My plan is to stick to the basics of personal finance, but I couldn't help myself on this subject because it's been something I've been asking myself for a while. Is it better to put your money into RRSP or the new TFSA (Tax Free Savings/Trading Account) to reduce your tax burden. Well, here is a good explanation of what one should do regarding this matter.
The article is from Canadian MoneySaver (www.canadianmoneysaver.ca) and it's quite thorough in its analysis of which investment vehicle is optimal for reducing taxes on your investments. Essentially, the article states that an RRSP is more effective in reducing your tax burden only if your marginal tax rate is higher at the time of contribution than at the time of withdrawal. Therefore, we have to estimate whether we will have a higher marginal tax rate when we retire vs. our current marginal tax rate. Hope this helps in your decision to contribute to your RRSP or put money into your TFSA.
If you click on the title of this blog, it will take you to the article. However, just in case that doesn't work, here is the link.
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