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Dear Nancy,

I'm a 26-year-old recent graduate with a Masters degree and I have started a full-time permanent job. I currently still live at home. My debts consist of two lines of credit (both at prime +1%). One is in the amount of $18,000 the other $3,000. I'm beginning to pay off my lines of credit in the amount of $1,500 and $500/month, respectively.

I recently purchased a vehicle (required for my job) and have combined monthly car and insurance payments of around $650. I'm in the process of setting up a TFSA with maximum regular biweekly contributions. I've also been thinking about setting up an RRSP with minimal regular biweekly contributions, as I know the benefits of starting this early in life to let the value compound over a longer period of time. My monthly take home pay is $3,800 and unfortunately this is spread very thinly across all of the above.

Do you recommend ignoring the RRSP for now and concentrating on maximizing my TFSA while paying off both lines of credit? Or is it worth doing all of this with even small $100/month contributions to an RRSP?



Dear Matt,

I would have you contribute to the TFSA and reassess at the end of the year if it makes sense to withdraw from the TFSA to contribute to the RSP for the income deduction. A big part of the decision is the tax bracket you are in and if you expect to have a higher level of income in the future. The fortunate thing is that in both cases, the contribution limits never expire, but are carried forward to future years. With both plans you are sheltering the gains (assuming gains) and income from taxation. The major difference is the income deduction.

It isn't a definitive answer, I know, but even if you take out of the TFSA at the end of the year, you can replace it in the following year. Be aware you have to wait until the following January to contribute the withdrawn funds back unless you haven't contributed the maximum yet.


Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. To ask her a question, send an e-mail to or visit her web site at


For tips, stories, videos and live chats ahead of this year's RRSP contribution deadline, check the Globe Investor 2012 RRSP season website for daily updates.