TFSA becoming preferred retirement vehicle

TFSA becoming preferred retirement vehicle

TFSA becoming preferred retirement vehicle Advisors weren’t too happy about the rollback of the TFSA annual contribution from $10,000 to $5,500 and if one tax expert is right the federal government might have cost Canadians a ton of retirement income.

Jamie Golombek, the head of CIBC Wealth Advisory Services’ tax and estate planning, questions the need for an RRSP suggesting many are better off contributing to a TFSA.

Why bother asked Golombek Tuesday in an op-ed for the Financial Post.

“Quite simply, for many Canadians attempting to save for retirement, a TFSA may be the better option,” wrote Golombek. “The amount you can contribute to a TFSA is based on your “TFSA contribution room.” If you were 18 or older in 2009 and, as of 2016, have not yet opened up a TFSA, you can immediately contribute up to $46,500 to a TFSA, consisting of $5,000 of accumulated room for each of 2009 through 2012, $5,500 for 2013 and 2014, $10,000 for 2015, and the recently-reduced $5,500 limit for 2016.”

But that’s not the only reason why a TFSA is generally more attractive than an RRSP to middle-income Canadians.

Your clients can withdraw funds from a TFSA to pay for emergencies tax-free and then re-contributed in future years without penalty while an RRSP withdrawal is taxed at their current rate and cannot be re-contributed unless they have unused contribution room.

Most importantly, who wants to deal with taxes in retirement when you could be enjoying the fruits of 40 years or more working full-time?

Not many.
3 Comments
  • Brad Jardine CFP, CLU, CHfC 2016-01-13 12:55:56 PM
    Will, I think this may have been written to generate some comment from the field? Jamie's far more analytical and seldom makes generic statements such as indicated here without greater context. I'm sure many of us, including Jamie, would agree that the "RRSP isn't quite dead yet" to steal a phrase from The Holy Grail. It can still be a very integral part of a thorough long term plan. Besides, let's be realistic, the average client "WON'T" save anything without some immediate gratification-a tax refund and many, many will withdraw funds from any plan for the same reasons. A TFSA may in fact be "too easy" to get at. We can't change human nature rampant in the majority of our client's psyche.
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  • Will Ashworth 2016-01-13 4:37:22 PM
    Hey Brad,
    You're absolutely right. Jamie didn't say the RRSP is dead. In fact, he compared the TFSA and RRSP in terms of tax rates today and in the future upon retirement. I was simply pointing out that he felt for many the TFSA is probably a better choice.

    Here are his exact words from his op-ed.

    "Quite simply, for many Canadians attempting to save for retirement, a TFSA may be the better option."

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  • James Kraemer 2016-02-16 11:20:21 AM
    In fact most Canadians will retire at a much lower income and lower tax rates than they have while working. So by contributing to an RRSP you not only get a tax deferral but also a tax reduction. The RRSP is far from dead.
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