There’s bad news and good news for retirement savings: fewer contributions are expected from Canadians this RRSP season, but more of them understand how to choose between a TFSA and an RRSP.
A new study commissioned by H&R Block suggests that only 17% of Canadians have contributed or are planning to contribute to an RRSP before the deadline, a 1% decline from last year’s survey. This could have been caused by zero growth in inflation-adjusted earnings among salaried professionals, as reported by Statistics Canada in 2016.
On the bright side, 65% of Canadians reported knowing the differences between a TFSA and an RRSP, and how each option impacts their tax returns. When deciding between the two, most people considered savings goals (40%), whether they could withdraw money without penalties (38%), and reducing tax obligations (37%).
“I'm happy to see the level of understanding for RRSPs and TFSAs has increased,” said Lisa Gittens, a tax expert from H&R Block Canada, “but the number of Canadians who are contributing to one or both is still very low.”
Regionally, Quebec showed the most sophistication (70%) in terms of knowing how RRSPs and TFSAs will impact their 2016 tax returns. The lowest understanding was found in Manitoba/Saskatchewan (58%) and Atlantic Canada (56%).
As for demographics, millennials aged 18-34 were least likely (56%) to understand the tax impact of choosing between the two options. Canadians from 35-54 years old (66%) and those of age 55 and up (71%) reported a better overall understanding of the impact of TFSAs and RRSPs on their 2016 tax returns.
“Canadians should really try and take advantage of TFSAs and RRSPs each year to help them achieve their financial goals and… help maximize their refunds,” Gittens said.
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