Des mythes sur les REER et les CELIDecember 7, 2016

Myths about RRSPs and TFSAs

When it comes to talking about investments or retirement, some myths are more persistent than others. Where money is concerned, there is no silver bullet, but there are few financial tools capable of making money that are not reserved only for true gurus of finance. Let’s deconstruct a few myths RRSPs and TFSAs.

RRSPs are created for retirement funds

False. RRSPs are a part of the tax system. They allow money to be set aside without it being eaten by taxes. These amounts may be invested for capitalization (depending on various factors, such as investment type, risk levels, and profitability objectives) in order to pay for costly projects, such a property or vehicle purchase.

RRSPs allow for tax refunds

True. As long as you pay taxes on your income throughout the year, it is possible to get a tax refund by taking out an RRSP at the end of the year. However, keep in mind that RRSP contributions reduce taxable income by delaying taxation at the time the amounts are withdrawn (usually that would happen at retirement, when the incomes and the taxes paid are lower).

RRSPs are pointless because you will have to pay tax on withdrawals later

False. Yes, you will have to pay taxes on withdrawals later, but the income at retirement is usually lower than while working. When you earn less, you pay less in taxes too.

TFSAs are a type of savings account that can be used at any time

True. You can withdraw as much as you want, but would not be able to put the money back into the TFSA until the following year to benefit the most from this year’s contributions. It needs to be kept in mind that the investment will remain sheltered from tax and outside of any annual deductions only as long as it kept in the TFSA.

TFSAs are not available if you do not work

False. Since 2009, any Canadian citizen aged 18 and over, regardless of income, has been allowed to contribute up to $5,500 per year into a TFSA. Similar to the RRSP, a TFSA can offer various profitability and risk options, which can influence your choices based on your goals.

Never forget: diversify to profit

Investment is similar to developing talents. The more talent you have, the more strings you have to your bow. Diversification works the same way.

You can do this on your own, but nothing will replace the advice of a financial investment expert.

Share this article