Which Savings Plan Is Right For You? TFSAs vs RRSPs

Well done and presented. I would, however, want to note that you have an error.

For RRSP you note that the contributions are “Tax Deductible”. No, they are not. Rather, the contributions are INCOME deductible, to reduce the amount of income on which tax is payable rather than being deductible from tax payable.

In other words, if I live in Ontario, am above age 65, and my earned income is $300,000 (and therefore subject to the Trudeau Tax surcharge as well as to the age penalty tax) approximately 54% of my income above $220,000 would be taxable in years 2016 (approx. 50% for tax year 2015 before the Trudeau Tax took effect)

If I contribute $20,000 to my RRSP for tax year 2015, I will defer tax on the $20K, a TEMPORARY saving of $10K. However, if I cash in my RRSP in 2016 or later or die in 2016 or later, that $20K for which I deferred the tax would become taxable – at approx. $54% (inclusive of the Trudeau Tax and Age Penalty Tax). That deferment of $10K in tax would then materialize at a cost of an additional $800 in tax payable (I would have to pay $10,800 instead of the $10,000 due to the Trudeau Tax. Thus, I would have to have earned at least 4% on the RRSP funds in order to just break even.

The key point that I am trying to deliver with all this is that RRSP contributions are NOT “Tax Deductible” but could end up actually being a failed strategy that would increase the tax payable.

Regards,

Ami

Love the new look guys, nicely done 🙂

Mark