It’s easy to explain why:
- 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, invest in them where you can.
Just be very mindful of managing the RRSP-generated refund.
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.”
Using RRSPs as part of your retirement plan can make great “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.
Invest inside the RRSP for long-term growth and make sure you reinvest your RRSP-generated refund every year.
What do you usually do with your RRSP-generated tax refund?