When it comes to choosing how they save, millennials are taking credit for their wise move, a rare instance when the said generation are applauded for their choices.
A recent census report from Statistics Canada revealed that 42% millennials contributed to a tax-free savings account (TSFA). This is in contrast to the 37% who chose to go the route of registered retirement savings plans (RRSP).
According to Dale Jackson's blog piece on BNN, millennials are willing to sacrifice the instant gratification from an RRSP tax refund, which is based on the contributor’s income. With most of the younger wage earners belonging in the lower tax bracket, it makes complete sense for them to go with a TSFA.
"By taking a pass on an RRSP contribution they can carry their allowable contribution space forward to a year when they are in a higher tax bracket, and the tax savings are higher," he stated, noting that they have the choice of using funds from a TFSA for an RRSP contribution in the future.
However, there is a catch. Canadians who were 18 or older when the TFSA was launched, in 2009, have a maximum contribution limit of $52,000. Those who are 18 years old this year have a $5,500 limit. As they age, they will be entitled to contribute more until they reach 26 years old when they will assume the $52,000 limit.
"Millennials, if you want to continue to be wise, don't over contribute because the CRA is going to nail you," Jackson warned.
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