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Thread: RRSP, TFSA, or Both?

  1. #1
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    Default RRSP, TFSA, or Both?

    I am starting a new job soon and the employer matches up to 8% of base. Obviously i am going to maximize my contribution to recieve the full 8% match. However, it can also be directed into a TFSA. Currently i have never contributed to a TFSA, only RRSPs, so my limit is pretty high right now.

    Would a 50/50 split be advisable until i reach my contribution limit on the TFSA? I see this as being advantageous as i would be access to cash on the TFSA in the event of some life emergency and i wouldn't have to pay taxes on it. The downside as i lose the relief on taxes for the full amount going to RRSPs.

    So beyond....what say you?

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    I do all RRSP for matching and then contribute a chunk of my pay to TFSA and treat like a normal savings account or 'rainy day' fund.


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    Max out RRSP contributions and then deposit tax refund into TFSA.

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    One thing to consider is what bracket you're in. If you expect to be in a higher bracket in the future, contribute mostly to your TFSA now and RRSP later.

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    What do you plan on doing with the money?

    For example your portion/plus the com pany matched portion..do you see this as a logn term nest egg or a short term savings?

    In my persective I would always go the RRSP route.

    1 - Company RRSP; no tax implications - you get a deduction for the RRSP contribution and a taxible benefit for the company making it = net wash 0.

    2 - You get a RRSP deduction and potential tax savings/refund on your RRSP contribution.

    3 - If you go the TFSA rouet they will withhold tax on it. Basically the RRSP allows you to defer those taxes until much later in life. I would always prefer to get the full amount and pay taxes later.

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    Depends on your tax bracket. If you are in the 0-44K range, there's no point deferring the tax as that 15% is what you'll be paying when you are retired/using it. Better to use that contribution space when/if you're in a higher bracket.

    If you make 100K, then that first 13K is worth 36% returned to you (which presumably you'll only pay 25% when actually retired). After that 13k you're in the next main bracket 44-87K which is 32% - still worth it but not as much. You want as much of your contributions in the higher brackets as possible.

    TFSA is just a bit better savings account for the money you don't want to waste rrsp space on.
    That's not sweat. It's your fat, crying.


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    Well i think i will go all in on the 8% match RRSP (16% total) and put bits and pieces (bonus's and tax refunds) into the TFSA.

    I am up in a highest bracket for taxes so to put the money away untaxed and withdrawl much lower years from now just makes more sense.

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    If you are in the highest bracket, RRSP is a no brainer.

    But if you do monthly contribution with employer matching using payroll deduction, don't expect a refund at the end of the year.
    Last edited by Xtrema; 02-12-2014 at 05:28 PM.

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    $135K+, ballin'

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    Originally posted by Xtrema
    If you are in the highest bracket, RRSP is a no brainer.

    But if you do monthly contribution with employer matching using payroll deduction, don't expect a refund at the end of the year.
    I have rentals that i claim expenses on so i usually have a bit of a return. Nothing crazy though.


    Originally posted by holden
    $135K+, ballin'
    Bro, $135k is still bellow the beyond poverty line. Not a baller

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    Literally, the textbook answer as taught in the CFA program is:

    Tax rate today < tax rate next period: TFSA
    Tax rate today > tax rate next period: RRSP

    $X less 30% today = Present Value[Future Value($X) less 30% in 50 years] after all.

    The only distinguishing factor is tax rates, and the key assumptions are that the full refund gets reinvested, and time between making contributions and receiving your tax refund only allows negligible compounding (both fair assumptions considering volatility of markets).

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    Originally posted by ianmcc
    Max out RRSP contributions and then deposit tax refund into TFSA.
    +1

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    What do you want to use the money for? If you want it for retirement then I would stick with everyone else' suggestions and go rrsp. But if you want I buy a new car/house/other toy then tfsa might be better.

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    Originally posted by spike98
    Well i think i will go all in on the 8% match RRSP (16% total) and put bits and pieces (bonus's and tax refunds) into the TFSA.

    I am up in a highest bracket for taxes so to put the money away untaxed and withdrawl much lower years from now just makes more sense.
    Definitely your best bet. But don't use the TFSA until you completely max out your RRSP. Save as much tax while your at a high income.

    TFSA won't save you anything, so put your refund back into the RRSP for next year.
    Vettel's #1

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    Originally posted by sabad66
    What do you want to use the money for? If you want it for retirement then I would stick with everyone else' suggestions and go rrsp. But if you want I buy a new car/house/other toy then tfsa might be better.
    Both really. I want to continue building on my retirement and put some away for that new car, boat, or accidentally knocking up the wife. Which is why a split seemed attractive. But being in the higher tax bracket its best to get as many credits i can get while i am paying through the nose in tax and just put the leftovers into the play/oops fund.

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    Originally posted by Xtrema
    If you are in the highest bracket, RRSP is a no brainer.

    But if you do monthly contribution with employer matching using payroll deduction, don't expect a refund at the end of the year.
    I do not agree.

    Company portion will net to zero (benefit/deduction) but the personal contribution will net a refund.

    Assumign payroll tables are correct and employer is calculating remittances correctly.

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    If your in the highest tax bracket your effectively losing a decent chunk off the top.

    Say income is $135K and they will do 10% matched.

    RRSP = $13.5K and no tax implcaition this year; 13.5K taxable benefit offset by a deduction of same amount.

    TFSA = $13.5K gross but they will withhold taxes upfront as its a taxable benefit but no offsetting tax deduction. Assume margin rate is 39% (10% AB and 29% Federal). = ~$5.3K in taxes you pay; so your net cheque is $8.2K

    Unless you need the money ASAP the option is much better to defer it and get $13.5K and futrue returns before paying taxes when you pull it all out much later on.

    Plus itll compound too; $13.5K personal contribution will net you the $5.3K back in a return assuming enough remittances were paid during the year...bringing the RRSP option up to ~$19K.

    If you go the RRSP route you'll have to be careful you dont over contribute for the year....

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