Of 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TFSA contributions earn no up-front tax refund, but the government doesn’t get a dime of your money when funds are withdrawn.
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!