{"id":257,"date":"2019-08-29T17:11:28","date_gmt":"2019-08-29T17:11:28","guid":{"rendered":"http:\/\/taxpaws.com\/?p=257"},"modified":"2019-09-12T22:09:49","modified_gmt":"2019-09-12T22:09:49","slug":"would-you-rather-pay-tax-on-the-harvest-or-the-seed","status":"publish","type":"post","link":"https:\/\/taxpaws.com\/index.php\/2019\/08\/29\/would-you-rather-pay-tax-on-the-harvest-or-the-seed\/","title":{"rendered":"Would You Rather Pay Tax on the Harvest or the Seed?\ufeff"},"content":{"rendered":"\n

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A question that may come to mind when one is debating on what is the better registered investment vehicle, the RRSP (Registered Retirement Savings Plan) or the TFSA (Tax Free Savings Account) is \u201cwould you rather pay tax on the harvest or the seed?\u201d. When looking at the tax deferral aspect of the RRSP, some may say that what good are RRSP\u2019s you pay tax on them when they come out \u2013 that\u2019s true but if used properly they come out at a lower tax than when you contributed to them.<\/p>\n\n\n\n
For\nexample using today\u2019s numbers. (Assume a taxpayer in Alberta with\n$120 000.00 in gross income, rate being used is 26% Federal Tax and\n10% Provincial Tax).<\/p>\n\n\n\n
Joe Albertan contributes $1000.00 when he is in the 36% tax bracket, he would reduce his taxes by $360.00. When he draws it out years later, let\u2019s say a $1000.00 withdrawal in the 25% tax bracket, he would pay $250.00 on this $1000.00 \u2013 in this example, he comes out ahead by $110.00 \u2013 we are not even factoring in the deferred growth on investments held within the RRSP (the harvest).<\/p>\n\n\n\n
On the\nflip side of the coin using the same numbers.<\/p>\n\n\n\n
Joe Albertan decides to contribute the $1000.00 into his TFSA instead. He would pay the 36% tax or the $360.00 and would contribute $640.00 to the TFSA in after tax dollars (the seed). The growth on the $640.00 would never be taxed again (under today\u2019s laws).<\/p>\n\n\n\n
It is hard to argue definitively on which vehicle is better because it all depends on the individual\u2019s current tax situation \u2013 it is not a one size fits all position. The RRSP would not be of any use to an individual if he or she is in a lower tax bracket now and a higher one when the money is needed, and the TFSA does not offer any tax deferral in the present to those that are in a higher bracket now than they will be in the future. In my personal opinion, if you are in a higher income bracket, it may be best to use both vehicles as the RRSP allows you to save from the first dollar earned (dollars before tax) and move the refund \u2013 if any to the TFSA as it is funded with after tax dollars. It is also important to know that each registered vehicle comes with it\u2019s ups and downs which will be summed up in a different post, but based on tax alone \u201cWould you rather pay tax on the harvest or the seed?\u201d<\/p>\n\n\n\n

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A question that may come to mind when one is debating on what is the better registered investment vehicle, the RRSP (Registered Retirement Savings Plan) or the TFSA (Tax Free Savings Account) is \u201cwould you rather pay tax on the harvest or the seed?\u201d. When looking at the tax deferral aspect of the RRSP, some … Continue reading “Would You Rather Pay Tax on the Harvest or the Seed?\ufeff”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[5],"tags":[],"class_list":["post-257","post","type-post","status-publish","format-standard","hentry","category-tax-and-financial"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/taxpaws.com\/index.php\/wp-json\/wp\/v2\/posts\/257","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/taxpaws.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/taxpaws.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/taxpaws.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/taxpaws.com\/index.php\/wp-json\/wp\/v2\/comments?post=257"}],"version-history":[{"count":7,"href":"https:\/\/taxpaws.com\/index.php\/wp-json\/wp\/v2\/posts\/257\/revisions"}],"predecessor-version":[{"id":276,"href":"https:\/\/taxpaws.com\/index.php\/wp-json\/wp\/v2\/posts\/257\/revisions\/276"}],"wp:attachment":[{"href":"https:\/\/taxpaws.com\/index.php\/wp-json\/wp\/v2\/media?parent=257"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/taxpaws.com\/index.php\/wp-json\/wp\/v2\/categories?post=257"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/taxpaws.com\/index.php\/wp-json\/wp\/v2\/tags?post=257"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}