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TIP OF THE WEEK: RRSP or TFSA – What is the difference?

Both investment options are able to grow without paying taxes on a year-by-year basis. They also both carry penalties for over contributing.

The difference is an RRSP will decrease the income you pay tax on in the year you contribute. The opposite for when you withdraw money, it will increase your income the year you take money out therefore making it taxable income.

TFSA has no effect on taxes whether you withdraw or deposit.

When it is time to invest, what is the best choice?

The best choice varies per individual/family. The decision depends on your income and whether or not you have a work place pension. At times, the best option may even be investing your money into a spousal RRSP.

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