If you think you’re going to retire rich, consider investing in a Tax-Free Savings Account before an RRSP. The appeal of RRSPs is that you’re only taxed when you withdraw. And by that time, you’ll no longer be working, the thinking goes, so you’ll be taxed at a lower bracket. At 71, Canadians are forced to withdraw money from their registered account. If they’ve saved up a large nest egg, or are still bringing in income—either through a job or pension—they could be forced to pay the top marginal tax rate (46% in Ontario, for example).
Using a TFSA won’t give you a tax break when you add money to the account, but the investments still grow tax-free. This strategy arrives too late for today’s boomers, unfortunately. You can only put a maximum $15,000 into a TFSA now, but every year that room increases by $5,000. It makes sense to max out your TFSA before you do your RRSP room, therefore, if you think you’ll retire wealthy. “The problem is that people never know for sure,” says Ted Rechtshaffen, president of Toronto’s TriDelta Financial.
(Research, editorial and spiritual support provided by Bryan Borzykowski)