TFSA and RRSP

[e36bmw///]

nm

[Vmack]

Originally posted by codetrap
Alternatively, you could contribute to your RRSP, get a nice healthy refund, and use that to fill your TSFA. That's the route I go. Best of both worlds really.

this sounds like a solid idea, I think I'll probably try going this route.

I'm really curious about the home buyers plan as that is something I seriously want to work towards and owning in 3-4 years from now, or hopefully not much later than that

[e36bmw///]

nm

[DeleriousZ]

Originally posted by Vmack
I'm really curious about the home buyers plan as that is something I seriously want to work towards and owning in 3-4 years from now, or hopefully not much later than that

Home Buyer's Plan.

http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

So not totally tax free, it appears you can't just drain the account then close it and not see any repercussions.

First time home buyer's tax credit:

http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

Probably not discussed on here too much because all of the beyond ballers already have 4 or 5 houses

[Vmack]

Originally posted by DeleriousZ


Home Buyer's Plan.

http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

So not totally tax free, it appears you can't just drain the account then close it and not see any repercussions.

First time home buyer's tax credit:

http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

Probably not discussed on here too much because all of the beyond ballers already have 4 or 5 houses

lol when i finish up school I'll have to work my ass off to catch up to all you guys

[tenth]

Originally posted by Xtrema
[B]That's pretty much it. But instead of young and old, I would say income tax bracket. (Really, a lot of kids out of school are now starting in the $60-$70K/year range).

If you are making more than $44K a year and in Alberta, a portion of income will be taxed at a minimum of 32%. So for every $10 of RRSP you buy, you are getting at least $3 back as tax refund.

Tell me another investment that we net you instant 30% return?

Take your return and go buy TFSA.

Yes, there is always the idea of saving your contribution later and save 39% instead of 32% and on bigger portion of income. But just think of the tax free growth in that time while(if) you get to the top bracket. Remember, the bracket is a moving target, this year it's >$135K for top bracket federally.


The way I would choose these vehicles is basically affordability. If I can afford to lock it away, RRSP. If I need rainy day funds, TFSA.

Absolutely agree. The benefit of rolling over your rrsp contributions on the gross basis will exceed after-tax returns on TFSA contributions on a long-term basis (20+ years), and you can control to a degree the tax rate you do end up paying on your RRSP income.

Flexibility would be the reason to throw it in the TFSA first, although for truly retirement savings you probably shouldn't put it in more flexible accounts if you'd be tempted to spend/waste it.

[davidI]

Originally posted by DeleriousZ


Home Buyer's Plan.

http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

So not totally tax free, it appears you can't just drain the account then close it and not see any repercussions.

First time home buyer's tax credit:

http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

Probably not discussed on here too much because all of the beyond ballers already have 4 or 5 houses

I did this when I moved back to Canada. I was making more internationally than I was going to in Canada so I maxed out my RRSP, then withdrew it once I got back to Canada to put into my house. My thought was that I'd re-pay the funds into the RRSP when I was in a lower tax bracket and would therefore save some coin. Great in theory, but after a year in Canada I decided the domestic life wasn't for me so I didn't save any money, and now need to deal with the hassles of paying it all off before I go non-resident!

In the end, it doesn't make a lot of sense to do unless you already have a lot of money in your RRSP that has grown tax free and you need that money to make your down payment. Otherwise, it makes just as much sense to save your contribution room for when you'll be in a higher tax bracket and pay the downpayment using your after tax income.

[CapnCrunch]

The main thing you should look at is you retirement income.

If you make 80,000 now and want to retire on 60,000, then get rrsps.

If you make 80,000 now and want to retire on 100,000, then use the tfsa.

[davidI]

Originally posted by CapnCrunch
The main thing you should look at is you retirement income.

If you make 80,000 now and want to retire on 60,000, then get rrsps.

If you make 80,000 now and want to retire on 100,000, then use the tfsa.

[Vmack]

Originally posted by CapnCrunch
The main thing you should look at is you retirement income.

If you make 80,000 now and want to retire on 60,000, then get rrsps.

If you make 80,000 now and want to retire on 100,000, then use the tfsa.

okay.... now i'm lost

[Xtrema]

Originally posted by Vmack

okay.... now i'm lost

I think that's his way of saying tax defer vs tax free.

You will both end up with $100 but TFSA you pay no taxes and RRSP you do, hence $60.

Unfortunately, that's overly simplified. Right now you can have 4x as much yearly limit on RRSP (22K on $122K income) than TFSA (5.5K). Given you max out both, the only way you have more TFSA than RRSP is your risky bet with TFSA pays off and quadruple your money.

I won't worry about the tax implication until you are closer to 50 and have to think about withdrawal.

The key is can you afford to lock it away or not. That's the indicator on RRSP or TFSA.

TFSA, you can take out at any time with no tax implications. RRSP you can only take it out when you have no other income to lessen tax implications.

There is a lot of variables when planning this and if you are just out of school, I won't expect you to understand every aspect right from the start. 1st you need to get a job, once you have income, you have to get budgeting down to see how much you are spending and saving. Then decide on the big ticket item like a house (huge expense) before you know how much you have left over for these saving plans.

For example, if you are just out of school, I think you can apply at least the last 2 years of tuition + living allowance and such to lower your tax bracket. This make RRSP is much less beneficial as a tax reduction vehicle. Also are you graduating with student loan debt? I think there are some tax benefit on servicing that debt as well (don't quote me on that, last time I checked on that is 15+ years ago).

Talk to a financial planner and give them the full picture. Everyone's situation is different.

[Vmack]

Originally posted by Xtrema


There is a lot of variables when planning this and if you are just out of school, I won't expect you to understand every aspect right from the start. 1st you need to get a job, once you have income, you have to get budgeting down to see how much you are spending and saving. Then decide on the big ticket item like a house (huge expense) before you know how much you have left over for these saving plans.

For example, if you are just out of school, I think you can apply at least the last 2 years of tuition + living allowance and such to lower your tax bracket. This make RRSP is much less beneficial as a tax reduction vehicle. Also are you graduating with student loan debt? I think there are some tax benefit on servicing that debt as well (don't quote me on that, last time I checked on that is 15+ years ago).

Talk to a financial planner and give them the full picture. Everyone's situation is different.

Thanks, I'm def going to sit down with an advisor soon. I'm actually looking to go back to school right now, either in calgary or lethbridge, (currently living in winnipeg), so I expect that with working part time, I'm probably looking at between 20-30k in debt. Obviously that will have a huge impact on how much I have for contributing and on my tax bracket. Should be done and working within 2 years or so provided I get in this year.

Really stressful trying to figure out this stuff while not being done school and not sure of what I'll be making when I start. (planning to do accounting, get a CGA, then CA.

Just trying to plan ahead...

[msommers]

Assuming housing prices don't plummet over my lifetime...

Lets assume I have 25K into my RRSP for a first-time home buyer. I've bought a home. Now I'm paying interest on that mortgage. Unless I'm getting RRSP matching and/or being lowered a tax bracket, would it make more sense to put future RRSP money against the mortgage to pay it off faster?

[tenth]

Originally posted by CapnCrunch
The main thing you should look at is you retirement income.

If you make 80,000 now and want to retire on 60,000, then get rrsps.

If you make 80,000 now and want to retire on 100,000, then use the tfsa.

How does this analysis factor in that TFSA contributions are on present day after tax income? Looks like you're just applying the roughly top AB tax rate to $100k, but that would be wrong.

Originally posted by Vmack
(planning to do accounting, get a CGA, then CA.)

There's no benefit to 2 Canadian accounting designations, but regardless if you're 2 years out we'll all be CPA's by the time you qualify.

[Xtrema]

Originally posted by Vmack
Just trying to plan ahead...

That's good. But from where I'm looking, you'll be at least 3-4 years out before you have to worry about RRSP. Since A) you don't have much income yet to create contribution room and B) you still have debt to service and C) you still got tons of tuition tax credit to cover at least first year of full time employment income.

But if you do have a few bucks left over right now, put it in TFSA. Since your student loan interest doesn't kick in til schooling is over (or 6 months after school is over?)

So it's great for you to make gains tax free while you have a free loan. But I know it's tough to save $ as a student.

[Vmack]

Originally posted by tenth




There's no benefit to 2 Canadian accounting designations, but regardless if you're 2 years out we'll all be CPA's by the time you qualify.

wouldn't I be able to do that if I'm graduating in a few years? or am I not understanding your point?

[Vmack]

Originally posted by Xtrema


That's good. But from where I'm looking, you'll be at least 3-4 years out before you have to worry about RRSP. Since A) you don't have much income yet to create contribution room and B) you still have debt to service and C) you still got tons of tuition tax credit to cover at least first year of full time employment income.

But if you do have a few bucks left over right now, put it in TFSA. Since your student loan interest doesn't kick in til schooling is over (or 6 months after school is over?)

So it's great for you to make gains tax free while you have a free loan. But I know it's tough to save $ as a student.

Yeah for sure. I most likely wont start til I'm done school and working, just want to get the best understanding of everything now so I'm not running around like a chicken with its head cut off when the time comes.

[Xtrema]

Originally posted by Vmack

whats a CPA? cert public accountant?

http://cpacanada.ca

[Vmack]

Originally posted by Xtrema


http://cpacanada.ca

how would that effect my schooling? would it at all? Or would I just be looking to get a CPA designation after grad instead of the others?
a little off topic, but if it concerns my future I wanna know about it lol

[Xtrema]

Originally posted by Vmack

how would that effect my schooling? would it at all? Or would I just be looking to get a CPA designation after grad instead of the others?
a little off topic, but if it concerns my future I wanna know about it lol

I got nothing to add here. You need to talk to your peers and instructors. But if you are in standard post secondary school programs, it shouldn't affect you. Just a new certification path and title once they have ratified everything.

I think it's a bigger deal for current CGAs and CMAs.