RRSP or TFSA: Still trying to decide?

RRSP illustration. (QMI Agency)

RRSP illustration. (QMI Agency)

GAIL VAZ-OXLADE, Special to QMI Agency

, Last Updated: 3:35 PM ET

One of the things that inevitably floats to the top of the financial-goals list is "save more money." It's a good goal, but there are so many different vehicles you can use to save that, sometimes, the choices become the barrier to saving.

At the height of RRSP season you'll no doubt hear the reasons to use an RRSP. But is it a good choice for you?

The RRSP's big benefit is that it isn't just a savings vehicle, it's also as a way to save on taxes now (because of the tax deduction) and over the long term (because your return compounds without you having to pay tax on it immediately).

If you have a low income and it is taking all your money just to make ends meet, skip the RRSP. If, in retirement, you're going to be able to make do with the money provided by the Canada Pension Plan and Old Age Security, then squirrelling away whatever you can manage in a TFSA makes way more sense. If you're going to have an income that allows you to qualify for the Guaranteed Income Supplement, then using a TFSA will also work better for you.

Ditto if you have a low tax rate. It makes no sense.

Think you'll likely always be at the lowest tax rates? Stick with a TFSA. Expect that, over time, your income and tax rates will increase? Make your RRSP contribution, but hold the deduction for when your taxes are higher and you'll get a bigger refund. You can then use the taxes you save to pay down your mortgage or fund your TFSA contribution.

If you're pretty close to hanging up your spurs, and you haven't made any RRSP contributions so far, go with a TFSA. The same holds true if you've got a great pension plan at work. If you're concerned about losing your OAS to the clawback, go with a TFSA instead of an RRSP.

For virtually everyone else, an RRSP is an awesome idea, so don't be deluded or confused into thinking you won't benefit.

I've had my RRSP since I was 22 and now that I'm heading into my "later years" I'm glad I had some foresight and started contributing early.

-- Gail Vaz-Oxlade's latest book, Money Rules, is published by HarperCollins and will make you say, "Really? I didn't know that!" Visit her website at gailvazoxlade.com


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