IS AN RRSP THE RIGHT CHOICE FOR YOU?

If you are in the top tax bracket and have the money it makes sense to maximize your RRSP (Registered Retirement Savings Plan) and TFSA (Tax Free Savings Account). For everyone else the answer is not that clear. With all the options it would be wise to talk with a financial planner to determine what is best in your situation. Following are some options that are available.

I have seen people that invested in RRSPs when they were in a low tax bracket but on retirement paid tax on those RRSP withdrawals at the top tax bracket. With OAS (Old Age Security) claw back the effective tax paid could be higher than the top tax bracket. Check with a tax planner well before you are at retirement age to minimize taxes and claw backs.

In the past the thinking was that the investment income growth made up for the higher taxes paid on withdrawal. Now that we have TFSAs you can get tax free investment income. In the RRSP all investment income is taxed when withdrawn. With a TFSA all withdrawals are tax free. If you are not in the top tax bracket, I recommend you consider a TFSA before deciding on an RRSP.

If you have children and want to save for their education then an RESP (Registered Education Savings Plan) is worth considering. Grants and bonds from the government are available.

If you have disabled children consider an RDSP (Registered Disability Savings Plan). Grants and bonds from the government are available.

There are some scenarios where it makes sense to purchase spousal RRSPs and the spouse could withdraw the RRSP some years later in a low income year. If you do this make sure you check the attribution rules otherwise you may have to pay the tax.

I have not even mentioned all the options available for investments inside all of these vehicles.

With all these options available it is best to consult with a financial planner.

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