TFSA vs RRSP

I figured I’d cover one of the most asked questions. Should I put my money in my RRSP first or my TFSA? For most Canadians, this is an interesting question. I think I have found the definitive answer. It clarifies the order in which extra money should be used. I think this explains it clearly:

Pay off your debt first¹

¹ – If you do not have debt please take the advice later on in this post.

Seems pretty straight forward doesn’t it? Maybe I am not being clear enough here, maybe I need a list of 10 Ways to Save ? I doubt it, you get my point.

Now that we have cleared up that one, let’s move on to the real question. If you are out of debt, which savings vehicle do you try to max out?

My opinion is that you should be putting as much as you can (within the guidelines and limits of the CRA) in your TFSA. If you have reached the maximum levels for your TFSA, then you can start thinking about your RRSP. This shouldn’t be too hard, given the low yearly allowances on the TFSA.

---

---

Why?

• When you look at the balances of your TFSA, you are often looking at money you can use immediately. In most cases, it is accessible right away. You can use it after brokerage fees or whatever similar costs might be involved. Depending on your portfolio, a TFSA is available in a short period of time. When you transfer funds out of it, you can use that money freely. You don't have to worry about paying taxes or the like.
  
  Also remember the TFSA is badly named. While it can be a Savings Account, it should be an investment account. In this account, you can buy securities, ETFs, Mutual Funds, GICs, or other savings devices.
• With an RRSP, you can withdraw money. On top of the brokerage fees you pay, you will also have to pay the CRA. If you have made no money in the current year, the tax will be low. However, if you are John (or Jane) Paycheque, earning a normal income, you will incur a significant amount in taxes. This happens when taking the money out. The RRSP is for times when your income is lower (later in life). Think of it as a tax deferral savings program.
  
  This way, taking money out will result in lower taxes compared to when you were working. Yes, you will get a tax refund if you put money into an RRSP. However, that "refund" must be repaid to the CRA when you take the money out of the RRSP. Hopefully, this amount will be less than your initial refund.

What? Debt?

This is my opinion. I think there is no wrong choice here. Maybe do both. However, you must unburden yourself from debt first. Then figure out how to save.

Other TFSA then RRSP Resources

RRSP then TFSA ?

It is that time of the year where the argument about RRSP or TFSA starts. How about RRSP then TFSA as a possible solution? If you can do both without incurring debt, you are doing quite well.

RRSP to TFSA Grand Jete

Remember that an RRSP is simply a tax deferral program. Plan on moving that RRSP to TFSA. Do this in terms of the tax refund at least.

I did my RRSP and TFSA Now What?

Seriously, I have friends ask me that exact question, with little or no context to explain much else.

TFSA vs. RRSP?

TFSA or RRSP is a question many folks ask, but both have their place in. your financial plans. TFSA seems better for short-term savings.

RRSP: Tax-Deferred Savings Plan

Your RRSP is a tax-deferred savings plan, you will eventually have to pay the CRA for your deposit, one way or another (yes death & taxes). #RRSP

The Spousal RRSP the Forgotten Savings Tool

Is the concept of the spousal RRSP now an outdated idea? No, the spousal RRSP is as important as it was before pension income splitting was available.