January 2021: Which makes more sense for your specific situation. An RRSP contribution or a TFSA contribution? If in doubt, get advice.
The main difference between an RRSP and TFSA is the timing of taxes:
An RRSP lets you defer taxes – an advantage if your marginal tax rate
is lower in retirement. You get a tax refund today, based on your higher tax rate, then your money compounds tax free until you withdraw it later and pay tax at hopefully a lower rate of tax.
With a TFSA, you’ve already paid tax on the money you contribute – so there’s no tax break at the time of contribution. However, any growth earned in a TFSA—whether it’s interest, dividends or capital gains are tax free. You never pay tax on these earnings.
The deadline to make an RSP contribution deductible for the tax year 2020 is March 1, 2021. The maximum for 2020 is $27,230, but check your Notice of Assessment to confirm your RSP Room first.
As of January 1, 2021, you can contribute another $6000 to your TFSA and replace any contributions withdrawn in a prior calendar year. The maximum cumulative contribution room to date is $75,500.
