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The TFSA: Should I Invest in My RRSP or TFSA (Part 4 of 4)

With the recent development of this latest CRA initiative, the biggest question most are asking is “Should I invest in my RRSP or my new TFSA?”. Truth is, that’s a very fair and personal question all at the same time.

It’s personal mainly because of the fact that each person’s situation is very unique and that means that there really is no easy answer or one size fits all solution, except one. That one exception is based on whether or not you contribute the annual maximum towards your RRSP every year, because if so, your new TFSA is by far the next best place to put your additional retirement savings.

If you don’t fall into the small percentage of Canadians who max out their RRSP contributions every year, we need to make a couple of assumptions and look forward to the day you begin to redeem money from either account. In other words, your retirement. Take a look at a couple of the different scenarios below:

Your Take-Away: As I mentioned above, there is definitely no one size fits all answer to the question we are addressing today. My suggestion is that you take an overall look at your entire portfolio, revisit and maybe even redefine your goals, and then decide which account is better for you in your specific situation.

In the end, your best bet is to try and take maximum advantage of both your RRSP and your TFSA. If you’re like most and do not have that luxury, why not invest in your RRSP and then put your tax refund back into your TFSA? Just a thought.

Until next time, have a Wonderful Wednesday!

Chris

The TFSA: Why Does it Make Sense for You (Part 3 of 4)

As I sit here on my couch writing this post, I realize how personal this question really is.

We have discussed what the Tax Free Savings Account (TFSA) actually is and how it works, and now we need to look at why it may in fact make sense for you. The reality is that this type of account can work for just about everyone, but it is essential that you know why you want to take advantage of this new investment vehicle.

That said, there are multiple reasons and ways that you can make this account work for you. In order to keep this post short and to the point, I’ve chosen to try and put some examples together in the form of bullet points. Some of the reasons this could make sense for you could be:

Your Take-Away: By no means is the list above exhaustive in nature. There are multiple reasons for a Canadian to invest in the new TFSA, but it is very difficult to specify which one will make the most sense for you. The only question you need to ask yourself is “do you want to eliminate the taxes you currently pay on your investment growth?” If so, looking at the TFSA is a complete no brainer and something that certainly deserves a small investment of your time.

A couple of more posts to come on the new TFSA, but until then, have a Wonderful Weekend.

Chris

The TFSA: How Does It Work (Part 2 of 4)

As discussed in yesterday’s post, today I will be explaining the basics of how the new TFSA actually works.

According to the official definition as stated by Canada Revenue Agency, the TFSA is “a new way for residents of Canada to set money aside tax free througout their lifetimes.” They go on to say that “contributions are not tax deductible for income tax purposes and the income earned inside the account is tax free, even when it is withdrawn.”

Because there are a number of rules surrounding this amazing new account, I have chosen to use a point form format to better explain what they are: 

Your Take-Away: As I’ve mentioned previously, this is a tremendous new investment vehicle and it is well worth your time to look into this further. Learning how to properly incorporate this new account within the rest of your financial plan appears to be one the largest challenges that most will face, which is why understanding how it works is so essential.

If you would like to read more detailed information about the TFSA and how it works, please see the attached CRA document entitled “The TFSA Explained by CRA“.  

Until next time, have a Terrific Tuesday.

Chris

The TFSA: Introduction (Part 1 of 4)

The Tax Free Savings Account (TFSA) is one of the hottest topics in the Canadian investment world today, and for great reason.

Like everyone else, I believe the TFSA is an incredibly useful savings vehicle for anyone currently living in Canada. In fact, I am exceptionally grateful that the Canadian Government decided to bless an iniative of this nature.

Over the course of the next few days, I plan on providing you with a very simple explanation of what the TFSA is. This is not an overly complicated account or tax vehicle, but it is one that needs to be understood properly in order to take full advantage of its full potential.

Your Take-Away: Because the TFSA is so new to the Canadian market, in fact January of 2009 is the first time that one could open an account, I plan on providing you with an explanation of a number of different questions and topics relating to this new account. Together we will cover the following topics specific to the TFSA:

  1. How does it work?
  2. Why does it make sense for me?
  3. Is it better to invest in my RRSP or my new TFSA?

I am very excited about this series and hope that by the time you are finished reading our posts you will have a much clearer understanding of what this TFSA is really all about and better yet, how you can make it work most effectively for you and your family.

Until next time, have a Magnificent Monday!

Chris