Saturday, May 8, 2010

Retirement Planning: should I invest in a TFSA or an RRSP

I've never been the most financially adept of people, and it's only recently I've given these matters more serious thought.  Retirement seems to be a nebulous time in the future but I know that it can creep up on you. The last thing I want is an impoverished old age so I seriously started planning my financial future.

So I recently started both a Tax Free Savings Account (TFSA) and a Retirement Savings Plan (RSP), both with ING Direct Canada.  They have different tax benefits

  • Contributions to a TFSA are taken from post-tax income, and is tax-free when you withdraw money.
  • Contributions to a RSP are taken from pre-tax income, and is taxed when you withdraw money.

This essential means that it's best to contribute money to

  • a TFSA early in life, because you will have a low income (your tax bracket will be lower)
  • an RSP later in life when your income grows (your tax bracket will be higher)

However, I don't necessarily think I should worry about these things too much as long as I am saving something.  The tax-benefits of either may change in the 30 years I have to retirement.

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