RRSP are for retirement and Tax Free Savings Accounts are for everything else in your life.

How it Works The TFSA allows Canadian over the age of 18* to shelter $5000 each year. Unused contribution room is cumulative and can be used in future years. Money can be withdrawn from the account tax free however contributions to the TFSA are not tax deductible. You can withdraw funds for any purpose and earnings in the account are taken out tax free, and the amount will be add to your contribution limit for the next year.

How it Works Withdrawals from the account do not affect your eligibility for income benefits or credits. Money withdrawn from the account can be replaced in future years. Contribution to a spouses TFSA do not follow the RRSP attribution rules. TFSA assets can be transferred to the designated beneficiary upon death.

Year One Contribute: 2500 Account Balance: 2500 Year TwoContribute: 5000 Account Balance: 7500 Year ThreeContribute: $7,500 Withdrawal: $3000 Account Balance: $12,000 Year FourContribute: $8,000 (5000 yearly plus 3000 withdrawn from account) Account Balance: $20,000 Contribution Example

TFSA are an excellent investment tool for depositing surplus RIF and pension income. TFSA can be used to tax-shelter non registered income such as GIC interest, with out affecting government benefits. Retirement and the TFSA

Impact on Income Attested Benefits Withdrawn money will have no tax consequences and will not affecting your eligibility for federal Income-tested Benefits and Credits. Your Old Age Security (OAS) benefits, Guaranteed Income Supplement (GIS) or Employment Insurance (EI) benefits will not be reduced. Income and withdrawals will not affect your Canada Child Tax Benefit (CCTB), the Goods and Services Tax Credit (GSTC), the Working Income Tax Benefit (WITB), or the age credit.

TFSA vs. RRSP TFSA contributions are made with after-tax dollars and are not tax deductible. RRSP contribution are tax deductible. Money withdrawn from TFSA is tax free. Money withdrawn from RRSP is fully taxable. TFSA do permit spousal contribution but attribution rules do not apply. Interest on money borrowed to contribute to RRSP is tax deductible, but not for TFSA.

TFSA vs. RRSP TFSARRSP Limits $5000 for 2009Contribution limit is based on an individual’s earned income from the previous year, up to a max. amount Tax Deductibility Contribution are not tax- deductible and therefore do not reduce income tax Contribution are tax- deductible and therefore reduce taxable income Tax on Income Income/returns earned on investments are tax-free Income/returns earned on investments are tax- sheltered until withdrawn. Withdrawals Withdrawals are not added to taxable income-they are tax free Withdrawals are added to taxable income and taxed at the applicable marginal tax rate.

TFSA vs. RRSP: Problem: I only have 2000 dollars, which contribution is right for me? Assuming you have contribution room in both accounts you should: Contribute to your RRSP if your marginal tax rate is higher now then it will be in retirement. Contribute to your TFSA if your marginal tax rate at retirement is high than your current tax rate.