Investment Strategies: TFSA vs RRSP - The Great Contribution Debate

New clients often ask which type of account is better for them.  Should they contribute to their RRSP or TFSA?  My answer is that it depends.

Deciding where to contribute ultimately depends on what happened in 2020 with your taxable income. If you have the means to save, then a quick discussion about which option will benefit you in the long run should be had. An RRSP contribution is not a decision about last year’s income, it is really about creating a long-term retirement income stream. 

Readers, please note, when you read blog articles such as this and you see the word “income” always equate that to “tax is applied” (think RRSP/RIF, capital gains, employment income, business income, rental income). If you read “cash flow”, it’s entirely different.

Here are a few questions that I ask clients:

• How much money did you earn in 2020?
• If you are employed, did you make pension or group RRSP contributions this past year?
• If you are self-employed, how much is your accountant going to knock your income down by this year?
• If your income is above $60,000, is it a salary or a dividend? One creates RRSP contribution room and the other does not.
• 3. How much have you already saved in your RRSP? I start to cringe when I hear of balances that exceed $500,000 as they can become future tax bombs if not de-accumulated correctly.
• How much does your spouse have saved? Perhaps you should consider making a Spousal RRSP contribution instead.
• If your TFSA is empty and the RRSP is creeping north ($500,000 is my suggested limit where I want people to start to cool it on contributions), then a discussion is well needed on which to prioritize and why.
  

When it comes to managing wealth, everything that I think about for a client always considers the taxable impact. As I tell my clients, the priority is the type of account you invested in, not necessarily what you invested in.

If you are looking for advice on which direction to go in this year, please call our office at 1-866-550-6932 or contact us here.  We’re here to ensure that you make the most of your long-term retirement savings plan.