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Originally Posted by firebug
At some point, I may be motivated enough to transpose the formulas into the forum (from my CFA texts) but the simple matter is:
a) both TFSA's and RRSP's are superior to investing non-sheltered;
b) if you think your future (aka withdrawal) tax-rate will be lower than your current marginal tax-rate then an RRSP is the better choice;
c) if you think your future tax-rate will be higher than your current marginal rate, then a TFSA is the better choice; and,
d) you should talk to an experienced planning professional who can help recognize if you are in a scenario that the simple rules above may not apply (or be optimal).
One common mistake I see in the calculations done previously in this thread is failing to take into account the 'before-tax' nature of RRSP contributions. $1,000 invested into RRSP's is not the same as $1,000 invested into a TFSA (1,000 invested into an RRSP is more equivalent to $750 invested into a TFSA - assuming a 25% marginal rate).
In other words... if you can 'only invest $1,000' then the TFSA is always going to be the better choice (as that is after tax money). The 'rational man's' way of viewing the decision would be to realize that the real option is that you could invest $1,000 into a TFSA or the (before tax) equivalent of $1,333 into an RRSP, what's the better choice?'
That is one reason that an RRSP payroll deduction is often a wise choice as it lets you invest those 'before-tax' dollars directly, rather than using 'after-tax' dollars and then spending (rather than investing) the tax refund that follows later.
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That point to me is the great equalizer in all of this. I would purely guess, anecdotally that the percentage that actually invests that tax return is below 10%. You're totally right on the matching and that portion. I just think that assuming that people will invest the tax savings from the RRSP and what happens in practice are two different things. So unfortunately it does come down to either $1000 in a TFSA or $1000 in an RRSP.
Quote:
Originally Posted by IliketoPuck
Just reviewed that section a few weeks ago, really liking the level 3 curriculum so far.
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I am not enjoying level two again. Hopefully I clear it this year though and you can give me some pointers for level 3 next year
