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RRSP and TFSA Reminder

Penni Johnston-Gill - Feb 02, 2022
DON'T FORGET YOUR TFSA & RRSP CONTRIBUTIONS FOR 2022!

RRSP and TFSA Reminder

DON'T FORGET YOUR TFSA & RRSP CONTRIBUTIONS FOR 2022!

If you haven’t yet contributed to your tax-free savings account (TFSA), keep in mind that as of the year 2022 you can now put $81,500 into this excellent savings vehicle.

For the 2022 taxation year the contribution limit for an RRSP is or 18% of earned income or $29,210.

For the 2021 taxation year the contribution limit for an RRSP is 18% of earned income or $27,830.

Please find a recap of some of the attractive features of registered plans.

TFSA vs RRSP: WHICH IS BETTER?

Both the RRSP and TFSA can be excellent savings tools. Ideally, it is beneficial to maximize contributions to both. However, if the investor is unable to do this, here are some considerations when choosing between the two:

Marginal Tax Rate — Generally, for investors who will have a higher marginal tax rate in the future than at the time of contribution, the TFSA may be a better savings vehicle than the RRSP as no tax will be due upon the withdrawal of funds and therefore the net after-tax proceeds will be greater with the TFSA. If a lower marginal tax rate is anticipated, the RRSP may provide a better result.

Age Limit — RRSP contributions can be made up until the year in which the investor turns 71. The TFSA does not have any age restrictions, which may appeal to those retirees who do not need funds immediately at retirement.

Withdrawals & Contribution Room — For the TFSA, any withdrawals will generally be added back to TFSA contribution room at the beginning of the following calendar year. When funds are withdrawn from the RRSP and the related taxes are paid (except through the Home Buyers' Plan or the Life Long Learning Plan) contribution room is not replenished.

Income-Tested Benefits – In retirement, withdrawals from the RRSP/RRIF are considered to be taxable income and can lead to a clawback of government income tested-benefits such as the Old Age Security and the Guaranteed Income Supplement. TFSA withdrawals do not impact income for tax purposes.

The Bottom Line?
RRSP and TFSA are both excellent vehicles to save for retirement. Continue to make them a priority!

The RRSP contribution deadline is March 1, 2022.