RRSP, TFSA or both? It's Worth a Talk
CIBC's Jamie Golombek on choosing the right investment solution TORONTO, Feb. 9 /CNW/ - With the March 2nd RRSP contribution deadline only a few weeks away, it's time for investors to choose where they will be putting their money. While the RRSP has long been the go-to retirement planning solution for most Canadians, the arrival of the Tax-Free Savings Account, or 'TFSA', in 2009 has presented investors with a new savings opportunity. "Let your personal financial goals help you determine what course of action to take this RRSP season," advises Jamie Golombek, Managing Director of Tax and Estate Planning for CIBC. "Retirement may be top of mind for some but a long way off for others who are thinking about major purchases or a child's education. You have to factor in your tax rates, liquidity and your investment horizon before investing your money." To help investors decide, Golombek offers the basics on both plans and suggestions for who they suit best:Why TFSA? --------- Clients 18 or older can contribute up to $5,000 annually to a TFSA and invest in cash deposits, GICs, mutual funds and other investment vehicles. Other characteristics of the plan are: - Your earnings and withdrawals are tax-free - You can make withdrawals at any time (depending on the investments chosen), for any reason - Funds withdrawn can be re-contributed beginning the following year - Withdrawals don't affect your eligibility for federal income-tested government benefits such as the GST credit or Old Age Security - Any unused contribution room can be carried forward from year to year - Contributions are not tax-deductible "This is a highly liquid, very flexible plan - ideal for using as an emergency or 'rainy day' fund," says Golombek. "It's great for clients looking to save for a major purchase as well as for those who have maxed out their RRSP contribution and are looking to invest an additional $5,000." Why RRSP? --------- Clients earn tax-deferred compound growth on cash, GICs, mutual funds or other qualifying investments held within an RRSP. To claim a deduction for the 2008 tax year, clients can contribute 18% of income earned in 2007, up to a maximum of $20,000 (less any pension adjustment plus carryforward of previously unused RRSP contribution room). Other features of the RRSP include: - Your contributions are tax-deductible - Income earned in your RRSP is tax-sheltered until withdrawn - Your unused contribution room can be carried forward indefinitely - Some funds may be accessed tax-free to buy a first home or pursue post-secondary education - Income splitting upon retirement can be achieved through a spousal RRSP before age 65 as opposed to pension income splitting from a RRIF, which can only be accomplished from age 65"For those approaching retirement who expect to retire to a reduced income and taxation level, the RRSP should take precedence over TFSAs," says Golombek. "However, RRSP holders who are able to dedicate more than their annual contribution limit towards retirement should consider opening a TFSA as well to put aside an extra $5,000 a year, tax-free." Golombek also urges clients to consider the liquidity of the plan they choose. "Could you see yourself relying on your investments in a financial emergency? If so, you should weigh the potential tax repercussions such a withdrawal could have," says Golombek. "TFSAs allow investors to withdraw from the account tax-free at any time but pre-mature RRSP withdrawals are immediately taxable, could result in the temporary loss of income-tested benefits and permanently reduce contribution room which cannot be recovered." And Golombek's final piece of advice is to consult a financial professional. "If you're unsure about your options, talk to a financial advisor. You're unique and so are your goals and an advisor can work with you to develop a long-term financial plan tailored to you." For more information please visit your nearest CIBC branch or www.cibc.com. CIBC is a leading North American financial institution with nearly 11 million personal banking and business clients. CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada, in the United States and around the world. You can find other news releases and information about CIBC in our Press Centre on our corporate website at www.cibc.com.
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For further information: Doug Maybee, Director, External Communications and Media Relations, CIBC, Tel: (416) 980-7458, email@example.com