Branding-wise, tax-free savings accounts are way ahead of registered retirement savings plans.
TFSAs are seen as friendly, transparent and suitable for everyone. RRSPs are understood to have their uses, but people have a wariness about them because withdrawals are taxable. TFSA withdrawals are, of course, tax-free.
A lot of us will end up using both TFSAs and RRSPs to meet our savings and investing goals, but there are times when one or the other is the best choice. You want to make this choice based on facts, rather than on gut feelings about which feels more comfortable.
Here’s a useful “just the facts” guide to choosing between RRSPs and TFSAs. It was written for a publication aimed at investment advisers, but everyday people will find it helpful in identifying the best fit.
The guide nicely sums up what people like so much about TFSAs: … ”save for any reason, for any length of time, and withdraw tax-free. This is exactly what the TFSA was designed for.”
To brush up on your TFSA basics, check out this list of seven misconceptions about these accounts. No. 7 on the list: You should contribute to your TFSA first, before making RRSP contributions.
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Rob’s personal finance reading list…
She’s a home barista, comparison shopper and bargain hunter
A smart take on the frugal lifestyle – it doesn’t mean you’re cheap. “Frugality doesn’t mean compromising quality or neglecting your social life. It’s about making smart choices – I buy clothes secondhand, opt for generic store brands and scope out free fitness classes over pricey gym memberships.”
Enough with the guff about index investing
One of the most sensible investing bloggers I know of dismantles the latest scare-mongering about indexing, which means buying exchange-traded funds or mutual funds with portfolios that replicate what major stock and bond indexes hold.
Take the money and run
A bank accidentally put US$120,000 into the account of a couple in the United States. Read here to see what they did with it (hint: do not do what they did).
Tales from renter’s hell
Toronto Life bills this feature as “Tales from the wrongfully evicted.” Five people talk about how they were turned out by their landlord. I’m sure there are some decent landlords in Toronto’s crazed rental market, but not here.
Q: I sold my house and have a large amount of cash on hand. Where should I invest it in these uncertain times?
A: Worry less about these uncertain times in selecting investments and more about your long-term needs and goals. A well-designed portfolio – diversified, in other words – can handle all market conditions. If you’re concerned about putting money into the markets just ahead of a possible crash, try a gradual approach where you divide your money into four parts and invest in quarterly over the next 12 months. Cash or a savings account is the obviously safe choice for your money now, but will you have the confidence to get that money into the markets after a big decline? You might well be too nervous to do it, which means you’ll miss the big rise that follows every plunge.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
Looking for the right online bank or broker? Try this tool to help find the best match.
In case you missed these Globe and Mail personal finance-related stories
- Mortgage shoppers looking to roll the dice on short-term rates should look at 1- or 2-year terms
- Canadians are clinging to affordable rent as long as they can
- David Rosenberg on how to invest in this period of both risk and uncertainty (for Globe Unlimited subscribers)
Carrick Talks Money: Student budgeting for Globe Subscribers
Are you a Globe and Mail subscriber? If so, please join Rob Carrick and personal finance editor Roma Luciw for a live call-in on Monday September 16th @ 12 p.m. EST as they discuss successful debt management, essential bank products for students, credit scores and how they work, budgeting 101, the lowdown on credit cards, and the best time to start investing. Click on this link to register today.
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