The deadline for RRSP contributions recently passed, but a TFSA might be a better option anyway. Although you may have more room to invest into an RRSP, there are several reasons why I prefer a TFSA instead.
First, with a TFSA you can withdraw your funds out with minimal consequences. With an RRSP, when you pull the funds out they become taxable in that year, and that could lead to a higher than expected tax bill. Because the contributions in a TFSA have already been taxed, you can pull the funds out at any time without having the same concerns.
There are many uncertainties and unexpected events that can happen in life, and so there’s a lot of value in having flexibility.
Second, when you invest in an RRSP you’re making an assumption that you’ll be drawing the funds in retirement when your income will be much lower than when you’re making the contributions. However, that’s a big assumption to make considering debt levels are at record highs and many people are working well into their retirement. An RRSP account is effectively a tool for deferring taxes, but if your timing is off, you could end up paying much more. With a TFSA, you don’t need to worry about these assumptions.
Lastly, while inside of a TFSA any gains your investments earn won’t be taxable when you withdraw them, but the same cannot be said for RRSP accounts. This can result in a big tax savings for TFSA holders that hold stocks for many years.
