This is the time of year your advisor will call you up to add more to your RRSP and/or TFSA. Saving for the future is not an option and you should put the maximum allowable contribution into your RRSP's, if you have disposable income available. But, what if you do not have the cash to maximize your RRSP? And what about a TFSA, how much money should you put into this account?

          RRSP:  Money in: receive a tax return based on your tax rate and amount invested.

                       Money out: receive funds LESS the tax owed at your tax rate at that time.

           TFSA:  Money in: after tax dollars, NO tax refund.

                       Money out: receive funds, NO taxes owed.

     The numbers show the answer. If your tax rate is at a higher rate when you take money out, The TFSA wins, if tax rate is lower when you take money out the RRSP wins. 

What goes into an RRSP or TFSA? What do you do with the funds you put into these accounts: invest. You can purchase individuals stocks, ETF’s, mutual funds, gold coins, gold bars, private equity, mortgages,etc…..Yes it is more than mutual funds…much more. Is there possibly a better option than RRSP  OR  TFSA? Since you get a tax refund from your RRSP and you know you will have to pay those taxes back in the future, how about using those tax refunds to make money? If you are spending the tax refund on consumer goods, diners, T.V’s, then down the road it will hurt you. How about immediately taking the tax refund from your RRSP and depositing it into a TFSA. 

WOW: you are now using government money to earn money for yourself. 

      Not only will it cover the taxes that will be owed when you cash in your RRSP funds, but all the money you made by investing is yours…not the governments. Always invest wisely, understand what you own; and the future you will thank you.

***Contribution Limits:

RRSP: Your allowable RRSP contribution for the current year is the lower of: 18% of your earned income from the previous year, or. The maximum annual contribution limitfor the taxation year. (Can access your current deduction limit on canada.gc, follow the link: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/contributing-a-rrsp-prpp/where-you-find-your-rrsp-prpp-deduction-limit.html)

TFSA: For 2018, the contribution limit is $5,500. If you don’t have a TFSA, then you could open one and contribute a maximum of $57,500.

Its not RRSP OR TFSA…..IT’s both.

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