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We’re all saving for something, but are your savings doing the most that they can for you?
Whether your goals are big or small, your savings do more when you invest them with those goals in mind. With the tax breaks offered by both TFSAs and RRSPs, they’re an attractive savings option for many people. But which is better, or what’s the difference in the first place?

Let’s take a look at some common questions and figure out the right option for you:

  1. What’s the difference between a TFSA and an RRSP?
    They’re two different savings vehicles – and they can work together or individually to maximize your growth. The biggest difference lies in when you pay taxes: now, or later.

    RRSP contributions are tax-deductible. You deduct your contributions from the income you report on your tax return, meaning you’ll get the benefits of a deduction every year you contribute to your RRSP. Each contribution is made in pre-tax dollars, so you’re deferring paying taxes until you start to withdraw, which is an advantage if your marginal tax rate will be lower in retirement.

    With a TFSA, you can’t deduct your contributions from the taxable income you report, but any withdrawals and interest earned will be tax-free. You already paid the tax on your contributions, which is an advantage if your marginal tax rate is the same or higher when you withdraw.

    Don’t forget: Maximize your tax benefits this year by contributing to your RRSP before the deadline: Monday, March 2nd, 2020.
  2. Which option is the best for my savings goals? Can I have both?
    Ideally, you should have both and contribute to both. However, for many people, that's not a realistic option. Consider your goals: this will help determine where you should start.

    An RRSP is just that – a registered savings plan, helping you to save for retirement. There are many advantages to contributing to an RRSP as soon as you start to earn income, whether retirement planning is a priority or not. However, there are only two exceptions to withdrawing from an RRSP for purposes beyond retirement:
    • The Home Buyers Plan, which allows you to withdraw up to $35,000 for a down-payment on your first home, and repay it over 15 years, and,
    • The Lifelong Learning Plan, which allows you to withdraw a maximum of $20,000 for school and repay it within ten years.

    If your savings goals are short-term, a TFSA offers more flexibility. There are no penalties or withdrawal guidelines, income requirements, or timelines like RRSPs, which must be closed and converted to RRIFs by December 31st of the year you turn 71.

    Helpful hint: No matter which savings vehicle you choose, you'll likely come out with a similar amount of money in the long-run. While this is an important factor to consider, when and how you're using the account is more significant when selecting a savings vehicle!
  3. How much should I be contributing?
    Many personal finance experts recommend following the 50-30-20 rule when it comes to your paycheque: 50 per cent for essentials (like rent, groceries, and bills); 30 for discretionary spending (dinners out, Netflix, your daily coffee); and 20 per cent for your savings.

    Realistically, how much you contribute is less significant than how often you do. When it comes to your savings, consistency is key! By contributing regularly, you're encouraging steady growth, and by setting up pre-authorized contributions, that growth will add up quickly!

    Savings tip: Something small can turn into so much more! By setting up pre-authorized contributions to your registered products, you'll never forget to save. As little as 25$ biweekly can make a big difference in the long-term!

    It is important to keep contribution limits in mind for both RRSPs and TFSAs. This year, you can contribute up to 18 per cent of your income earned in 2019, or $26,500, to your RRSP – whichever amount is lower. Any additional contribution room from previous years' will be added to this total. TFSA contribution limits vary by year. For both 2019 and 2020, the limit is $6,000 per year, plus any unused contribution room you have.

Tax time is coming!

If you want to make the most of your RRSP deductions this year – make sure you know the Important RRSP Dates and Information to file on time! Filing your taxes online? Get a 20% discount on the retail price of Turbotax Standard online tax preparations here!

Did you know you can access your e-documents online? Log in to online banking and select 'View e-Documents' from the My Accounts menu. You can expect to see your tax documents by the end of February.

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