RRSP deadline is only weeks away
The March 1, 2012 RRSP deadline is fast approaching! I hope you have consulted your financial planner to find out more about RRSP vs. TFSA or if a combination of both would work best to help you acheive your retirement goals. More important is the investments within the RRSP or TFSA, however, your financial planner can better explain.
Top 6 differences between TFSAs and RRSPs
- An RRSP is intended for retirement savings. A TFSA can be for any type of savings goal.
- RRSP contributions are tax deductible. TFSA contributions are not. With an RRSP, you deduct your contribution from the income you report on your tax return. With a TFSA, you can’t deduct your contribution on your tax return.
- You pay tax on your RRSP withdrawals because you made the contributions with pre-tax dollars. TFSA withdrawals are tax free because you made the contributions with after-tax dollars.
- In the year you turn 71, you can’t make any more contributions to your RRSP and you must close it. At that time, you have to use your savings to buy either an RRIF or an annuity. With a TFSA, you don’t have to stop contributing or close it at a certain age.
- You need earned income to contribute to an RRSP but not to a TFSA.
- With both plans, you can name your spouse as a beneficiary. The money will roll over to them upon your death. But with an RRSP, after your spouse dies, taxes will due on any money left in the account. So if your children inherit the money, they will receive what is left after the tax is paid. With a TFSA, only the increase in the value of the TFSA since the date of death is taxed in the year the children receive it. If the amount they receive is not greater than the value of the TFSA at death, no tax is paid.
For those of you who purchased your first home in 2012, don’t forget, you are eligible for the First Time Home Buyers Tax Credit as set out by the Canada Revenue Agency. And for those looking for a financial planning referral, give us a shout at 403.242.5547 and we would be happy to point you in the right direction.
For more on the differences between TFSAs and RRSPs, checkout this excellent blog post: Comparing TFSAs and RRSPs by getsmarteraboutmoney.ca.
