Use RRSPs and TFSAs to save on taxes

No. 1 way to thwart the tax man

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by

From the April 2015 issue of the magazine.

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Screen Shot 2015-03-27 at 2.01.23 PMOf all the tax tips, this is the one that’s most important—after all, it’s the No. 1 way to thwart the tax man. While RRSPs and TFSAs work a bit differently, both are amazing tax shelters that can help you hold onto thousands of dollars of your hard-earned money every year. The RRSP lets you defer paying taxes on a portion of your yearly income until you retire in a lower tax bracket—which will be true for most people. Until then, your RRSP contributions grow tax-free, meaning you don’t have to pay capital gains taxes when you sell stock or funds at a profit, nor do you have to pay tax on dividends or interest. TFSAs are similar to RRSPs in that contributions put into these accounts grow tax-free. Unlike the RRSP, TFSA contributions earn no up-front tax refund, but the government doesn’t get a dime of your money when funds are withdrawn.

» RRSP vs. TFSA: Which is right for you?

Tax savings: The more you make and the more you contribute, the more you’ll save. The chart to the above shows how much faster weekly $100 contributions made in an RRSP over 40 years grow versus a regular taxable savings account. Assuming a 5% annual rate of return on investments and a 30% marginal tax rate, using the RRSP makes a $220,537 difference!

 

4 comments on “Use RRSPs and TFSAs to save on taxes

  1. First of all, $100 weekly is a little too enthusiastic for the average Canadian. Where can a person get 5% interest for their RRSP?

    Reply

  2. If you live in ontario you don’t bother reading these type of articles (fairytales)

    Reply

  3. First thing would be to move from New Brunswick to a lower taxed province in Canada. The new government in New Brunswick are going to change the province into a third world country very quickly.

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  4. And of course the part that is rarely mentionned in these articles, you do owe tax on the whole RRSP amount sohaving $220k more is great except that even at the lowest brackets you would owe about $150k in taxes

    Reply

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