newcomer.
Both are registered with the Canadian Revenue Agency, and both are tax free – for the most part.
TFSAs are designed to hold and grow your money which has already been taxed. RRSPs offer you a tax credit when you contribute to them, but upon withdrawal the taxman comes knocking.
I find that the easiest way to decide which is best for you is to consider one question: do you get a tax refund? If you answered yes, I would likely recommend a TFSA.
Now, you may be thinking, “if I get a tax credit for RRSP contributions, why wouldn’t I want to contribute more? Wouldn’t I be saving money for retirement as well as earning a greater tax refund come tax time?”
Here’s a bombshell: tax refunds aren’t good.
They’re simply an example of the Canadian Government giving your money back to you a year later – and you don’t get to collect interest. Most people would rather have that money as they earn it. I know I would.
This is a good starting point for this valuable conversation. If you have these questions and more, please get in touch. I’d love to sit down with you and explain it more in depth and how it may affect your financial decision making.
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