TFSA vs. RRSP debate

The savings rumble has been around in different forms for years.



Online only.


The TFSA vs. RRSP rumble reminds me of the old “mortgage paydown vs. RRSP contribution” fisticuffs of the past. The theory is that there are limited dollars available and so you must choose the option that will make you a winner.

Both RRSPs and TFSA give you a wide range of options for investments. That’s a draw. Both let you earn income without paying the taxman immediately. Another draw.

RRSPs have higher limits: a win. And there’s that tax deduction you can take if you’re in a tax bracket you wish you weren’t: a decided win. A $1,000 RRSP contribution will save you $278 at the 27.8% tax bracket, which is what you’ll pay on incomes between $31,000 and $41,600 in Manitoba. The next tax bracket, up to $67,000 taxable income, is taxed at 34.75%, so for every $1,000 you put into an RRSP, you’d get back $347.50. Make a $5,000 contribution and you’d have a tax saving more than $1,700. Sweet.

The offset argument to this is that you might pay as much tax when you’re retired, making the deduction not so clear a win. But wait…have you considered what you did with the money you saved in taxes? If you paid down your debt, that’d be a win. How about using that money to get to mortgage free faster? Another win, right? Or boosting your next year’s RRSP contribution? Wow…win/win.  Or you could use your RRSP refund to fund your TFSA. Talk about having your cake and eating it too.

TFSAs have tax-free income forever: that’s a definite win, particularly for people who will rely on government benefits come time to hang up their duelling pistols. But those people weren’t big RRSP players in any case since there was no major tax incentive to start and they likely didn’t have the financial resources to save. Let’s face it, if you’re planning on relying on the government’s monthly cheques to see you through your golden years, it’s for one of two reasons:

  • you simply don’t make enough money now to save, so you’re used to living on far less, and are in no way capable of saving money with your tight cash flow, or
  • you’re dumber than dirt and spend every cent of your income because you can’t stop scratching your consumer itch.

I feel for the first group; but you’re a thrifty lot and are used to making do.

As for the second, if you had the resources to plan for your future and you wasted them, then perhaps some belt-tightening and learning to make do on less will be your just reward.

5 comments on “TFSA vs. RRSP debate

  1. What argument? It's really very simple to me. I started my RSP when I was 18. You are in the lower tax brackets so you don't get as much back. I retired when I was 42. No pension so I am using my RSP to live on. When I pull out my RSP I am paying more in tax than what I got back when I put it in so I am definitely not ahead in that department. The way I see it is you MAX your TFSA until you are in the top tax bracket and then you put into your RSP so you can take full advantage of the taxes back and then at least not pay more taxes when you take it out. You also will then have lots of room to put into your RSP. While I am typing I was wondering if your journal has ever done an article on using your RSP to buy a home (not the Homebuyer's Plan) but your whole RSP (it works if you have at least $100,00 in the plan) because you have a few extra costs because your RSP would give you the mortgage instead of the bank. What that means that instead of paying the bank you would in fact be paying yourself! A much better deal I think.


  2. I am in the lowest tax bracket and after getting rid of all my debt (not easily done with two teenagers and a mortgage) managed to build a small RRSP nest egg which under the careful guidance of a financial advisor and an MER of 2.96% (can you guess the company?) my professionally designed RRSP has netted me -3% growth over the last 4 years and that isn't even taking into account inflation. A TFSA offers me the opportunity to grow my money without worrying about MERs, backend loads or transfer fees and for those of us on the lowest economic rungs the opportunity if necessary to access the money without paying a financial advisor a backend load and transfer fee for the privilege. The only people I see making money on RRSPs are the sales people (sorry financial advisors).


  3. There are still several things and requirements that you should consider when you start getting a house using mortgage or home loan, make sure that don't have any bad credit history and it is also advisable if you get an investor or real estate agent.

    Buy to let mortgage advice


  4. I contributed to a defined benefit pension so my contribution to an RSP was limited to 5.8% of income ,so when the TFSA came along I jumped on it ,GIC's for both because of 0 tax on interest.
    I've been taking advantage of the dividend and capital gains tax credits outside my registered plans,last purchase of a pipeline co. cost me 4.95 flat fee,made 20% +6.8% dividends ,no mer for me.
    Equities are not dead,I'v never made less than 20% but mutual funds are not for me, to many co.'s losing money and money managers killing you with fees.


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