With the looming deadline, many are thinking about how much money they are able put into their Registered Retirement Savings Plan (RRSP). March 1st is the last day to make contributions. Since the creation of tax-free savings accounts though, RRSPs are not as popular as they used to be.
According to Statistics Canada, 5 million people between the ages of 25 and 54 contributed to an RRSP in 2000. That went down to about 4.2 million by 2013.
A Financial Service Representative at Integris Credit Union has seen an increase in the number of people using tax-free savings accounts. “The huge difference is that the tax-free savings account, when you withdraw, there is no tax implication,” says Etsuko Rustad. “RRSP, when you withdraw, you have to pay a little bit of taxes based on how much you take out.”
A Tax Partner at DMC Chartered Professional Accountants Inc., Miranda Paterson, encourages people to have both a tax-free savings account and an RRSP fund. “Maximizing your tax-free savings account is always a good idea. The reason for that is your tax-free savings account can earn income and that is non-taxable. So we are seeing a shift where people will invest in that first, and then build their retirement as well through RRSPs.”