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Introduction to: Tax Free Savings Accounts and Registered Retirement Savings Accounts

Introduction to: Tax Free Savings Accounts and Registered Retirement Savings Accounts. What are Tax Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP)? Short Answer ? They are both tax effective vehicles for Canadians to save Longer Answer? Let me try to explain….

julie-welch
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Introduction to: Tax Free Savings Accounts and Registered Retirement Savings Accounts

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  1. Introduction to:Tax Free Savings Accounts and Registered Retirement Savings Accounts

  2. What are Tax Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP)?Short Answer ? They are both tax effective vehicles for Canadians to saveLonger Answer? Let me try to explain….

  3. TFSA’s were created by the federal government in 2009 and are available to all Canadians 18 yrs. or olderRRSP’s were created in the middle of the baby boomer years (1957)Both TFSA’s and RRSP’s allow savings to grow in an account “Tax Free”

  4. Example of “Tax Free” Savings Growth Based on investing $1,000 per year for 20 years with 5% compound interest (assumes middle income tax rates)

  5. Comparison: TFSA vs. RRSP TFSA • Maximum $5,000 year-no income needed • Can “carry forward” unused contributions • Contributions are not tax deductible • Withdrawals are not taxed, and create an equal amount of contribution room (next year) • Can contribute at any age RRSP • Up to 18% of earned income to max of $22,000 • Can “carry forward” unused contributions • Contributions are tax deductible • Withdrawals are taxable at your effective tax rate at the time of withdrawal • Cannot contribute after 71

  6. Understanding the Tax Implications of TFSA vs. RRSP TFSA TFSA investments are made after you pay tax on the money RRSP RRSP investments are made with money that you don’t pay tax on, since the investment is tax deductible

  7. So which account is better?Short Answer ? It depends, but both are good…Longer Answer? It depends….

  8. There a several factors, however your tax rates at the time of deposit and time of withdrawal are the most important-this information may not be known… If the money is to be used for a purchase like a house or car, the TFSA is best since the contribution room does not go away if you make a withdrawal With the disappearance of “Defined benefit” pension plans-both TFSA’s and RRSP’s are needed to save for retirement

  9. The End Thank you

  10. Backup Slides

  11. Investments that can be held in TFSA or RRSP accounts Both accounts can hold: Cash (very low interest rate) Guaranteed Investment Certificates ( low return 1.25-2.6%-but safe) Bonds (less secure than GIC 2.5-4.5%) Mutual Funds (higher risk depends on fund type can be 5-10%) Exchange Traded Funds (similar to mutual funds but lower cost to own) Individual Stocks (Generally the highest risk, but highest return potential) What you hold depends on the when you need the $$ and your appetite for risk My personal preference is Exchange Traded Funds

  12. Tax Rate Comparison Retirement Tax Equal Tax Lower Tax Higher RRSP TFSA RRSP TFSA RRSP TFSA

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