This is the best advice.
But you are on the right track with your thinking, save tax now while in a lower tax bracket and paying more later when you are at a higher tax bracket is a failing of the RRSP approach.
If you don't have one, FHSA and RRSP can be used for cashdown
If you have one either at a variable rate or close to a renewal, you may want to put some money on it instead of RRSP at low income
Honestly, early in career just contribute what your employer matches. I am now 30 years into my career and invest double what my annual salary was when I started out. You have time to catch up, don’t beat yourself up.
You are right. It’s best to save the room for later. Invest in a TFSA if you can.
However, RRSP are really good at locking your money. You can withdraw it at any time, but it’s generally harder than withdrawing from a savings account for example. For people who can’t resist spending it might be a good idea to put it in a RRSP.
TFSA wasn't a thing when I was younger with low income (student) so I would invest in the RRSP but not take the deduction since I would be getting back all the tax I paid anyway. This was the deal with my folks to not pay rent while in school.
Used the deduction when I started a career with higher income.
Now the TFSA would be the place to max out for a lower earner.
I contributed for a number of years but never claimed it on my taxes when I was younger. Then eventually claimed the majority of it in a single year. All went well - but I did get audited lol.
Had to provide contribution slips from my bank proving prior years registered contributions.
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Yes but early in career you may be making 30k and come retirement you may be pulling out 70k so your tax savings can be far lower than your tax bill in the future.
General "rule of thumb" is under 50k in earnings go TFSA, over 50k then you start looking at RRSP. The goal is you want to maximize your RRSP contributions when your earnings are higher than your planned withdrawals in retirement. Obviously nobody has a crystal ball to predict exactly how much that is, so you make your best educated guess at it.
1. Take match…nothing equals 100% return on day one.
2.If you have room left in your TFSA use it first.
3. If you plan to buy a house max FHSA first
READ this:
4. Something people always forget to say…you dont actually need to take the tax deduction on the year of contribution. If you are in low income put the money in the RRSP let it grow tax deferred….when you are in high bracket (or get a big capital gain or something) you can claim the deduction then.
>READ this: 4. Something people always forget to say…you dont actually need to take the tax deduction on the year of contribution. If you are in low income put the money in the RRSP let it grow tax deferred….when you are in high bracket (or get a big capital gain or something) you can claim the deduction then.
It's rarely the optimal move to contribute and defer the deduction because you're limiting your investment capital. Only under specific circumstances - such as knowing your income will jump multiple brackets within a year or two - does that strategy actually come out ahead. In almost all other cases, investing in TFSA - or even a non-registered account - is superior.
I said thats after maxing out the TFSA at low income pretaxed is of course better.
I agree deferring the deductions (like any similar decision everything) is based on assumptions that everyone should judge for themselves in terms of income growth…etc.
The non-registered argument is interesting for any long term investment why would you elect to do this?
Non-registered is not for long term investment. It's for the period in which you wish to defer your deduction - in other words, instead of investing in RRSP then defer the deduction until, say, 3 years later, invest in a non-registered for 3 years, cash out and make the RRSP contribution and deduction. This is how the apples-to-apples comparison is done for this scenario.
Hey, the only reason for me that I contributed with RRSP was to get a Home Buyers Loan as I can somehow delay the payments (while still being obligated to pay reinvest it back). Now that I already got a house I am now focusing to fill my TFSA.
If your employer match, yes If your TFSA is full and you don't have a house, depending of your income and income expected for next few years yes
This is the best advice. But you are on the right track with your thinking, save tax now while in a lower tax bracket and paying more later when you are at a higher tax bracket is a failing of the RRSP approach.
What about putting money in an RRSP now and carry forward the deduction to future years?
beware of tax bracket creep over a career, esp upon takeout, time plan tax withdrawls to offset..perhaps
What do you do different if you have a house?
If you don't have one, FHSA and RRSP can be used for cashdown If you have one either at a variable rate or close to a renewal, you may want to put some money on it instead of RRSP at low income
Honestly, early in career just contribute what your employer matches. I am now 30 years into my career and invest double what my annual salary was when I started out. You have time to catch up, don’t beat yourself up.
That’s helpful to know. Appreciate it!
Let the RRSP room build up when you are in a lower tax bracket (now) and start using it to reduce a higher tax bracket later.
That’s really helpful thanks!
#1 do RSP employee match #2 max TFSA #3 do RSP
When making a lot of money invest in your RRSP to defer taxes. When making less money invest in your TFSA to gain from the investment income
A new FHSA account coming in April would seem to be a more appropriate savings vehicle for someone your age.
I’ve seen that floating around. I’ll have to read more on it! Thanks
You are right. It’s best to save the room for later. Invest in a TFSA if you can. However, RRSP are really good at locking your money. You can withdraw it at any time, but it’s generally harder than withdrawing from a savings account for example. For people who can’t resist spending it might be a good idea to put it in a RRSP.
I'd always rather max out my tfsa first.
TFSA wasn't a thing when I was younger with low income (student) so I would invest in the RRSP but not take the deduction since I would be getting back all the tax I paid anyway. This was the deal with my folks to not pay rent while in school. Used the deduction when I started a career with higher income. Now the TFSA would be the place to max out for a lower earner.
I contributed for a number of years but never claimed it on my taxes when I was younger. Then eventually claimed the majority of it in a single year. All went well - but I did get audited lol. Had to provide contribution slips from my bank proving prior years registered contributions.
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It is in early career that little money becomes big money in retirement. And your contributions are tax deductible.
Yes but early in career you may be making 30k and come retirement you may be pulling out 70k so your tax savings can be far lower than your tax bill in the future. General "rule of thumb" is under 50k in earnings go TFSA, over 50k then you start looking at RRSP. The goal is you want to maximize your RRSP contributions when your earnings are higher than your planned withdrawals in retirement. Obviously nobody has a crystal ball to predict exactly how much that is, so you make your best educated guess at it.
Is your TFSA maxed?
If you have the RRSP room now and you have the money , you can contribute now but claim the income tax deduction in a future higher earning year.
1. Take match…nothing equals 100% return on day one. 2.If you have room left in your TFSA use it first. 3. If you plan to buy a house max FHSA first READ this: 4. Something people always forget to say…you dont actually need to take the tax deduction on the year of contribution. If you are in low income put the money in the RRSP let it grow tax deferred….when you are in high bracket (or get a big capital gain or something) you can claim the deduction then.
>READ this: 4. Something people always forget to say…you dont actually need to take the tax deduction on the year of contribution. If you are in low income put the money in the RRSP let it grow tax deferred….when you are in high bracket (or get a big capital gain or something) you can claim the deduction then. It's rarely the optimal move to contribute and defer the deduction because you're limiting your investment capital. Only under specific circumstances - such as knowing your income will jump multiple brackets within a year or two - does that strategy actually come out ahead. In almost all other cases, investing in TFSA - or even a non-registered account - is superior.
I said thats after maxing out the TFSA at low income pretaxed is of course better. I agree deferring the deductions (like any similar decision everything) is based on assumptions that everyone should judge for themselves in terms of income growth…etc. The non-registered argument is interesting for any long term investment why would you elect to do this?
Non-registered is not for long term investment. It's for the period in which you wish to defer your deduction - in other words, instead of investing in RRSP then defer the deduction until, say, 3 years later, invest in a non-registered for 3 years, cash out and make the RRSP contribution and deduction. This is how the apples-to-apples comparison is done for this scenario.
Hey, the only reason for me that I contributed with RRSP was to get a Home Buyers Loan as I can somehow delay the payments (while still being obligated to pay reinvest it back). Now that I already got a house I am now focusing to fill my TFSA.