RRSP and TFSA Myths Debunked
There are so many different ways you can save your money, and it can get quite confusing at times. Many people have misconceptions about two in particular: TFSAs and RRSP. Let us set a few things straight!
Myth #1: You have to claim your tax deduction from your RRSP contribution in the year that it’s made.
Not true! You can carry the tax deduction forward to use in a later year. This may be a good idea if you expect higher income (and income tax) in future.
Myth #2: You can transfer assets straight from your RRSP into your TFSA.
Careful! While this is possible, this counts as a withdrawal from your RRSP and so is taxable. However, moving from a TFSA into an RRSP will not trigger income taxes, as withdrawals from a TFSA are tax-free.
Myth #3: A TFSA is tax deferred while I’m alive, but is taxed when I die.
Nope! TFSA withdrawals are tax-free, whether the owner is deceased or not.
Myth #4: You must wait until you are 71 years old to convert your RRSP to an RRIF.
Not quite! While you must convert by the end of the year that you turn 71, you do not need to wait that long. It may be beneficial to convert early to claim certain non-refundable tax credits.
These are just a few things to keep in mind when considering TFSAs and RRSPs. Keep in mind that every situation is unique, that’s why it’s a good idea to work with a Certified Financial Planner to navigate through what makes most sense to you!