Quote:
Originally Posted by Calgary14
For most people it makes sense to contribute to an RRSP as their marginal tax rate upon retirement will be lower than their current marginal tax rate. However for students or those just starting out a TFSA usually makes more sense.
If anyone is interested here's some info on the positives and negatives of an RRSP loan:
http://www.ourbigfatwallet.com/rrsp-...and-negatives/
Given the current economic situation for many people it would make sense to max their RRSP and then use the tax refund wisely to either save as an emergency fund (high interest savings account) or pay down any consumer debt
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This part I bolded is what people hope is going to happen, but from what I see it doesn't often for a couple primary reasons. Firstly, people tend to live fairly active retirements for the first decade or so meaning that their income required is basically the same as their working income, or within say 25%. That means that their marginal tax rate isn't really dropping as much as they might have thought.
Another reason is that depending on when people began contributing the tax rates were lower, or they were in a lower bracket at that point, but are simply bearing the weight of increased taxes over the decades.
I would question whether people in tenuous situations economically should be slamming every dollar into their RRSP as well. That seems like terrible advice quite frankly; they would be better off to invest in the TFSA and have the liquid cash available in the event that they need it. Sure they will be delaying that tax return until next year, (when they could contribute if they haven't needed the emergency funds), but they would still have the same amount of interest/gains and have access to the funds in that worst case scenario. I mean we're dealing with a hypothetical, but I wouldn't advise people to put everything into an RRSP if they felt they needed an emergency fund.