When trying to decide which registered vehicle you should use for your investments, there are a lot of questions and factors you want to consider. Do I need both a TFSA and RRSP? If withdrawals from a TFSA aren't taxed, why should I have an RRSP? These are all valid questions.

Investing is an important part of your financial well-being. It gives you the opportunity to grow your savings, prepare you for retirement, and maximize your earnings potential. Investing in a registered plan such as a TFSA or an RRSP, allows you to save even more by deferring taxable income, and avoiding being taxed on earnings such as interest, gains, and dividends.

Whether a TFSA or an RRSP is more realistic for your needs depends on two factors:

Income tax rate during contribution years
Income tax rate after retirement

People who are in their highest earning years, with well paying jobs, would be better off with an RRSP.

People with a modest earning income, will most likely find themselves in a higher tax bracket after they retire. At age 71, they will have to start withdrawing from their RRSP, and will end up paying more tax on the withdrawal amounts than they would've had to pay on the contribution amounts. Your RRSP savings may directly affect your eligibility for government and pension benefits. RRSP withdrawals may also result in a clawback of benefits received. With a TFSA, pension benefits are protected from clawback.

Bottom line, an RRSP is a better choice when your income tax rate is higher during your contribution years and lower after retirement.

A TFSA is a better choice when your income tax rate is lower during your contribution years and higher after retirement.

The best idea is to have both an RRSP and a TFSA. A great savings strategy is to put your tax refund resulting from your RRSP contribution, into your TFSA.

Mutual funds are provided by Equity Associates. All other products and services are not a responsibility of the dealer.