By Carl Brodie
Deciding between an RRSP and a TFSA is a source of confusion for many people. Throw in the possibility of an RDSP and things become more complicated still.
It is very difficult to make general statements in financial planning both because people have different financial goals and because they also have different circumstances. For example, you will find many people who insist that a TFSA is better than an RRSP and others are convinced that an RRSP is better than a TFSA.
Looking at the image below, we can start to see how the answer to this question will depend on the individual circumstances. You will notice that an RRSP is more tax efficient on contribution while a TFSA is more tax efficient on withdrawal, so if you expect to be in a higher tax bracket during the contribution stage, you are likely to prefer an RRSP and if you expect to be in a higher tax bracket during retirement, a TFSA might seem like a better choice. However, you will also notice that a TFSA will protect retirement benefits better while an RRSP has more investment choices.
While the list of considerations is not exhaustive, thinking about the categories that apply to you and where RRSPs, RDSPs and TFSAs fit on the scale should help you get an idea of the type of registered investment that is most suitable to you.
Carl is PLAN’s resident financial planner. He is a Certified Financial Planner and investments Branch Manager. You can find Carl at www.carlbrodie.com.