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Another Article on TFSAs and RRSPs
Oh Good! Another Article on TFSAs and RRSPs
If you haven’t read enough articles at this time of year about the merits and differences between TFSAs and RRSPs, here is another one to dive into. Here is a quick chart to look at:
| RRSP ACCOUNT | TAX FREE SAVINGS ACCOUNT | |
|---|---|---|
| Contribution Made | Deductible | Not Deductible |
| Withdrawal from account | Taxable Income | Just cash flow, not taxable |
| Account Value Increases | Tax Free | Tax Free |
| Account Value Falls | Not a write-off | Not a write-off |
| Contribution Limits | Based on your previous year’s taxable income | Everyone gets the same limits from age 18 or 2009 whichever is later |
| Age 71 | RRSP must convert to a RRIF and taxable withdrawals must start in the future | Nothing happens |
| Death of Married RRSP Annuitant / Married TFSA Holder | If the spouse is named as Successor Annuitant, they receive the funds via a tax free rollover | If the spouse is named as a Successor Holder, funds received can go to their TFSA and NOT be treated as a contribution. |
| Death of Single Annuitant / Holder | 100% of the account value is taxable to the Estate. Beneficiaries should receive proceeds AFTER income tax is paid. | 100% of the account value is sent to the named beneficiaries tax free |
| Unused contribution room at death | An executor can make a Spousal RRSP contribution on behalf of the deceased as long as the surviving spouse is under age 71. | The unused contribution room is lost. |
TFSAs are our favourite accounts. They are the best for every type of investor, young and old. They accumulate wealth tax free and allow for withdrawals without tax consequences. On death, they are an estate planner’s dream account as the proceeds can transfer 100% in tact without probate (estate administration tax) and income tax to any named beneficiary.
Overstuffed RRSPs can get reduced down to just 47% of their value due to income tax on death in all cases unless the proceeds go to a spouse, impaired financially dependent child/grandchild or to one other really important type of beneficiary.
If you have questions you’d like answered, feel free to email:
ttayler@taylerinsurance.com
Taivi Tayler, RRC®, CLU®
Certified Financial Planner
Toll Free: 1-866-550-6932
Local: 705-733-3338
Fax: 705-734-6243
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