RRSP or TFSA: which should you choose?

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Xavier-Laurens Amany: RRSP and TFSA: What are they and which one is best for you?

[Light yellow text on beige background: RRSP or TFSA: Which should you choose? RRSP: registered retirement savings plan. TFSA: tax-free savings account]

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[Text on right side of screen superimposed on part of the green Desjardins logo: Xavier-Laurens Amany, B.B.A., Associate Advisor, Brossard Group, Desjardins Securities]

[Text on screen: Their purpose. Their advantages. Their differences.]

Xavier-Laurens Amany: Today, we’ll take a closer look at these 2 products, which are often misunderstood, to clarify their purpose, main advantages and differences.

[Light yellow text on beige background: The RRSP]

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Xavier-Laurens Amany: The registered retirement savings plan, otherwise known as an RRSP, is popular with many investors for one very important reason.

The contributions are tax-exempt as long as the funds remain in the plan, usually until you retire.

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Xavier-Laurens Amany: Important! Any amounts that you withdraw early will be considered taxable income.

It’s important to know that there are 2 exceptions to this rule: withdrawing funds to make a down payment on your first home or to pay for your education.

[Light yellow text centred on beige background: 2 tips]

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Xavier-Laurens Amany: First, you cannot exceed your RRSP contribution limit.

Second, the contribution deadline is March 1 of each year.

An annual meeting with your financial planner will help you navigate all the finer details, since the rules governing these plans have the unfortunate tendency to change regularly.

[Large light yellow text on beige background: The TFSA]

Xavier-Laurens Amany: Like the RRSP, the TFSA lets you save regularly and grow your money without paying any tax on the growth.

The annual contribution limit is set by the government. In 2019, it was $6,000.

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Xavier-Laurens Amany: Your contribution room is cumulative, starting in the year you turn 18.

For example, if you were born before 1991 and have never contributed to a TFSA, you’re eligible to deposit up to $63,500 in a TFSA in 2019.

Your financial advisor can give you all the details about the rules surrounding TFSAs.

Here is another major difference: TFSA investments do not reduce your taxable income, but the income they generate is non-taxable.

For example, for the same amount invested outside of a TFSA, because of the tax payable on your investment income, you could earn almost 40% less than had it been invested in a TFSA.

The money in a TFSA will never be taxable, even if you withdraw it, which you can do at any time, by the way.

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Xavier-Laurens Amany: You can use your TFSA to save for a number of different things: a down payment on a house, a new car or your retirement.

RRSPs, on the other hand, are usually used to amass retirement savings.

At the end of the day, to decide whether an RRSP, a TFSA, or even another savings plan is best for you, it’s a good idea to have a comprehensive financial strategy that also takes into account tax and estate planning as well as other aspects of your finances.

That’s the role of a financial planner.

You can make an appointment with a Brossard Group advisor to make sure your financial strategy is solid.

[Light yellow text centred on beige background: Brossard Group, Desjardins Securities. Xavier-Laurens Amany, Brossard Group, 1 Place Ville-Marie, Suite 1970, Montréal (Québec)]

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[Text on screen: Wealth Management, Securities]

[White text on black background: Warning. Each Desjardins Securities advisor named on the front page of this document or at the beginning of any subsection hereof certifies that the recommendations and opinions expressed herein accurately reflect their personal views about the companies and securities that are the subject of this publication and all other companies and securities mentioned in this publication that are monitored by the advisor. Desjardins Securities may have published opinions that are different from or even run counter to those expressed in this document. These opinions reflect the different points of view, assumptions and analytical methods of the advisors who wrote them. Before making an investment decision based on any recommendations made in this document, the recipient should consider whether such recommendations are appropriate, given the recipient’s particular investment needs, objectives and financial circumstances.

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