TFSA versus RRSP

With a limited amount to invest, individuals need to choose between investing within a TFSA or a RRSP.  Both are great savings and investing tools but there are differences that could affect your decision.    Here’s are the main pros and cons for both the TFSA and RRSP:

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When TFSA could be better

If you are currently in a low tax bracket then making an RRSP contribution means that you won’t get the best bang for your buck so TFSA may be a better option.   Because of the flexibility in withdrawing from a TFSA, this would also be the better option if you were saving for short term goals like a down payment for a house or a car. 

When RRSP could be better

If you are in a high personal tax bracket or you earn other income that does not have tax withheld at source for example interest, dividends, rental income, then making an RRSP contribution makes sense as you can get up to 53 cents on the dollar back and the contribution would help cover the tax on some of that other income.  This is especially true if you will be in a lower tax bracket when the funds are removed from the RRSP.

Whether TFSA or RRSP is better for you will change as your personal tax and life situation changes.  Your strategy should be revisited every year.