Download TFSA - Retire First

RRSP are for retirement and Tax
Free Savings Accounts are for
everything else in your life.
How it Works
The TFSA allows Canadian over the age of 18* to shelter $5000 each year.
Unused contribution room is cumulative and can be used in future years.
Money can be withdrawn from the account tax free however contributions to the
TFSA are not tax deductible.
You can withdraw funds for any purpose and earnings in the account are taken
out tax free, and the amount will be add to your contribution limit for the next
year.
How it Works
Withdrawals from the account do not affect your eligibility for income benefits or
credits.
Money withdrawn from the account can be replaced in future years.
Contribution to a spouses TFSA do not follow the RRSP attribution rules.
TFSA assets can be transferred to the designated beneficiary upon death.
Contribution Example
Year One
Contribute:
Account Balance:
2500
2500
Year Two
Contribute:
Account Balance:
Contribute:
Withdrawal:
Account Balance:
Contribute:
5000
7500
$7,500
$3000
$12,000
$8,000
Year Three
Year Four
(5000 yearly plus 3000 withdrawn from account)
Account Balance:
$20,000
Retirement and the TFSA
TFSA are an excellent investment tool for depositing surplus RIF and pension
income.
TFSA can be used to tax-shelter non registered income such as GIC interest,
with out affecting government benefits.
Impact on Income Attested
Benefits
Withdrawn money will have no tax consequences and will not affecting your
eligibility for federal Income-tested Benefits and Credits.
Your Old Age Security (OAS) benefits, Guaranteed Income Supplement
(GIS) or Employment Insurance (EI) benefits will not be reduced.
Income and withdrawals will not affect your Canada Child Tax Benefit
(CCTB), the Goods and Services Tax Credit (GSTC), the Working Income
Tax Benefit (WITB), or the age credit.
TFSA vs. RRSP
TFSA contributions are made with after-tax dollars and are not tax deductible.
RRSP contribution are tax deductible.
Money withdrawn from TFSA is tax free.
Money withdrawn from RRSP is fully taxable.
TFSA do permit spousal contribution but attribution rules do not apply.
Interest on money borrowed to contribute to RRSP is tax deductible, but
not for TFSA.
TFSA vs. RRSP
TFSA
Limits
Tax
Deductibility
Tax on Income
Withdrawals
RRSP
$5000 for 2009
Contribution limit is based
on an individual’s earned
income from the previous
year, up to a max. amount
Contribution are not taxdeductible and therefore do not
reduce income tax
Contribution are taxdeductible and therefore
reduce taxable income
Income/returns earned on
investments are tax-free
Income/returns earned on
investments are taxsheltered until withdrawn.
Withdrawals are not added to
taxable income-they are tax free
Withdrawals are added to
taxable income and taxed at
the applicable marginal tax
rate.
TFSA vs. RRSP:
Problem:
I only have 2000 dollars, which contribution is right for me?
Assuming you have contribution room in both accounts you should:
Contribute to your RRSP if your marginal tax rate is higher now then it will be in
retirement.
Contribute to your TFSA if your marginal tax rate at retirement is high than your
current tax rate.