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Media Advisory TFSA vs. RRSP- Which Is Right For You?

BMO Provides Clarity in the Debate

TORONTO, January 21, 2010 - Canadians are saving more today than they have at any point in the last decade, and there is no shortage of investment options available for them to consider-whether it be RRSPs, RDSPs, or RESPs

Since its introduction in 2009, the Tax Free Savings Account (TFSA) has proven to be one of the more popular investment choices. According to a recent BMO Economics report, more than 3.5 million Canadians opened a TFSA in the first six months it was made available.

With RRSP season upon us and people paying closer attention to their investments, many are wondering how the TFSA fits into their overall portfolio and how much should be contributed to a RRSP versus a TFSA.

Tina Di Vito, Director, Retirement Strategies, BMO Financial Group, is available to help provide some clarity around the following:

Should you contribute to a TFSA, an RRSP, or both?
What are the advantages of each? The drawbacks?
What type of investor should you be this RRSP season, in light of all that has happened in the economy this past year?
What investment vehicles should you consider when investing the funds in your TFSA and/or RRSP?

How is a TFSA different from an RRSP?

TFSA	RRSP
With a TFSA, you do not need to have any income to accumulate the $5,000 per year contribution room	With an RRSP, you must have income in order to accumulate contribution room
Withdrawals from a TFSA are tax-free. Any amount withdrawn is then added to your contribution room in the following year, so that you could later recontribute the amount that you withdrew.	Withdrawals from an RRSP are taxed in the year of withdrawal (with the exception of the Home Buyer's Plan (HBP) and Lifelong Learning Plan (LLP) which are not taxed provided they are repaid on schedule). Any amount withdrawn can not be added to your contribution room in the following year.
Contributions to a TFSA are not tax-deductible on your income tax return.	Contributions to your RRSP are tax-deductible on your income tax return
There is no requirement to convert the TFSA to an income payment option (e.g. a RRIFor an annuity) at any age	An RRSP must be fully withdrawn or be transferred to a RRIF or annuity by the end of the year you turn 71.

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