Quote:
Originally Posted by ken0042
Wouldn't you still get a major tax break this year though? For example if I had $50K in RRSP eligibility (because it carries over year after year) and my income is $70K, wouldn't I get a tax refund as I would now be taxed as if I had earned $20K this year?
Sure the end product is taxable when you pull it out again, but isn't the whole point of an RRSP to defer the tax to when your income is lower?
Also, isn't there a limit of $5 or $6K on TFSAs?
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Well it is true that if you put say $100k into an RRSP (assuming that you have the room) you could save $39k in taxes. Which is pretty sweet. Then you would pay that same $39k as you withdrew the funds when you retire (if you were at the same bracket) along with taxes on the growth. You are getting that benefit today, which is awesome, and the best time to pay taxes is always "later", so that works out.
Its just that you could invest in say the TFSA, and if you have a limit of $31k at this point if you haven't contributed, so thats a nice chunk of change. No tax break upfront, but then no taxes to be paid down the road either. This total limit carries forward like the RRSP, and at this point it increases by $5500 in January. There has been talk of the annual limit increasing to $10k, but this hasn't been passed yet and is still discussion topic. Maybe during the next election though when we get some goodies!
Of course investing in a non-registered account usually means taxes to pay along the way, so that part is the least tax-efficient on an immediate basis. The upside here though is that when you withdraw the funds you don't have the same tax hit as with an RRSP. So maybe you have some capital gains; but that is half of what the RRSP would be which means to do whatever you're doing with the money you can withdraw less, and make the money last longer. I guess what I'm saying is that $300k in non-registered money should last you longer than $300k in RRSPs. The other consideration is that you can withdraw these funds as you see fit, whereas with the RRSP you are taking a minimum at age 71 and every year thereafter, whether you need it or not. This might not seem like a big deal if you're young today, but there are plenty of 71-72 year olds today who aren't thrilled with that issue!