It’s easy to explain why:
- To date, individuals could contribute up to $31,000 into this account,
- Contributions into the account are not tax deductible but account withdrawals are tax-free,
- Investments held inside the account grow tax-free,
- There is no upper age limit for TFSAs.
This doesn’t mean Registered Retirement Savings Plans (RRSPs) should be avoided, on the contrary (personal note: we contribute to our accounts every month). Last year I wrote on my site managing the RRSP refund is the linchpin in the battle of the retirement savings accounts; RRSP vs. TFSA. In a recent Globe and Mail article seems David Chilton, respected financial guru and widely successful author of The Wealthy Barber Returns is backing me up:
“If you’re going to put money in a registered retirement savings plan and “blow the refund on something stupid,” then a major advantage of the RRSP – the immediate tax benefit – is lost, he says.”
On the stupid note David, my wife and I used to spend up to half of our tax refund. That wasn’t very smart of us. We don’t do that anymore.
Using RRSPs as part of a retirement plan make “cents” for almost every investor. The exceptions to this rule might be 1) you have a sizeable gold-plated defined benefit pension plan in your future and/or 2) you know for sure your tax rate will be equal to or higher in retirement than your working years. I will go out on a limb and state those instances would be rare amongst most Canadians, which means we should be using the RRSP account as part of our retirement planning. After you do contribute to your RRSP account, I’m just recommending you avoid the mistakes we made in the past – manage the entire refund it provides wisely.
What do you usually do with your RRSP-generated tax refund? What are you doing with any refund this year?