Where would you invest if you had extra money
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Posted on: 20-10-08 09:33:58
It depends. If you can maximize RRSP and have left over for this one then put some in but maximize RRSP first since it is tax deductible. However, if you would need the money in the near future then RRSP may not be a good idea. Any better ideas guys
Quote:There are two main differences -
Originally posted by rsbagwell
Now that we are talking about TFSA. Can someone please logically explain me where should one put money TFSA or RRSP?
I am sure it cannot be as simple as one might think ? People like me , with not much knowledge about this, may think TFSA is a better that RRSP.
I am sure CD's like invespro, Pratickm can shed some light on this.
If you think I am hijacking this thread, please let me know.
1. Contributions into TFSA are not tax deductible like RRSP.
In other words, you cannot write off your TFSA contributions in your tax filing.
2. Withdrawals from TFSA are not subject to withholding taxes, like RRSP withdrawals (before age 71, that is).
You can withdraw any amount, any time, without paying taxes.
There /are/ actually several other significant differences like if you withdraw from TFSA, you don't lose the contribution room for future years, unlike RRSP.
Also, there are no "homebuyers" plans etc. for TFSA unlike RRSP - but then you can withdraw anytime so such a facility is not needed.
In terms of deciding which one to invest in, you should consider the following factors -
- What is your marginal tax rate?
If it is high, you may get better bang for your buck by doing RRSP instead of TFSA.
- What is your age and your expected cash needs for the next 5 - 10 years?
Keep in mind that you cannot touch your RRSP until 71 (unless it's an emergency).
So if you need some cash after a few years (5 - 10) for say a vacation or a new car or boat or whatever, TFSA is the better bet.
Look at it this way - RRSP is retirement money, TFSA is non-retirement savings for lifestyle or emergency purposes.
Of course, it is ideal if one can do both RRSP and TFSA, but most people have to make a choice or do some sort of split.
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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
Actually, there is one other very important difference I forgot to mention.
TFSA is open to everyone, whereas RRSP is only open to those who qualify for it based on their income and tax situation.
For example, a stay at home parent probably doesn't have RRSP option.
Those in registered pension plans also have less RRSP room.
But TFSA is open for everyone and the amount is fixed for everyone.
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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
Can one make up for the previous years if do not contribute in one yar to TFSA like RRSP or is now or never for each year? Once one with draw forma TFSA, can one put back the amont withdrawn?
Thanks
Yes and yes
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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
Q.4 How much can I contribute to the TFSA per year?
A.4 Each year you could contribute an amount up to your contribution room for the year. Your contribution room would be made up of three amounts:
Each year you would be allocated and allowed to contribute at least $5,000 (this annual amount will be indexed to inflation and rounded to the nearest $500 on a yearly basis). See also Q.14.
Any withdrawals made in the previous year would be added to the contribution room for the year.
Any unused contribution room from the previous year would be added to the contribution room for the year.
For example (assuming no indexing):
In 2009 you would be allocated and allowed to contribute up to $5,000. If you only contribute $2,000, an amount of $3,000 would be carried forward to 2010.
Your contribution room for 2010 would then be $5,000 plus $3,000, or $8,000.
If in 2010, you do not contribute but decide to withdraw $1,000, your contribution room for 2011 would be $5,000, plus $8,000 (carried forward from 2010), plus the $1,000 withdrawn, or $14,000.
Q.5 If I don't have the money to invest in a given year, would I be able to use any unused contribution room in a future year?
A.5 Yes, the 2008 budget proposes no limit on the number of years unused contribution room could be carried forward.
Q.6 What happens if I contribute more than my contribution room?
A.6 The 2008 budget proposes that excess contributions would be subject to tax of one per cent per month, for each month that the excess remains in the plan.
Q.7 Would there be any restrictions on withdrawals?
A.7 No, you could withdraw any amount in the account for any reason.
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Found a good link for all information on TFSA
http://www.cra-arc.gc.ca/gncy/bdgt/2008/txfr-eng.html" target="_blank">http://www.cra-arc.gc.ca/gncy/bdgt/2008/txfr-eng.html</a>
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i..........rock........!!!!!
I believe there are no doubts in this area now. So lets get back to the investment issue. I believe the way the market is one could easily invest in equity. Also one could be more aggressive to invest in small cap, Latin American funds, Precious metals and resources. Any ideas!
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