Tax-Free Savings Account vs. RRSP, Tax-Free should always win!
The Tax-Free Savings Account limits are really starting to create
interest. This is a good thing. Debates will continue about whether to do RRSP's or TFSA's. Ideally we would do both. But that's not possible for all.
I do know however, without a doubt, that when we are all sitting on the front porch (dock, deck at cottage, condo in Florida, fill in your own preference...) enjoying retirement, that when the income we take from our Tax-Free Savings Account is completely tax-free, we will be very happy.
Personally I am a very long-term thinker. I'm willing to give up the RRSP refund today (which often just 'disappears' into the daily grind) in order to have tax-free income in the future.
Remember, in retirement, RRSP's are taxable, company pensions are taxable, Canada Pension Plan is taxable, Old Age Security is taxable. When things are taxable you need MORE of them to provide the same income a tax-free vehicle would provide.
The numbers as I see them.
$10,000 into an RRSP and into a Tax-Free Savings Account every year for 20 years.
Same growth rate of 5%
5% growth while in retirement. Assuming a retirement of 20 years as well.
25% tax bracket in retirement
Both accounts would grow to $347,192.52
RRSP net annual income: $24,081.64
TFSA net annual income: $26,532.98
That's almost $2500 a year difference or over $200 a month...for 20 years! The higher the tax bracket in retirement the better it would look.
Yes, I didn't take into account what you do with your RRSP refund and the numbers also vary with incomes and tax rates. But worst case scenario, if you find you don't like the TFSA...just take out all your money, TAX-FREE! and put it into your RRSP as the room in both vehicles continues to accumulate if not used.
And if you are still not sure, split your annual savings half to each! Then you have the best of both worlds.
This is of course just my opinion.