Introduction to tax free savings accounts and registered retirement savings accounts
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Introduction to: Tax Free Savings Accounts and Registered Retirement Savings Accounts. What are Tax Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP)? Short Answer ? They are both tax effective vehicles for Canadians to save Longer Answer? Let me try to explain….

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Introduction to: Tax Free Savings Accounts and Registered Retirement Savings Accounts

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Introduction to tax free savings accounts and registered retirement savings accounts

Introduction to:Tax Free Savings Accounts and Registered Retirement Savings Accounts


Introduction to tax free savings accounts and registered retirement savings accounts

What are Tax Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP)?Short Answer ? They are both tax effective vehicles for Canadians to saveLonger Answer? Let me try to explain….


Introduction to tax free savings accounts and registered retirement savings accounts

TFSA’s were created by the federal government in 2009 and are available to all Canadians 18 yrs. or olderRRSP’s were created in the middle of the baby boomer years (1957)Both TFSA’s and RRSP’s allow savings to grow in an account “Tax Free”


Introduction to tax free savings accounts and registered retirement savings accounts

Example of “Tax Free” Savings Growth

Based on investing $1,000 per year for 20 years with 5% compound interest (assumes middle income tax rates)


Comparison tfsa vs rrsp

Comparison: TFSA vs. RRSP

TFSA

  • Maximum $5,000 year-no income needed

  • Can “carry forward” unused contributions

  • Contributions are not tax deductible

  • Withdrawals are not taxed, and create an equal amount of contribution room (next year)

  • Can contribute at any age

RRSP

  • Up to 18% of earned income to max of $22,000

  • Can “carry forward” unused contributions

  • Contributions are tax deductible

  • Withdrawals are taxable at your effective tax rate at the time of withdrawal

  • Cannot contribute after 71


Understanding the tax implications of tfsa vs rrsp

Understanding the Tax Implications of TFSA vs. RRSP

TFSA

TFSA investments are made after you pay tax on the money

RRSP

RRSP investments are made with money that you don’t pay tax on, since the investment is tax deductible


Introduction to tax free savings accounts and registered retirement savings accounts

So which account is better?Short Answer ? It depends, but both are good…Longer Answer? It depends….


Introduction to tax free savings accounts and registered retirement savings accounts

There a several factors, however your tax rates at the time of deposit and time of withdrawal are the most important-this information may not be known…

If the money is to be used for a purchase like a house or car, the TFSA is best since the contribution room does not go away if you make a withdrawal

With the disappearance of “Defined benefit” pension plans-both TFSA’s and RRSP’s are needed to save for retirement


Introduction to tax free savings accounts and registered retirement savings accounts

The End

Thank you


Introduction to tax free savings accounts and registered retirement savings accounts

Backup

Slides


Introduction to tax free savings accounts and registered retirement savings accounts

Investments that can be held in TFSA or RRSP accounts

Both accounts can hold:

Cash (very low interest rate)

Guaranteed Investment Certificates ( low return 1.25-2.6%-but safe)

Bonds (less secure than GIC 2.5-4.5%)

Mutual Funds (higher risk depends on fund type can be 5-10%)

Exchange Traded Funds (similar to mutual funds but lower cost to own)

Individual Stocks (Generally the highest risk, but highest return potential)

What you hold depends on the when you need the $$ and your appetite for risk

My personal preference is Exchange Traded Funds


Tax rate comparison

Tax Rate Comparison

Retirement

Tax Equal Tax Lower Tax Higher

RRSPTFSARRSPTFSARRSPTFSA


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