ABOUT RRSP and T.F.S.A.

When should one begin to prepare for retirement?

Ideally, when one becomes permanently employed or at the start of one’s career, is a good time to start. I believe that even a small contribution to T.F.S.A. would prove to be expedient; that could be when time you file your first tax return or age 18 whichever comes first.

        What are the rules for contributing to a TFSA?

At the present time you are able to contribute up to $5,000 annually into a T.F.S.A. Any sum not contributed in a year is rolled into the next and this goes on and on.  Remember that any contribution to a T.F.S.A. is not tax deductible but by the same token, any withdrawals are non-taxable.  You can withdraw your contributions plus any gains that have accrued in the account at any time. Now, remember, I said any gains and this includes capital gains on any investments held in the T.F.S.A. account.

Further, in the next or any subsequent year, you can make a contribution into the T.F.S.A. account of an amount equal to the amount previously withdrawn, plus your yearly maximum plus any contribution room you had from previous years.

      How does a TFSA differ from an RRSP?

The contribution to an RRSP is based upon 18% of your earned income, so that is a higher level than the $5,000 in a T.F.S.A.

The contribution to the RRSP is tax deductible but is also taxable on withdrawal. Once the money is withdrawn you cannot put it back into the RRSP. Remember you are limited to the 18%.