Hello CD's,

Tax season is back and everyone is planning to do RRSP for future retirements and of course to save some money in taxes.

For those earning a moderate income what is best option for optimum benefits? is it good idea to do half and half in both RRSP and TFSA?

what is pros and cons?

regards


nice article...so I could not resist myself and thought to share among CD members...

http://www.moneysense.ca/invest/rrsp/rrsp-vs-tfsa-which-is-right-for-you/

So it goes this way, when you say moderate income, I am not sure what you are exactly referring to here. Something which is moderate for you will be high for me.Anyways to answer your question, since I do both RRSPs and TFSA

RRSP saves your tax upfront. For a person making 90,000 $, the tax savings would be almost 40% of the RRSP contribution..so lets say you put 10,000 in RRSP your taxable income would become 80K which means you will save taxes on a top most bracket. When you withdraw this money on retirement, you will not be taxed at 40% because of lesser income. If some one is making lesser money, the benefits would be lesser, it all depends on current income vs expected retirement income

TFSA is an investment tool where the gains on your investment are not taxed. Now the gains depend on lot of factors such as the investment product , market conditions etc. It may prove useful or may not.

I put my money in TFSA and try to get whatever gains possible in a year (unfortunately in current market I am getting only losses) and transfer that to RRSP when the tax season comes.

RRSP first , then TFSA.

The only exception I see is - when you have inconsistent income and you expect more income next year , in which case you might wish to use your RRSP deductions for then.

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Fido.

In general, I'd agree - RSP first, then TFSA - since RSP offers tax advantage which may be beneficial for decent income earners, in order to offset tax payable.

However, if one is in a situation where money may have to be pulled out from reserves, TFSA offers that opportunity (although I'd discourage that approach) with ample flexibility to withdraw and not incur tax penalties on the principal or the earnings.

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Dimple2001

My two cents... from the recent experiences dealing / investing into the financial situations.

Building a reserve using TFSA, as much you think, you MAY need as emergency money at any time. The situations differ from person to person / family to family.

Once you've that much reserved in TFSA, move on to contributing to RRSP as much as you could, to take the benefit of bringing down your yearly income to lower brackets. If you are not counting on the money you may get as a refund, maximise the returns contributing as much into the RRSP, file taxes, get refund and pay it back if loaned (or add to the pool).

Happy Financial planning until end of Feb. - everyone!

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Like you - a Canadian .. but still DESI