Sep 23: Best from the blogosphere

September 23, 2019

A look at the best of the Internet, from an SPP point of view

Canadians “confused” about TFSA savings – poll

A new poll carried out for Royal Bank of Canada has found that Canadians “don’t know how to use a TFSA to generate wealth.”

The research, conducted for RBC by Ipsos, is reported on by the Baystreet blog.

It finds that “43 per cent of Canadians are misinformed about the funds, believing TFSAs are for savings and not for growing investments,” Baystreet reports, adding that a further 42 per cent of those surveyed use their TFSAs only for savings and cash. Just 28 per cent of those surveyed “hold mutual funds” in their TFSAs, along with 19 per cent for stocks, seven per cent for exchange-traded-funds, and six per cent for fixed income, the blog notes.

In plainer terms, people don’t realize that you can hold all the same types of investments – stocks, bonds, ETFs and mutual funds – in either a TFSA or an RRSP.

Yet, despite the fact that they tend to hold mostly cash in their TFSAs, the tax-free funds are more popular than RRSPs – 57 per cent of those surveyed said they had a TFSA, with only 52 per cent saying they have an RRSP, Baystreet notes.

The TFSA is a different savings vehicle from a registered savings vehicle, such as an RRSP. When you put money into a TFSA, there is no tax benefit for the deposit. However, the money in the TFSA grows tax-free, and there is no tax charged when you take money out.

With RRSPs (and registered pension plans) the contributions you make are tax-deductible, and the money grows tax-free while it is in the RRSP. However, taxes do apply when you take money out of the plan to use it as income.

While TFSAs are relatively new, some financial experts have suggested they might be well-suited for use as a retirement savings vehicle, reports Benefits Canada.

“While RRSPs have the advantage of deferring tax payments into the future, which TFSAs don’t do, the deferral may not be as important to low-income seniors, especially those who want to avoid clawbacks or maintain their eligibility for government benefits, like the GIS, after they retire,” explains the article.

A lower-income earner “might find it more advantageous to maximize their TFSA contributions, which is currently $6,000 annually and indexed to inflation going forward. Unlike funds withdrawn from RRSPs, funds withdrawn from TFSAs — including the investment growth component — aren’t taxable, and contribution room after withdrawals can be restored,” Benefits Canada reports. The article also talks about employers offering group TFSAs as well as group RRSPs.

Those taking money out of a RRIF might want to put the proceeds – minus the taxes they must pay – into a TFSA, where it be re-invested tax-free and where income from it is not taxable.

A key takeaway for all this is that you need to think about putting money away for retirement while you are working. The concept of paying yourself first is a good one, and one you will understand much better when you’re no longer showing up at the office and are depending on workplace pensions, government retirement programs, and personal savings for your income. No amount is too little. If you are just setting out on your savings journey, an excellent starting point is the Saskatchewan Pension Plan. Be sure to check them out today!

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22
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