It's Your Money  


There are only five days (including today) left to get your RRSP contributions in and save on some taxes.

If your RRSP money isn’t in by market close on March 1, you’ll miss your last chance to offset some of your 2018 taxable income.

A few weeks ago, I dedicated my column to dispelling some of the most common tax myths that still exist, even though the program has been in existence for over 60 years.

Interestingly enough, the comment section for that column proved that these myths are still common.

I took the time to reply to one person and provide some specific examples on how these myths were misleading people and I thought that since we have a few days left in this year’s RRSP season, I’d share those examples with the rest of my readers as well.

The first comment I addressed was one that said a TFSA was much more flexible than an RRSP and the person stated that it made more sense to use a TFSA to save up for buying a home.

While this may be true for some situations, I illustrated how properly using an RRSP and the RRSP Home Buyer’s Plan (HBP) could put you farther ahead:

For this example, we used an assumption of $75,000 per year of income. If that person put $15,000 into an RRSP, they would pay no taxes at this time on that amount and would be able to pull the full $15,000 back out under the HBP to use for a down payment.

With the TFSA route, they wouldn’t get the $15,000 tax credit for the RRSP contribution so would need to pay taxes on that income.

In B.C., that would amount to $4,230 of extra tax which would leave them with only $10,770 for their down payment.

The second comment I addressed was about the myth that you would pay higher taxes on growth in an RRSP account than you would for money invested in a TFSA. For this example, I explained that yes, the RRSP taxes growth, but it also allows you to put more money in.

Using the same scenario as my first example with $75,000 of income, you would be able to invest $15,000 into an RRSP or only $10,770 into a TFSA.

We will assume that both accounts grow at six per cent per year for 20 years and then all money is pulled out and taxes are paid on the RRSP.

When the RRSP is cashed in, we will assume a 20 per cent tax rate on that money, and you would be left with $39,722 ($49,653 account value minus $9,930 of tax).

The comparable TFSA account would have grown to $35,651 and no tax would be owing.

The real winner in this race will depend on your tax rate now and your rate when you retire and start pulling RRSP money out.

The RRSP program is not the best choice for everyone but it is likely the best option for most Canadians. For many, the ideal strategy is to contribute a portion of your savings money to both RRSPs and TFSAs each year.

Instead of listening to bad advice or believing the many myths and misconceptions that still exist, consider asking a professional financial planner to help build a plan that’s right for you.


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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and will take over as board chairman in June. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations for the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected].

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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