Registered Retirement Savings Plan / Tax-Free Savings Account
- The 2015 Tax-Free Savings Account Limit is $5500, making the total cumulative contribution limit $36,500.
- The 2015 updated Tax Rates are now available:
Tax-Free Savings Account (TFSA)
A Tax-Free Savings Account (TFSA) allows all of your investments to grow tax-free throughout their lifetime.
- Any Canadian resident age 18 or older with a Social Insurance Number can open a TFSA
- The annual contribution limit is $5,500 for 2013 – 2015, and $5,000 for 2009 – 2012. This annual limit will increase with inflation in future years, in $500 increments.
- You can carry forward unused contribution room indefinitely.
- There is no tax deduction for contributing to a TFSA. However, the returns your investments generate (interest, dividends or capital gains) are completely tax free.
- The No-Fee Tradex TFSA allows members to invest in any of the three Tradex Mutual Fund options, or our Tradex Investment Savings account. Open your No-Fee Tradex TFSA today. Note: The Canada Revenue Agency (CRA) will track your contribution room. The CRA reports this amount to individuals through the “My Account” function on the CRA web site.
Registered Retirement Savings Plan (RRSP)
An RRSP is a personal savings plan that allows you to save for the future on a tax-deferred basis. You can contribute to your RRSP until December 31 of the year in which you reach age 71.
- Your allowable RRSP contribution for the current year is the lower of 18% of your earned income (salary, wages, rental income, alimony etc.) from the previous year or the maximum annual contribution limit for the taxation year. Click here for RRSP limits table from Canada Revenue Agency.
- You’ll find the exact amount you can contribute to your RRSP for the current year on the Notice of Assessment you receive from Canada Revenue Agency after they process your previous year’s tax return.
- The income earned in your RRSP is not taxed until it is withdrawn, typically at a much lower rate during your retirement years.
- You can open various types of plans through Tradex, including self-directed RRSP’s and Tradex will cover the annual administration fee.
- For more information, click here. Open your No-Fee Tradex RRSP today.
TFSA or RRSP?
The chart below illustrates the after tax return of $36,500 of income earned by an individual who invests in either a RRSP or TFSA for a 25 year period, assuming a 5% rate of return. This example depicts the result of taxation at the same rate, at a lower rate, and at a higher rate during an individual’s retirement years versus their working years.
All things being equal, with the same compound return, the same time frame and a constant tax rate before and during retirement, the amount of cash after tax in the RRSP and TFSA is identical and no preference should be given to one over the other.
In the event your retirement income tax rate will be lower, the RRSP option would be preferable.
If your retirement income tax rate will be higher than your current tax rate, the TFSA wins out.
Still not sure which option is best for you? Please contact a Tradex advisor to discuss in greater details which options are best for your individual needs and specific situation.