First, let’s determine the difference between the two –
RRSPs – intended specifically as a retirement savings plan
· Contributions are tax deductible
· Maximum contribution: 18% of earned income or $22,970
· Cashed RRSPs treated as earned income and taxed
· Age limit for making contributions – 71 years of age
TFSAs – can be used to save for anything (retirement, home, car, vacation etc.)
· Contributions are not tax deductible
· Maximum contribution: $5,500/year, regardless of your income
· Withdrawals are not taxed
· No age limit to making contributions
Which option is better for you?
Higher marginal rate today – invest in RRSP first. Generally speaking, RRSPs are better for high-income earners ($70,000+).
Higher marginal rate in retirement than today, then invest in TFSA. TFSAs are better suited for lower-income earners.
