For Canadian investors deciding where to put their excess cash before the upcoming deadline for the Registered Retirement Savings Plan (RRSP), and specifically whether investors should max out the RRSP or Tax Free Savings Account (TFSA), a number of questions rightly abound for many.
For example, does it make sense to tie up a bunch of money in an RRSP that one would have to pay a penalty to withdraw, as well as taxes, or have more liquidity by focusing on a TFSA only?
Now, for investors with the ability to do so, I would highly recommend investing in both a RRSP and TFSA, using only the tax refund one will receive from RRSP contributions to fund the TFSA, and thus put in less money up front to maximize long-term retirement savings, as well as liquid savings one can access at any time.
For investors with an uncertain income, those who may have upcoming expenses (travel, wedding, etc) or those who do not make enough to truly stash money away in a vault and forget about it for decades, I would recommend investing in a TFSA.
Liquidity is very important, and since TFSA contributions are after-tax, no penalties or fees are charged to pull that money out.
For investors with more than enough income, making enough to justify the tax break that would come along with maximizing their RRSP, focusing on stashing money away in an RRSP throughout the year should be a key goal.
Money takes time to multiple, so leaving it there and watching it grow can be very beneficial in the long run.
Invest wisely, my friends.