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

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

Answers to your RRSP questions.


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.