February Poll

The RRSP deadline for the 2023 tax year is February 29. From a wealth planning perspective, do you think middle aged Canadians should invest in a TFSA instead?


It depends, but no selection for this option.  RRSP and RRIF’s can have more tax complications in retirement as the funds are taken out.  This is especially true if there is a large company pension combined with OAS and CPP.  The TFSA, although it doesn’t give you a tax deduction at the time, provides access to tax free cash later.  It is really dependent upon the individual and an assessment of retirement income sources needs to be done to determine the best course of action.  RRIF’s and the mandatory withdrawal can also impact clawback zones.

By Marilyn Sims on February 24, 2024

I replied “no” to question, only because there was no choice for: “depends”. Every client is in a different situation, but for employed clients, it still boils down to not giving the tax-man any more than required. Overall, it is still preferable to use RRSP to try to achieve a “zero” taxable income if possible, then use the tax rebate to invest in the TFSA. For the self-employed and business owners, it is a different situation. Still comes down to Knowing Your Client.

By Ron Young on February 23, 2024

Great answers until you get to the point of a RIV and then the big problem is the amount you have to take out each year (4% now but was 5%) which becomes income.  I obviously can’t do it over again but at the point of the TFSA being another contribution situation I should have put at least 1/2 of my contribution in to RRSP and the other 1/2 in to my TFSA.  This is the advice I give to my clients. 

By Leanor Davidson on February 22, 2024

I think this question could have a bit more thought put into it. Calculations I have done and I have seen elsewhere put the greatest benefit to contributing to an RRSP and then putting the resulting refund into the TFSA. However there are way too many variables to make a definitive answer to such a broad question hence my suggestion to the writer of the question.

By t on February 22, 2024

Yes. if clients have maximized RRSP contribution to reduce taxable income & ensure receiving other taxable income sensitive benefits.
Contribution to TFSA to earn TAX FREE CAPITAL GAINS over the years will yield sizable WEALTH

By Cecilia Ng on February 22, 2024

Yes. if clients have maximized RRSP contribution to reduce taxable income & ensure receiving other taxable income sensitive benefits.

Contribution to TFSA to earn TAX FREE CAPITAL GAINS over the years will yield sizable WEALTH

By Cecilia Ng on February 22, 2024

It really depends on a person’s situation.

By Michelle Chestnut on February 21, 2024

That is not a yes/no question.  It depends on the client circumstances like taxable income and current investments.

By Helen on February 16, 2024

TFSA is really useful for building tax free retirement income.

By Malcolm Palmer on February 15, 2024

I believe they should split the RRSP and the TFSA contributions as 50/50
This allows for strategy of saving on taxes prior to turning 71.

By SUSAN Y MACKIE on February 15, 2024

As is so often the case, the best answer is “it depends”.  If the individual is still raising dependent children and receiving the Canada Child Benefit, contributing to an RRSP can significantly increase CCB payments. I have worked through several low-to-moderate-income scenarios where the result of RRSP contributions was a net tax/benefit impact of over 60% of the contribution, accounting for reduced income tax and increased benefits.  As always, it’s best to run the numbers on a client-by-client basis rather than producing a generalization and trying to fit it to everyone.

By Daniel Housser on February 10, 2024

I answered yes; however, the “best” answer option of, it depends, was unavailable. RRSPs are an ideal way of deferring tax to retirement. High income earners would most likely benefit by maximizing their contributions annually, thereby reducing their tax bill. Those tax savings can be invested to earn additional income (in or outside of a registered account). In theory, upon retirement converting the RRSP to an RRIF would see annual withdrawals taxed at a lower rate. Of course, this retirement income coupled with income from all other sources might result in the CRA “recovery tax” on OAS and still paying tax at higher levels. We also have to assume tax brackets remain constant. Should the federal (and provincial) government need to finance programs and deficits to support an aging population, tax brackets my be elevated. Of course, higher income brackets would likely see the greatest increase.

While TFSAs do not provide any immediate tax relief, the income is not taxed. Therefore, withdrawals do not serve to increase income and this income is not included in any CRA “income testing” calculations. Also, contribution room is restored in the following year of the withdrawal, and increases annually irrespective of income. TFSAs can provide more flexibility by being used not only for retirement but also for shorter and medium savings goals.

So, it really does depend on current and future income levels and expected retirement situations. I would say that for most Canadians, the TFSA option, while not deferring taxes (note defer, hopefully reduce, but not eliminate) is probably the better option. For really high income earners currently in the upper tax brackets, the RRSP is likely the better option. It all comes down to that very important catch phrase, “Know your client.”

By Michael Connors on February 09, 2024

Like the answer to many questions, it depends.  Nobody has a working crystal ball, so we have to work through every situation to determine which makes sense.

If tax rates on withdrawal are higher than contribution, the TFSA wins in a lifetime taxation perspective.  If tax rates are lower, the RRSP wins.  If the same, it’s a draw.

To invest in either requires access to some cash.  Regarding middle-ages Canadians, it does depend a bit on how one defines that.  This is where doing some projections of retirement income can be of value to get an idea of where income levels may be at.  There is also value in looking at alternative scenarios which aren’t best case including illness, disability, premature death, or career / job changes.

I’d suggest there’s no pat yes / no answer as we want to consider income and cash flow now and in the future and assess whether the tax deferral makes sense for an individual and couple that with estate planning to strive to achieve the best outcome for an individual / family / legacy.

By Derek T on February 08, 2024

RRSP Are still a great tool to reduce federal tax on the spot!
If managed well it can be an additional source of income when retirement comes, for those self employed or stay at home parent to raise children and enjoy the spousal contributions, but it is not a tool for immediate cash flow, which has been in demand more and more each day as we pull out of COVID and try to unscramble what the world scrambled!
As we face more financial cash flow demands we can not loose perspective that the show must still go on, and not to set a side the now vs retirement. Understanding that we may need to pull into our mix of social networking and professionals a financial planner to take a look from the outside in how they can help!
As a tax specialist I love a good RRSP to see how that federal tax can turn that frone upside down but I struggle with our alders who saved their whole life and left a beautiful RRSP goldmine to children on to see half of their hard work line the federal pockets!
Managing your money, at all ages in your life is the key to success!

A TFSA can offer additional income tax free come retirement, act as a saving tool for travel, home Reno’s, even an emergency fund.
Looking into more automation for TFSA may help taxpayers reach cash flow goals!
Good luck out there

By Ann Laurin on February 08, 2024

I had to pick an answer, when there is no correct answer available as this is an unfair question due to various unknown factors about the clients income and pension status.
Clients that are in the first federal tax bracket will most likely not benefit from overall tax savings using an RRSP deferral.
In Manitoba for example, a RRSP contribution of $1,000 will net the a Tax Refund of $279, which would be reinvested in a TFSA
After 25 Years the RRSP value would grow to $4,291.87 (using a 6% ROI) and the TFSA would grow to $1,197.43
When the client took out the $4,291.87 the tax would be $1,197.43 so he would need to the TFSA at the exact same Rate. Leaving them with $4,291.87
Investing the money into a TFSA would net the same amount. so there is no difference, However there are variables, such as what if the Tax Rates Increase, or the clients income increases (IE, with the clients pension, CPP and OAS) puts them into a higher income bracket.  Or what if the clients does $7,000 and does it for 25 years, the plan would grow to $437, 133, the min RIF withdrawal would be apx $26,000 per year, but at what Rate. And what would the tax liability be should the client not survive long enough to diminish the Value, portions could be taxed at over 50% created a huge Tax liability, which does not meet the preservation or transition phases of real wealth management.

Subsequently if your Client is in the 3rd, 4th or 5th tax bracket RRSP make a lot mere sense.

As with all things tax and money, there is no one size fits all as there needs to be some Retirement income forecasting done, and annual reviews to ensure that adjustments are made. Remember, you can always transfer TFSA’s (and the gains) to RRSP’s when new tax brackets are present, but to remove an RRSP in the future will cost you in tax, and the rate is not yet determined.

By Stacey Bartel on February 08, 2024

It makes good sense to invest in a TFSA.  The caveat is whether or not the client needs to reduce his taxable income.  Ideally, they should invest in both to get the best overall benefit.  The ability to access funds tax free (TFSA) and the reduction in taxable income if required (RRSP).

By Robert on February 08, 2024