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BMO Financial Group

January 06, 2011 09:00 ET

REPEAT-Media Advisory: TFSA or RSP? BMO Provides Clarity in the Debate

- Introduced in 2009, more than 1/3 of Canadians hold a TFSA

- Created in 1957, 79 per cent have an RSP

- BMO provides insight into which product is right for you

TORONTO, ONTARIO--(Marketwire - Jan. 6, 2011) -  Canadians are saving more today than ever before. And there's no shortage of options available for them to shelter their money—whether it be RSPs, RDSPs, RESPs or TFSAs.

Since its introduction in 2009, the Tax Free Savings Account (TFSA) has proven to be one of the more popular investment accounts. According to a recent national BMO survey, more than one-third of Canadians hold a TFSA, but almost 40 per cent remain unaware of TFSA investment options.

With RSP season upon us and people paying closer attention to their investment options, many are wondering how the RSP fits into their overall financial portfolio and how much should be contributed to a RSP versus a TFSA. More than 70 per cent of Canadians hold RSPs, but a significant number don't fully know what investments they hold within them.

RSPs and TFSAs are both flexible investment tools that allow Canadians to tax shelter their investments within a number of different investment vehicles.
Tina Di Vito, Director, Head, BMO Retirement Institute, is available to help provide some clarity around the following:

  • Should you contribute to a TFSA, an RSP, or both?
  • What are the advantages of each? The drawbacks?
  • What investment vehicles should you consider when investing the funds in your TFSA and/or RSP?
  • Can both play a role in helping you build a personal retirement pension?

How is a TFSA different from an RSP?

TFSA   RSP
     
- With a TFSA, you do not need to have any earned income to accumulate the $5,000 per year contribution room   - With an RSP, you must have earned income in order to accumulate contribution room
     
- Withdrawals from a TFSA are tax-free. Any amount withdrawn is then added to your contribution room in the following year, so that you could later recontribute the amount that you withdrew.   - Withdrawals from an RSP are taxed in the year of withdrawal (with the exception of the Home Buyer's Plan (HBP) and Lifelong Learning Plan (LLP) which are not taxed provided they are repaid on schedule). Any amount withdrawn can not be added to your contribution room in the following year.
     
- Contributions to a TFSA are not tax-deductible on your income tax return.   - Contributions to your RSP are tax-deductible on your income tax return
     
- There is no requirement to convert the TFSA to an income payment option (e.g. a RRIF or an annuity) at any age   - An RSP must be fully withdrawn or be transferred to a RRIF or annuity by the end of the year you turn 71.

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