Saving is sending love and care to your future self

How we feel matters. Many people think about saving begrudgingly with a feeling of deprivation. I find framing saving for the future as "sending love to your future self" shifts the thinking from sacrifice to self-care. You are sending your future self a gift.

To motivate myself even more, I like to visualize my future self opening my account and seeing the balance with excitement and joy.

The RRSP deadline is just around the corner (March 3rd, 2025) to make your RRSP contributions for 2024 taxes.

So if you want to send a gift to your future self, what's the best way to do it. Should you put the present in a TFSA or an RSP? Below is a guideline to help you decide.

RRSP vs TFSA: Understanding the Key Features of Canada’s Top Savings Accounts

Here’s a summary of the key features, advantages, and common mistakes related to RRSPs and TFSAs:

Account Purpose:

• RRSP: Primarily for retirement savings. Contributions are tax-deductible, reducing taxable income, with tax deferral until retirement.

• TFSA: Flexible for any goal (retirement, house, vacation, emergency fund). Contributions are not tax-deductible, but all earnings and withdrawals are tax-free.

Pro Tip: Use both RRSP and TFSA for retirement savings to maximize tax sheltering, and avoid using TFSA as an emergency fund. Also, avoid high-risk speculation in both accounts, as gains can't be offset by losses within them.

Tax Treatment:

• RRSP: Contributions are tax-deductible, and growth is tax-free. Withdrawals are fully taxable at your marginal rate.

• TFSA: Contributions are after-tax, but all growth and withdrawals are tax-free.

Contribution Limits:

• RRSP: Limit is 18% of last year’s income (max $31,560 in 2024). Unused room carries forward.

• TFSA: Limit is $7,000 annually (2024), with a lifetime contribution limit of $95,000 (if you were at least 18 in 2009). Withdrawals add back room the next year.

Withdrawal Rules:

• RRSP: Withdrawals are taxed and subject to withholding tax (10–30%) if taken early.

• TFSA: Withdrawals are tax-free, with no penalties, and room is restored the following year.

Which to Use?

• RRSP: Prioritize if your current tax rate is high and retirement rate is lower, especially for long-term goals.

• TFSA: Prioritize if your tax rate is lower now and expected to be higher in retirement, or for short-term goals.

• If tax rates are similar, both provide the same tax advantage, but TFSA offers more flexibility.

If you need help understanding these differences for your own needs, you can book a time to discuss with me and I would be happy to help you.

If you want to book a free wealth consultation with me reach out to me at bonnie@meaningfulwealthcoaching.com