TAX PLANNING

 

 

 

Tax planning is a very important component of financial planning. A dollar saved in taxes is much more than a dollar earned

 

The decision about allocating your income towards RRSP/TFSA/Non-registered accounts is critical to fulfillment of your goals

 

Do you have the right investments for the kind of goals you want to accomplish? 

 

Let's compare RRSPs and TFSAs

 

Both these vehicles are savings plans that allow you to accumulate money tax-free.

 

RRSPs: Save for retirement

An RRSP is a registered savings plan that allows you to build tax-deferred retirement savings while also reducing your tax load at the time of contribution. It is useful for:

• saving for retirement

• buying or building your first home

• financing your education

 

TFSAs: Save for a specific goal

A TFSA is a savings plan that allows you to put money aside & grow tax-free to reach short-term goals throughout your life. It is useful for:

• renovating your home

• buying a car

• starting a business

• taking a trip 

 

 

Determining which plan is better for you can be complex because it depends on your tax bracket and when you may need to withdraw the savings

For example, if you are saving for an intermediate goal in Life (like a house/children's marriage), TFSA may be better because you are going to withdraw when your income is still coming; maybe even more than earlier! While if the savings is for retirement, it may be better to go for RRSP. Further, the type of income needs to be looked at.

 

Investment income within an RRSP/TFSA or Non-registered is treated differently when withdrawn. Interest income, Dividend income or Cap gains are taxed differently with each account

 

You'll pay the tax sooner or later, so it's important to understand how it will affect your total savings. You may want to look at a bigger picture to get the most benefit from your tax planning.