TFSAs or RRSPs

Tax-free savings accounts are becoming an increasingly popular savings option amongst Canadians.  In an article entitled 5 Reasons Why TFSAs are a Smart Retirement Investment by CBCnews.ca, it is noted that some financial advisors are recommending TFSAs over Registered Retirement Savings Plans.

Here are some of the major reasons for the rise of TFSA's popularity:

• Flexibility.  Money can be withdrawn without penalty in case of a financial emergency.
• TFSAs may contain various types of investments; i.e. TFSAs allows a person to put up to $5,000 a year of after-tax money into GICs, mutual funds, bonds, stocks or savings accounts.
• Although investors do not get an immediate tax break, investments inside a TFSA can grow tax-free.  In comparison, an RRSP gives a person an up-front tax deduction but the federal government takes its share in income tax assessed on the "back-end cash withdrawals, typically after the taxpaper retires".
• TFSAs don't have to be converted into a RRIF upon retirement.

The article continues "the numbers tell the tale:  At the end of their first year of existence, TFSA's held a combined total of $17.4 billion in assets in close to five million accounts, according to research firm Investor Economics.  Just a year and a half later, midway through 2011, the total asset amount had ballooned to $54.4 billion in 8.6 million accounts.  In other words, the average account holder has bumped up their TFSA holdings by 82 percent in just 18 months."

The articles concludes "perhaps the most stunning trend is that the TFSA is catching up to the RRSP as the tax-sheltered investment of chocie".

In 2010, TFSA contributions totalled $21.8 billion compared with $33.0 billion in RRSP contributions.

 

For those interested in learning more about TFSAs and RRSPs, the Toronto Reference Library is offering the following program by Kurt Rosentreter:

Financial Planning for your Future, RRSPs and TFSAs
Speaker:  Kurt Rosentreter
Date:  Wednesday, February 15, 2012
Time:  6:30 - 8:00 p.m.
Place:  Beeton Auditorium, Toronto Reference Library, 789 Yonge St.

Admission is free.  All are welcome.

 

For those unable to attend, the Toronto Public Library has 10 copies of Kurt Rosentreter's latest book:

	Wealthbuilding : Lifelong Financial Strategies for Success with Your Money

For those interested in TFSA contribution rules, the Canada Revenue Agency has an informative guide entitled RC4466 Tax-Free Savings Account (TFSA), Guide for Individuals.