Should You Put Money In A Registered Retirement Savings Plan (RRSP) Or Tax Free Savings Account (TFSA)

Low Tax Bracket Investor Jimmy • New graduate – age 22 • N New t th workforce – j i role in his area of study to the kf junior l i hi f t d • Low tax bracket – expects employment income to grow over time and will withdraw money when in a higher tax bracket • Expenses are low leaving assets to invest

Low Tax Bracket Investor - Value in TFSA Low to High* RRSP TFSA Pre-tax income** $5,000 $5,000 Tax @ 20% - $1,000 Net contribution $5,000 $4,000 Growth – 6% over 20 $16,036 $16 036 $12,829 $12 829 years Tax on withdrawal - @ $7,216 - 45% Net cash $8,820 $12,829 *tax bracket t time of contribution and withdrawal *t b k t at ti f t ib ti d ithd l **employment income available to invest

High Tax Bracket Investor Alex • Business owner - maximizes RRSP each year • High income – top tax bracket • Values tax deduction offered by RRSP • E Expects to b in top tax bracket for some time – at be i b k f i least until retirement • Expects to withdraw money when in a lower tax bracket

High Tax Bracket Investor - Value in RRSP High to Low* RRSP TFSA Pre-tax income** $5,000 $5,000 Tax @ 45% - $2,250 Net contribution $5,000 $2,750 Growth – 6% over 20 G h $16,036 $ 6 036 $8,820 $8 820 years Tax on withdrawal - @ $3,207 - 20% Net cash $12,829 $8,820 *tax bracket at time of contribution and withdrawal **business income available to invest

High Tax Bracket Investor - Value in RRSP • BUT BUT, • Alex can use TFSA as additional tax shelter once RRSP is maximized i i i d • Tax refund received each year (from RRSP deduction) can grow tax-free in TFSA • TFSA to be used to complement RRSP – Not compete with it

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Should You Put Money In A Registered Retirement Savings Plan (RRSP) Or Tax Free Savings Account (TFSA)

by investingthesis on Mar 02, 2010

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Should You Put Money In A Registered Retirement Savings Plan (RRSP) Or Tax Free Savings Account (TFSA) — Presentation Transcript