Where Should You Invest Your Savings?

As we all know, there are many options for us to invest our savings. You have options to invest in RRSP (Registered Retirement Savings Plan), TFSA (Tax-Free Savings Account), RESP (Registered Education Plan), paying down our mortgage etc.

Investment in RRSP Vs. Tax Free Savings Account:

Investment in RRSPs is subject to limits mentioned by Canada Revenue Agency in the Notice of Assessment. The way an RRSP works is, you get tax benefits in the year in which you invest in RRSP and you pay tax in the year of withdrawal. You derive benefits on an overall basis if the tax benefit exceeds the potential tax liability in future.

If you are looking to buy your first home (you have to qualify as a first time home buyer) in Canada, it could be tax advantageous for you to invest in RRSP because your withdrawal under “First Time Home Buyers’ Plan” is not taxable.

However, if you anticipate your future earnings in a higher tax bracket, RRSP investments may not be tax advantageous and you may want to consider investments in a TFSA. TFSA investments do not qualify for any tax benefit when invested and is not taxable when withdrawn (i.e. no gain, no loss). Keep in mind that investments within TFSAs must be within the prescribed limits (by CRA).

RESP VS. TFSA:

Investment in RESPs provide you an annual guaranteed return in the form of Federal Government Grant of 20% on you contribution (20% on $2,500). This investment is for your children’s post-secondary education and it should be supplemented with your other savings. The RESP savings are tax deferred in the sense that the growth inside the plan grows tax free and is taxable in the hands of the child when it is withdrawn.

Paying Down Mortgage vs. TFSA:

If you are considering to invest in a TFSA vs. paying down your mortgage, it probably makes sense in most cases to reduce your non-deductible interest as soon as possible.

In case of any specific question, please feel free to write at piyushmody64@gmail.com.

Disclaimer: Any discussion on this blog relating to tax matters is purely for educational purposes and not taking any specific actions based the general tax rules described therein. Your tax situation could be different and as a result there may be different tax strategies applicable under individual cases. We do not claim the tax situations described above to be exhaustive or conclusive. In case of any specific tax situations or problems, you are advised to seek professional advice.