Choosing between RRSPs and TFSAs
A frequent financial planning question is whether to contribute to a registered retirement savings plan (RRSP) or a tax free savings account (TFSA).
Whether you're saving for retirement, or a down payment on a mortgage, the eternal question seems to be the choice between Registered Retirement Savings Plans (RRSPs) or Tax Free Savings Accounts (TFSAs). The answer to this question is different for everyone, and the best way to get closer to knowing which to choose is by learning more about how each one works.
Both RRSPs and TFSAs have contribution limits. The limit for the TFSA was increased in 2013, from $5,000 to $5,500 per calendar year. Any contribution room that is unused is carried forward and does not expire. Limits for the RRSP are significantly higher, over $22,000 in 2012, but vary depending on the investor and their contribution history.
The RRSP Home Buyer's Plan is a program instituted by the federal government in 1992. The program allows a first-time home buyer to withdraw up to $25,000 from an RRSP to use towards the purchase of a home. The withdrawal must be repaid over the period of no more than 15 years. Access to funds from a TFSA is slightly easier to gain, and the funds do not have to be re-paid. It should be noted, however, that withdrawals can not be repaid in the same calendar year. These contributions are seen as over-contributions and may be subject to a penalty.
To read the full article from the Financial Post, click here.