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Invest smarter, not harder

Posted on: April 05, 2016 | Author: Allan Leung, Compass and Wealth Lead, ATB Investor Services

Did you contribute to a Registered Retirement Savings Plan (RRSP) last year? What about a Tax-Free Savings Account (TFSA)? If the answer is no, you might want to pay attention. Tax-deferred (RRSP) and tax-free (TFSA) savings accounts are two of the most efficient—and simplest—ways to invest.

Taxes negatively impact your savings and investment goals, so taking advantage of tax-efficient investment vehicles is a simple equation:

Pay yourself + less tax = $$ in the bank

In a perfect world, we would all contribute the maximum allowed to both our RRSP and TFSA accounts. For many Albertans this can be challenging, particularly given the current downturn in our economy. That said, even if you are drawing on savings to meet day-to-day expenses, it is still advantageous to move that money from a savings account into a TFSA, which can help you avoid paying taxes on interest income.

Choosing the right tax-advantaged account

Both RRSPs and TFSAs are available to most Canadians - the question is, which one should you contribute to? If you’re saving for something shorter-term, a TFSA likely makes the most sense. If your focus is on retirement, a more careful look at the two options is needed. The answer lies in whether your tax rate will be higher, lower, or the same at the time you contribute compared to the time you need to withdraw.

Invest tax-efficiently, chart

What does this chart tell us? Basically:

  • If your tax rate will be lower at withdrawal, contribute to an RRSP.
  • If your tax rate will be higher at withdrawal, contribute to a TFSA.
  • If your tax rate will be the same at withdrawal, contributing to an RRSP or TFSA would be equally beneficial.

Most people have a lower income and marginal tax rate earlier on their career. This is the time to contribute to a TFSA. When you begin to earn a higher income and your marginal tax rate increases, start contributing to an RRSP. Regardless of your tax rate, the point here is to take advantage of these savings vehicles which offer a tax advantage legally sanctioned by the government. Remember: tax evasion is illegal, tax minimization is not.

For more smart, simple and helpful advice, talk to a financial advisor today.


The information provided is a simplified general summary and is not intended to replace or serve as a substitute for professional advice. Professional tax advice should always be obtained when dealing with taxation issues as each individual’s situation is different. This information has been obtained from sources believed to be reliable but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. This information is subject to change and ATB Investment Management Inc. reserves the right to change the information without prior notice, and does not undertake to provide updated information should a change occur. ATB Financial, ATB Investment Management Inc. and ATB Securities Inc. do not accept any liability whatsoever for any losses arising from the use of this document or its contents.

ATB Investment Management Inc. and ATB Securities Inc. are wholly owned subsidiaries of ATB Financial and operate under the trade name ATB Investor Services. ATB Securities Inc. is a member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. This brochure is not, and should not be construed as, an offer to sell or a solicitation of an offer to buy any investment. This document may not be reproduced in whole or in part; referred to in any manner whatsoever; nor may the information, opinions, and conclusions contained herein be referred to without the prior written consent of ATBIM.

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