There is no simple answer to the question, where should I save my money? A Retirement Savings Plan or a Tax-Free Savings Account? While the two account types are different, each offers some important factors to consider.
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Retirement Savings Plan (RSP)
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Tax-Free Savings Account (TFSA)
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Primary Purpose
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Retirement
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Investing
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Annual Contribution Limit
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18% of earned income*
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$7,000 per year**
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Unused Contribution Room
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Carries forward
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Carries forward
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Taxation on Growth
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Growth is tax deferred. Tax is only paid on growth when money is withdrawn.
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Never required to pay tax on growth.
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Tax Deductions
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Deposits reduce annual income tax.
A tax refund can be equal to the deposit multiplied by the marginal tax rate.
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No tax deduction. TFSA contributions are made with after-tax dollars.
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Withdrawals
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Withdrawals do not increase annual contribution room. Withholding tax is charged on the amount withdrawn and the amount reported as taxable income. The income may affect eligibility for government sponsored retirement income programs.
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Withdrawals increase annual contribution room. Withdrawals are not considered “income” and not taxed. The income does not affect eligibility for government sponsored retirement income programs.
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Maturity Date
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Year in which individual turns 71
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At Equitable, matures at age 105
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* Subject to the annual contribution limit
** Annual limit is set by Canada Revenue Agency guidelines. Your notice of assessment will tell you if you have unused contribution room from previous years. This information does not constitute legal, tax or other professional advice. Information is believed to be accurate, but accuracy is not guaranteed.
® Denotes a trademark of The Equitable Life Insurance Company of Canada.
