TAX-FREE SAVINGS ACCOUNT (TFSA)
The Tax-Free Savings Account (TFSA) program was introduced in 2009. Since it is a registered plan that allows your investments and savings to grow tax-free throughout your lifetime much like you do an RRSP it is an excellent way to save for your retirement.
It was introduce as a way for individuals who are 18 and older and who have a valid social insurance number to set money aside tax-free throughout their lifetime.
Unlike and RRSP, contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn. So the disadvantage of not getting a tax deduction at the front end is offset by tax-free withdrawal, much like a savings account, except the interest in a regular saving account is taxable.
In addition, unlike your Registered Retirement Savings Plan, your TFSA allows you to access your money quickly and easily any time you want. There is no penalty to withdraw money. If you do, the amount is added to how much you can contribute the following year. For example, withdrawing $5,000 this year means that next year you’ll be eligible to contribute the normal $5,500—plus $5,000.
Withdrawal from your TFSA during retirement is also not considered income, so retirees can take money out without it affecting retirement benefits like Old Age Security, which decreases with higher income.
Administrative or other fees in relation to TFSA and any interest or money borrowed to contribute to a TFSA are also not deductible.
Maximum annual contribution limits for 2015 have increased from $5,500 to $10,000 but under the Liberal's proposed legislation, starting January 1sr 2016, the annual TFSA dollar limit for 2016 will decrease from $10,000 to $5,500 and will remain the same for 2017.
The choice between RRSP and TFSA is difficult and based on your future income tax situation. Based on what the expert says, if you’re a high-income earner saving for a typical middle-class retirement, then an RRSP is the best choice. However, if you are a high income earner expecting to maintain the same standard of living when you retire or a low income earning maintaining the same low income during retirement, then a TFSA should prove more effective. The reason being, with high retirement income, the pre-retirement tax savings is offset by the high tax at withdrawal and with low income at retirement, the minimum withdrawal requirement of a RRIF will most likely push your income level above the threshold for receiving the GIS (Guaranteed Income Supplement).
From moneysense.com
Go to the moneysense.ca page for a detail comparison on the benefits of the two options.
Go to the Fonds FTQ page for a comparison between investing in an RRSP with the Fonds Solidarite FTQ vs. a TFSA:
Go to this link for Financial Post take on the benefit of a TFSA over an RRSP:
