Thursday, January 27, 2011

RRSP vs. TFSA: Who cares?!

Now that the TFSA has been around for a while, people have some significant used or potential contribution room for their account. This has given rise to the debate between the RRSP account and the TFSA account. Which is better? Which should I contribute to? What are the benefits, risks, and best practices for me? What if I'm heavily taxed in retirement? What if I don't get as much Old Age Security?

If you're young like me (22 years of age), I say who gives a flying fig? I have both accounts, and I contribute to both evenly. Each account has its purpose, and I'll meet whatever complications arise 40 years from now when they come. What else can I do? There is absolutely no way of predicting what taxes will be in four decades, what income bracket I fit into, whether I'll be eligible for OAS. I say that it's essentially a guessing game as to whether taxes will be higher or lower when I start withdrawing from my RRSP when I retire. If I don't qualify for OAS because I have too much money that I can live off of on my own, isn't that fair?

My plan is this: Contribute to my RRSP for the purpose of a first-time-home-buyer down-payment. Contribute to my TFSA to build a dividend growth portfolio. Simple. Sound principle, should work out just fine if I'm disciplined in sticking to my plan. I don't give a hoot which is better.

Edit: An update on my RRSP plan: RRSP First Time Home Buyer's Plan

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