RRSP

Should you contribute to Registered Retirement Savings Plan (RRSP)?

It is a common misconception that everyone should contribute to RRSP. If you are in the lower income category, it does not make sense to contribute to RRSP. However, there are few situations where even if you are in the lower income category you could benefit from RRSP contribution. For example, if you plan to purchase a residence, you could contribute $25,000 towards to your RRSP and after 30 days you can withdraw that contribution towards your purchase of residence.

TFSA

Tax Free Savings Plan (TFSA) has been existence for 4 years now. In the early years of the introduction of this plan, some clever investors made use of this plan to make million of dollars that were they earned tax free. They over contributed to this plan (penalties were minimal) and made use of the funds to buy options and other investments. They sold them and made millions of dollars as tax free income. However the government became aware of this situation and closed the loop hole in 2010 and there are hefty penalties to over contribution now.

TFSA plans are very good investment choice for individual who are in the lower income category. Any investment returns are tax free.

Before making any RRSP and or TFSA  contribution, discuss with your Tax Accountant to determine if RRSP and or TFSA  is the right retirement product for you.