Gail Bebee, personal-finance speaker and author of No Hype – The Straight Goods on Investing Your Moneyhas issued an succinct summary on whether or not to contribute to an RRSP or TFSA or both. Entitled, TFSA or RRSP? Seven rules to help Canadians decide, it goes as follows:
1. Contribute to both a TFSA and RRSP if you have the money.
2. Make an RRSP contribution and put the tax refund in your TFSA.
3. Invest in a TFSA first if your present and future tax rates will be similar.
4. Invest in a TFSA first if you expect to be in a higher tax bracket than present when you need the money.
5. If yourtax rate is above the expected rate when you need the money, make an RRSP contribution first.
6. Contribute to an RRSP if you plan to borrow from the RRSP under the Home Buyers Plan or Life Long Learning Plan.
7. If your RRSP, once converted to a RRIF, will result in mandatory withdrawals that are high enough trigger claw back of government benefits such as Old Age Security, invest in a TFSA.