A convo I’m having this morning with a colleague, I thought I would share. Should you invest in your RRSP to save taxes now or your TFSA; saving no taxes now but increasing your compounding power over the next several years? Take a look…
If you invest your $50,000 in a RRSP and earn 8% ROI for 20 years you will have $233,048 and then withdraw it you will be left with ~$139,829 (assuming a 40% tax rate).
If you invest your $50,000 in a TFSA and earn 8% ROI for 20 years you will have $233,048 and then withdraw it you will be left with $233,048.
By choosing a RRSP you’ve essentially chosen to reduce your current tax burden by approximately. $12,500 in taxation in exchange for an additional ~$93,218 of income later. That’s throwing away a 745% ROI!
Unfortunately many people opt to reduce their short-term tax burden instead of focusing on their long-term returns. This happens because most people just don’t understand the options they have or have any clue of the impact of their decision. I hope this helps you paint a clear picture so that you can make an informed decision.