Are you considering contributing to the Registered Retirement Savings Plan (RRSP) this year? While it is an appealing, safe investment for some, it may not be the best option for you. Be sure that you understand the function of an RRSP before you set your hard-earned money aside. It may be in your best interest to open a Tax-Free Savings Account (TFSA) through a private party. Higgins Insurance can help you find the best way to prepare for your retirement based on your income, specific needs, and investment interests.
When people think of a savings account, they typically think of something that simply sits in the bank and doesn’t collect any interest overtime. They don’t generally view it as an opportunity to save up for their retirement. A TFSA, however, it is an investment account like an RRSP on holdings allowed, and it provides the owner of the TFSA tax-sheltered growth.
RRSPs, on the other hand, can be misleading. The Registered Retirement Savings Plan implies that your contribution to the RRSP will allow you an instant tax deduction for that year and that your money will accumulate with deferred taxes. All this is true, however, with an RRSP, there is a taxed bill that you have to pay when you want to take your money out of it. This can be challenging to a new retiree who was anticipating being able to withdraw a certain amount of money, who then ends up having to pay more in taxes than they did while they were in the workforce.
The difference between an RRSP and a TFSA is that there is not an income reduction for TFSA contributions, which results in an immediate tax benefit in the way of a reduction. When you reach retirement, all withdraws from a TFSA are tax-free. Upon withdrawal, you will be getting back the amount of money that you put in.
The RRSP is a great opportunity for some, but be sure to consider all the options available to you. Depending on your current income versus future income in retirement, you should be able to max out your TFSA before you start contributing to your RRSP.
At Higgins Insurance, we pride ourselves on being thorough while finding you the best opportunity for insurance. Treating your life insurance as a reliable, long-term investment is an excellent approach and can be a stable, safe choice for your future.
Are you asking the question, “Should I contribute to the RRSP or should I not contribute to the RRSP?” If so, take that question to the professionals at Higgins Insurance. We will set you up with a member of our exceptional team to help you find the best investment opportunity for your retirement plans. Contact us today!