Skip to main content
investor newsletter

Someone asked a nearly unanswerable question recently – should they invest in an RRSP, a TFSA or do both?

It’s close to unanswerable because no other details were provided – age, debt levels, goals, current income, tax rate, expected retirement income and more. But let me try to reply, anyway.

First, any high-interest-rate debt should take precedence over the registered retirement savings plan or tax-free savings accounts. Balances on credit card and unsecured credit lines are an example.

From there, let’s acknowledge that maximizing both the RRSP and TFSA is ideal. If pressed to choose one or the other without knowing someone’s personal details, I would vote for the TFSA. It’s quite possible you won’t get the best bang for your buck with a TFSA over an RRSP, but TFSAs are a savings and investing vehicle with a high level of customer satisfaction.

TFSAs offer an unbeatable combination of simplicity and transparency. You don’t get a tax break on contributions to a TFSA, but money compounds tax-free in these accounts and there’s no tax on withdrawals of your principal and investment or savings gains. A dollar in a TFSA is a dollar in your hand. People love that, especially in retirement. That’s because money withdrawn from a TFSA is not added to income and thus cannot trigger a clawback of Old Age Security benefits or the Guaranteed Income Supplement.

Contributions to an RRSP get you a tax deduction, which people also love. What they hate is having to pay tax on RRSP withdrawals in retirement. Those taxes in retirement can actually work out in your favour if your income and marginal tax rate after you leave the work force are lower than they were when you put money in the RRSP years earlier.

Still, I have heard a lot of complaints over the years from retirees about the tax they pay on RRSP withdrawals. Some of these retirees say they regret ever using RRSPs, which is more of an emotional reaction than a rational one.

The proper answer to the question of RRSPs versus TFSAs considers income, tax rate and a lot more. But if it has to be one or the other, TFSAs have a lot to recommend them.

-- Rob Carrick

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Empire Company Ltd. Since Oct. 7, Empire’s share price has declined approximately 7 per cent. While the share price remains under pressure, further price weakness may represent a future buying opportunity. Jennifer Dowty profiles the stock. (for subscribers)

The Rundown

Why a buying opportunity is emerging in Canadian forestry stocks

Why do investors need to wait for rising demand for forestry products when production cutbacks seem to be doing the trick? Canada’s forestry sector has been curtailing production of lumber and oriented strand board (OSB) amid low commodity prices, and the cutbacks have been igniting share prices in recent weeks. But is it truly a buying opportunity? David Berman looks at the investment case. (for subscribers)

The lesson for all investors arising from the lewd comments of a billionaire fund manager

When the billionaire money manager Ken Fisher shocked a closed-door conference of financial professionals in San Francisco earlier this month with lewd comments, he unleashed a storm of controversy – one that small investors may want to follow, not just for its scandalous appeal, but for what it says about the investment business in general. Ian McGugan explains (for subscribers)

Worried about a recession? Here are 11 ETFs that could help protect your portfolio in a downturn

Amid ongoing global trade tensions, wavering bond yields and falling interest rates, increasingly wary investors are turning to ETFs best positioned to weather a potential market crash. Here are some top picks from fund managers (for everyone)

Others (for subscribers)

The week’s most oversold and overbought stocks on the TSX

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

Thursday’s Insider Report: Director cashes out over $4-million as this stock nears a record high

These six tech stocks could fuel a market breakout

Quality stocks to augment your Canadian index fund

Others (for everyone)

Upcoming reports from money-losing unicorns may test Wall Street’s patience

Brextension, Brelection, Brexinction: World market themes for the week ahead

Ask Globe Investor

Question: I am interested in WPT Industrial REIT that trades on the TSX as WIR.U. The dividend it pays is in American dollars. Would you know if I would receive the dividend in American dollars or would it be converted to Canadian.? Also, would it be subject to withholding tax if it is in my RRSP?

Answer: The REIT’s payments are in U.S. dollars and would be received in that form in a non-registered account. But any U.S. funds received in an RRSP or RRIF will automatically be converted to Canadian currency. There is no withholding tax on dividends/distributions paid to an RRSP or RRIF.

--Gordon Pape

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

Our Ian McGugan warned investors earlier this year about buying into the hype surrounding the Uber IPO. That turned out to be great advice. But now he thinks shares in the ride-sharing app company just might be a buy. He’ll explain why this weekend.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

Click here share your view of our newsletter and give us your suggestions.

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

Interact with The Globe