RRSP season is here. The deadline for contributing to your 2008 RRSP is March 2, 2009. The government of Canada has also introduced Tax Free Savings Account this year. In a TFSA you can invest up to $5000 and any capital gains from your investment is not taxed.

Your best option is to always contribute the maximum allowable RRSP limit. Ensure that you also contribute the maximum $2000 lifetime over contribution limit. Then contribute your $5000 maximum to your TFSA.

If you expect your tax rate after retirement to be the same as it is now, TFSAs and RRSPs will produce the same net result.

If you expect your tax rate after retirement to be less than it is now, top up your RRSP before opening a TFSA.

If you expect your tax rate after retirement to be higher than it is now, saving in a TFSA will produce a better return than making an RRSP contribution. That is your investments will yield more income that your current earnings, saving in a TFSA will produce a better return than making an RRSP contribution.

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