{"id":1224,"date":"2022-02-01T06:00:26","date_gmt":"2022-02-01T06:00:26","guid":{"rendered":"https:\/\/mercatorfinancial.ca\/?p=1224"},"modified":"2022-05-26T18:12:05","modified_gmt":"2022-05-26T18:12:05","slug":"tfsa-versus-rrsp-what-you-need-to-know-to-make-the-most-of-them-in-2022","status":"publish","type":"post","link":"https:\/\/mercatorfinancial.ca\/tfsa-versus-rrsp-what-you-need-to-know-to-make-the-most-of-them-in-2022\/","title":{"rendered":"TFSA versus RRSP \u2013 What you need to know to make the most of them in 2022"},"content":{"rendered":"<div>\n<style type=\"text\/css\">\n@-webkit-keyframes oryCellResizeableAnimate {\n  0% {\n    background-color: hsla(0,0%,100%,.26);\n    top: 45%;\n    bottom: 45%;\n  }<\/p>\n<p>  50% {\n    background-color: hsla(0,0%,100%,.12);\n    top: 0;\n    bottom: 0;\n  }<\/p>\n<p>  to {\n    background-color: hsla(0,0%,100%,.87);\n    top: 45%;\n    bottom: 45%;\n  }\n}\n@keyframes oryCellResizeableAnimate {\n  0% {\n    background-color: hsla(0,0%,100%,.26);\n    top: 45%;\n    bottom: 45%;\n  }<\/p>\n<p>  50% {\n    background-color: hsla(0,0%,100%,.12);\n    top: 0;\n    bottom: 0;\n  }<\/p>\n<p>  to {\n    background-color: hsla(0,0%,100%,.87);\n    top: 45%;\n    bottom: 45%;\n  }\n}\n<\/style>\n<style type=\"text\/css\"><\/style>\n<div class=\"juiced\">\n<div id=\"postToSend-11\">\n<div class=\"ory-row\" style=\"box-sizing: border-box; display: -webkit-box; display: -ms-flexbox; display: flex; -webkit-box-flex: 0; -ms-flex: 0 1 auto; flex: 0 1 auto; -webkit-box-orient: horizontal; -webkit-box-direction: normal; -ms-flex-direction: row; flex-direction: row; -ms-flex-wrap: wrap; flex-wrap: wrap; margin-right: 0; margin-left: 0; position: relative;\">\n<div class=\"ory-cell ory-cell-sm-12\" style=\"position: relative; box-sizing: border-box; -webkit-box-flex: 0; -ms-flex: 0 0 auto; flex: 0 0 auto; padding-right: .5rem; padding-left: .5rem; -ms-flex-preferred-size: 100%; flex-basis: 100%; width: 100%; min-width: 100%;\">\n<div class=\"ory-row ory-cell-inner\" style=\"box-sizing: border-box; display: -webkit-box; display: -ms-flexbox; display: flex; -webkit-box-flex: 0; -ms-flex: 0 1 auto; flex: 0 1 auto; -webkit-box-orient: horizontal; -webkit-box-direction: normal; -ms-flex-direction: row; flex-direction: row; -ms-flex-wrap: wrap; flex-wrap: wrap; margin-right: 0; margin-left: 0; position: relative;\">\n<div class=\"ory-cell ory-cell-sm-12\" style=\"position: relative; box-sizing: border-box; -webkit-box-flex: 0; -ms-flex: 0 0 auto; flex: 0 0 auto; padding-right: .5rem; padding-left: .5rem; -ms-flex-preferred-size: 100%; flex-basis: 100%; width: 100%; min-width: 100%;\">\n<div class=\"ory-cell-inner ory-cell-leaf\"><img decoding=\"async\" class=\"content_to_brand ory-plugins-content-image\" src=\"https:\/\/www.appsforadvisors.com\/ufs\/advisorBrandedContent\/i6z4ye48m2zt8zmpN\/TFSAvsRRSP_2022_Deposits-Mercator-Financial-R3juK7ZrZxyt3KN7y.png\" style=\"width: 100%; max-width: 612px;\"><\/div>\n<\/div>\n<\/div>\n<div class=\"ory-row ory-cell-inner\" style=\"box-sizing: border-box; display: -webkit-box; display: -ms-flexbox; display: flex; -webkit-box-flex: 0; -ms-flex: 0 1 auto; flex: 0 1 auto; -webkit-box-orient: horizontal; -webkit-box-direction: normal; -ms-flex-direction: row; flex-direction: row; -ms-flex-wrap: wrap; flex-wrap: wrap; margin-right: 0; margin-left: 0; position: relative;\">\n<div class=\"ory-cell ory-cell-sm-12\" style=\"position: relative; box-sizing: border-box; -webkit-box-flex: 0; -ms-flex: 0 0 auto; flex: 0 0 auto; padding-right: .5rem; padding-left: .5rem; -ms-flex-preferred-size: 100%; flex-basis: 100%; width: 100%; min-width: 100%;\">\n<div class=\"ory-cell-inner ory-cell-leaf\"><img decoding=\"async\" class=\"content_to_brand ory-plugins-content-image\" src=\"https:\/\/www.appsforadvisors.com\/ufs\/advisorBrandedContent\/xuppH7MqwAD9mhAGb\/TFSAvsRRSP_2022_Withdrawals-Mercator-Financial-R3juK7ZrZxyt3KN7y.png\" style=\"width: 100%; max-width: 612px;\"><\/div>\n<\/div>\n<\/div>\n<div class=\"ory-row ory-cell-inner\" style=\"box-sizing: border-box; display: -webkit-box; display: -ms-flexbox; display: flex; -webkit-box-flex: 0; -ms-flex: 0 1 auto; flex: 0 1 auto; -webkit-box-orient: horizontal; -webkit-box-direction: normal; -ms-flex-direction: row; flex-direction: row; -ms-flex-wrap: wrap; flex-wrap: wrap; margin-right: 0; margin-left: 0; position: relative;\">\n<div class=\"ory-cell ory-cell-sm-12\" style=\"position: relative; box-sizing: border-box; -webkit-box-flex: 0; -ms-flex: 0 0 auto; flex: 0 0 auto; padding-right: .5rem; padding-left: .5rem; -ms-flex-preferred-size: 100%; flex-basis: 100%; width: 100%; min-width: 100%;\">\n<div class=\"ory-cell-inner ory-cell-leaf\">\n<div>\n<h1>TFSA versus RRSP \u2013 What you need to know to make the most of them in 2022<\/h1>\n<p>TFSAs and RRSPs can be significant savings vehicles. To help you understand their differences, we have put together this article to compare:<\/p>\n<ul style=\"margin: auto 2em 1.5em; list-style-type: disc;\">\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">TFSA versus RRSP &#8211; Differences in deposits<\/p>\n<\/li>\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">TFSA versus RRSP &#8211; Differences in withdrawals<\/p>\n<\/li>\n<\/ul>\n<h2>TFSA versus RRSP &#8211; Difference in deposits<\/h2>\n<p>There are four main areas to focus on when comparing differences in deposits for 2022:<\/p>\n<ol style=\"list-style-type: decimal; margin: auto 1em 1.5em;\">\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">Contribution Room<\/p>\n<\/li>\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">Carry Forward<\/p>\n<\/li>\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">Contributions and Tax Deductibility<\/p>\n<\/li>\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">Tax Treatment of Growth<\/p>\n<\/li>\n<\/ol>\n<p><strong>How much contribution room do I have?<\/strong><\/p>\n<p>If you have never opened a TFSA before, you can contribute up to $81,500 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"ory-row ory-cell-inner\" style=\"box-sizing: border-box; display: -webkit-box; display: -ms-flexbox; display: flex; -webkit-box-flex: 0; -ms-flex: 0 1 auto; flex: 0 1 auto; -webkit-box-orient: horizontal; -webkit-box-direction: normal; -ms-flex-direction: row; flex-direction: row; -ms-flex-wrap: wrap; flex-wrap: wrap; margin-right: 0; margin-left: 0; position: relative;\">\n<div class=\"ory-cell ory-cell-sm-12\" style=\"position: relative; box-sizing: border-box; -webkit-box-flex: 0; -ms-flex: 0 0 auto; flex: 0 0 auto; padding-right: .5rem; padding-left: .5rem; -ms-flex-preferred-size: 100%; flex-basis: 100%; width: 100%; min-width: 100%;\">\n<div class=\"ory-cell-inner ory-cell-leaf\">\n<div><img decoding=\"async\" class=\"ory-plugins-content-image\" src=\"https:\/\/www.appsforadvisors.com\/ufs\/mediaLibrary\/k9jJAG4T9XdhvcZH5\/Screen%20Shot%202022-02-01%20at%209.22.29%20AM.png\" style=\"width: 100%;\"><\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"ory-row ory-cell-inner\" style=\"box-sizing: border-box; display: -webkit-box; display: -ms-flexbox; display: flex; -webkit-box-flex: 0; -ms-flex: 0 1 auto; flex: 0 1 auto; -webkit-box-orient: horizontal; -webkit-box-direction: normal; -ms-flex-direction: row; flex-direction: row; -ms-flex-wrap: wrap; flex-wrap: wrap; margin-right: 0; margin-left: 0; position: relative;\">\n<div class=\"ory-cell ory-cell-sm-12\" style=\"position: relative; box-sizing: border-box; -webkit-box-flex: 0; -ms-flex: 0 0 auto; flex: 0 0 auto; padding-right: .5rem; padding-left: .5rem; -ms-flex-preferred-size: 100%; flex-basis: 100%; width: 100%; min-width: 100%;\">\n<div class=\"ory-cell-inner ory-cell-leaf\">\n<div>\n<p>For RRSPs, the contribution limit is always 18% of your previous year&#8217;s pre-tax earnings to a maximum of $29,210. For example, if you earned $60,000 in 2021 then your contribution limit for 2022 would be $10,800 (18% x $60,000). If you earned $200,000, your contribution limit would be capped at the maximum of $29,210.<\/p>\n<p><strong>How much contribution room can I carry forward?<\/strong><\/p>\n<p>If you choose not to contribute to your TFSA at all one year or do not contribute the maximum amount in a year, you can indefinitely carry forward your unused contribution room. The only restrictions on this are that you must be a Canadian resident, older than 18, and have a valid social insurance number. In addition, if you make a withdrawal, the amount you withdrew is added to your annual contribution room for the <strong>following<\/strong> calendar year. <\/p>\n<p>For an RRSP<strong>, <\/strong>you can carry forward your unused contribution room until the age of 71. When you turn 71, you must convert your RRSP into an RRIF. If you make a withdrawal from your RRSP, you do not open up any additional contribution room.  <\/p>\n<p><strong>Contributions and Tax Deductibility<\/strong><\/p>\n<p>Your TFSA contributions are not tax-deductible and are made with after-tax dollars. Your RRSP contributions are tax-deductible and are made with pre-tax dollars.<\/p>\n<p><strong>Tax Treatment of Growth<\/strong><\/p>\n<p>One of the reasons it is essential to make both RRSP and TFSA contributions is that investment value growth is treated differently.  <\/p>\n<p>A TFSA is more suitable for short-term objectives like saving for a house down payment or a vacation because the investment value growth is tax-free. In addition, when you make a withdrawal from your TFSA, you will not have to pay income tax on the amount withdrawn.<\/p>\n<p>The growth in an RRSP is tax-deferred, meaning you will not pay any taxes on your RRSP gains until you withdraw money from your future RRIF account; the account you convert your RRSP into at age 71. As a result, RRSPs are better suited for long-term objectives, like retirement. In addition, since you will have a lower income in retirement than when you are working, you will be in a lower tax bracket and not pay much tax on your RRIF income.<\/p>\n<h2>TFSA versus RRSP \u2013 Differences in withdrawals<\/h2>\n<p>There are four main areas to focus on when comparing differences in withdrawal for 2022:<\/p>\n<ol style=\"list-style-type: decimal; margin: auto 1em 1.5em;\">\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">Conversion Requirements<\/p>\n<\/li>\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">Tax Treatment<\/p>\n<\/li>\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">Government Benefits<\/p>\n<\/li>\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">Contribution Room<\/p>\n<\/li>\n<\/ol>\n<p><strong>Conversion Requirements<\/strong><\/p>\n<p>For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA. However, if you have an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st of 2022.<\/p>\n<p><strong>Tax Treatment Of Withdrawals<\/strong><\/p>\n<p>One of the most attractive things about a TFSA is that all your withdrawals are tax-free! This ability to withdraw funds tax-free is why TFSAs are advantageous for short-term goals; you don&#8217;t have to worry about taxes when you take money out to pay for a house or a dream vacation.  <\/p>\n<p>With an RRSP, if you make a withdrawal before converting it to a RRIF, it will be taxed as income except in two cases:<\/p>\n<ol style=\"list-style-type: decimal; margin: auto 1em 1.5em;\">\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.<\/p>\n<\/li>\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.<\/p>\n<\/li>\n<\/ol>\n<p><strong>How will my government benefits be impacted?<\/strong><\/p>\n<p>If you are withdrawing from your TFSA or RRSP, it is essential to know how your withdrawals can impact any benefits you receive from the government.  <\/p>\n<p>Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.   <\/p>\n<p>RRSP withdrawals are considered taxable income and can affect the following:<\/p>\n<ul style=\"margin: auto 2em 1.5em; list-style-type: disc;\">\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.&nbsp; <\/p>\n<\/li>\n<li style=\"list-style-type: inherit; display: list-item; margin: .2em 0 0 .2em;\">\n<p style=\"margin: 0;\">Government benefits including Old Age Security, Guaranteed Income Supplement and Employment Insurance.<\/p>\n<\/li>\n<\/ul>\n<p><strong>How will a withdrawal impact my contribution room?<\/strong><\/p>\n<p>If you make a withdrawal from your TFSA, then the amount you withdrew will be added on top of your annual contribution room for the <strong>following<\/strong> calendar year. However, if you withdraw money from your RRSP, you do not open up additional contribution room.  <\/p>\n<p><strong>The Takeaway<\/strong><\/p>\n<p>RRSPs and TFSAs can both be great savings vehicles. With this in mind, understanding the differences between these two types of tax-advantaged accounts can help you better plan for future purchases and your eventual retirement.  <\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>TFSAs and RRSPs can be significant savings vehicles. To help you understand their differences, we have put together this article to compare:<\/p>\n<p>&#8211; TFSA versus RRSP &#8211; Differences in deposits<br \/>\n&#8211; TFSA versus RRSP &#8211; Differences in withdrawals<\/p>\n<p>Understanding the differences between these two types of tax-advantaged accounts can help you better plan for future purchases and your eventual retirement.<\/p>\n","protected":false},"author":3,"featured_media":1230,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_coblocks_attr":"","_coblocks_dimensions":"","_coblocks_responsive_height":"","_coblocks_accordion_ie_support":"","footnotes":""},"categories":[38,2,26,27],"tags":[],"_links":{"self":[{"href":"https:\/\/mercatorfinancial.ca\/wp-json\/wp\/v2\/posts\/1224"}],"collection":[{"href":"https:\/\/mercatorfinancial.ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mercatorfinancial.ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mercatorfinancial.ca\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/mercatorfinancial.ca\/wp-json\/wp\/v2\/comments?post=1224"}],"version-history":[{"count":1,"href":"https:\/\/mercatorfinancial.ca\/wp-json\/wp\/v2\/posts\/1224\/revisions"}],"predecessor-version":[{"id":1225,"href":"https:\/\/mercatorfinancial.ca\/wp-json\/wp\/v2\/posts\/1224\/revisions\/1225"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/mercatorfinancial.ca\/wp-json\/wp\/v2\/media\/1230"}],"wp:attachment":[{"href":"https:\/\/mercatorfinancial.ca\/wp-json\/wp\/v2\/media?parent=1224"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mercatorfinancial.ca\/wp-json\/wp\/v2\/categories?post=1224"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mercatorfinancial.ca\/wp-json\/wp\/v2\/tags?post=1224"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}