RRSP Q&A: Is a TFSA better than an RRSP?

Answers to your RRSP questions.



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From February 16 to 19, 2010, MoneySense.ca’s top financial planners are answering your RRSP questions. For the full list of questions answered — or to submit a question of your own — click here.

I am 29 years old, and recently married. I work in the public service and plan to stay there for the rest of my career. My husband is a graphic designer and has no pension plan with his company. We recently bought a house and have a mortgage of $282,000. We have student loans around $15,000. Other than that, we don’t have any debt.

Should we be putting money into RRSP or should we be paying off our loans more aggressively? Is a TFSA a better option that a RRSP at this point? We have around $500 a month extra after payments to be putting somewhere. — JRB

Warren Mackenzie and Ken Hawkins: Normally we would recommend paying off debt before contributing to an RRSP. However  you are young, interest rates are low and there is a concern that there might be a secular rise in inflation of the next number of years. In a period of rising inflation it is better to  be a borrower rather than a lender. If the interest rate on your loans is fixed, in an inflationary environment  there will be a greater advantage to investing versus paying down the loans.

Put money into your husband’s RRSP and TFSA and TSFA for both.

Next question: Will there be a tax hit if I withdraw from a TFSA?

Back to main RRSP Q&A page.

Have a different opinion? Let us know in the comments.

2 comments on “RRSP Q&A: Is a TFSA better than an RRSP?

  1. Pingback: Get answers to your RRSP questions | MoneySense

  2. I am 54 and earn $11.85/hr and will be able to save $507/month. As for savings $1000 in chequeing and $728 in a TFSA of which I have room to save up to $10,000 (2009 and 2010). I have no RRSPs. Should I continue with the TFSAs (inwhich I plan to save an emergency fund of $6000-this time next year) at $5000/year, until I'm 65 or should I put the money into a couch potato style investment of index funds (under the TFSA umbrella)? I currently bank with TD. Is there a better institution such as ING?