RRSP vs TFSA

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Registered retirement savings plan (RRSP)

RRSP is a registered retirement savings plan available for all Canadian under the age of 71. The advantage of RRSP account is to reduce current income tax. Any contribution you make for this year will not be taxed and it will reduce your overall taxes. Any income earned from the plan is tax free until you use it. Once you withdraw money from RRSP you will pay tax on that portion.

Q) How to open RRSP?

A) You can open RRSP account in any bank, credit union or insurance company.

Q) How much can you contribute in RRSP?

A) There s a yearly limit to contribute in RRSP. This limit is the lower of:

  1. 18% of your earned income from last year, or
  2. The maximum limit determine from CRA (2014: $24,270, 2015: $24930)

You can use unused room from previous years and you always can check your room online or you can check your notice of assessment.

Q) How much do I earn from RRSP?

A) The rates of return on RRSP account it will change depends on the bank, kind of investment and lifetime of the saving.

Q) When is the last day to contribute in RRSP?

A) Usually the last day to contribute in RRSP is in March 2 for the previous year.

 

Tax Free Savings Account (TFSA)

TFSA is a tax free savings account available for all Canadian at any age over 18. The main advantage of TFSA is free tax on any withdrawal as well as tax free on TFSA return. The disadvantage of TFSA is that your contribution will not be deductible so it will not reduce your income tax.

Q) How to open TFSA?

A) You can open TFSA account in any bank, credit union or insurance company.

Q) How much can you contribute in TFSA?

A) The annual limit to contribute in TFSA is set by CRA. The annual TFSA for 2015 is $10,000

Q) How much do I earn from TFSA?

A) The rates of return on TFSA account it will change depend in the bank, kind of investment and lifetime of the saving.

Q) When is the last day to contribute in RRSP?

A) You can open, contribute and withdraw money at anytime during the year.

 RRSP VS TFSA ​RRSP ​TFSA
Need earned income to contribute​ ​Yes No
​Tax-deductible contributions ( less income tax) Yes No
​Tax-free withdrawals ​No Yes
​Age limit for making contributions ​Yes No

 

We can always assist you to select the right saving plan for you and your family.

Written by: Noor Dawood

Kappa Accounting Inc

Phone: (647) 836-7620

Fax: (705) 415-3020

Email: [email protected]