This article was originally posted on http://my-moneytree.blogspot.com/2009/07/alternative-view-to-rrsp-vs-tfsa.html.
"It’s a very interesting concept. I like what you’ve written about the TFSA (Tax Free Savings Account). Keep in mind the idea of Inflation and the affect it has on money. If I have the choice between paying $1 of income tax today or $1 in 20 years, I would much rather pay it in 20 years. So if I get a $384 tax saving for putting in $1,000 in my RRSP today and pay $384 of income tax in 20 years when I take it out, I’ve actually paid back much less. In my mind, a person that still has any kind of debt where the interest is not tax deductible, or if the person is not on target to save enough for retirement, contribute to RRSP. In regards to the TFSA, if this person has not yet saved up enough money to pay for their child’s education, they should not put money into a TFSA other that what they like to keep in there emergency fund (usually 3 months income).
Here’s an example.
$1,000 in an RRSP will give someone with a $50,000 income a $384 tax deduction if they live in Quebec and $312 if in Ontario.
$1,000 in an RESP will give someone with the same income a $200 grant that will be added in the RESP.
$1,000 on a loan with a 5% interest rate (non tax deductible) will save them $81.70 per year ($81.70 minus $31.70 tax to pay $50)
$1,000 in a TFSA that earns 5% interest will earn $50 of interest which will save you $19.20 of income tax a year.
Hope this helps your discussion.
The best advice I can give anyone is that each situation is unique and therefore the advice for one may not be appropriate for another. That’s why everyone should have a Financial Planner with the CFP designation or Plan. Fin in Québec to help set priorities and determine the best plan of action based on their personal objectives."
