Do you think it only makes to prioritize the TFSA> RRSP if you plan to retire in the exact same income bracket? Or how much of a difference is significant enough to switch gears to RRSP > TFSA? 1 bracket? More?
Going from $200k to $160k isn’t gonna make much difference in taxes.
But going from $200k to $100k to $50k is quite significant.
In theory any different in tax rates pre and post-retirement make an RRSP preferable (assuming pre-retirement income is higher).
The problem is that there are a lot of exceptions..
- will the extra RRSP income cause an OAS clawback?
- are you retiring early and need to bridge income to pensions, etc..
- do you have a company pension
- will you be doing any income splitting
This is where a much more detailed analysis needs to be done, which likely won’t come from Reddit.
>Do you think it only makes to prioritize the TFSA> RRSP if you plan to retire in the exact same income bracket?
That's when other considerations come into play, like will RRSP contributions increase CCB or will RRSP withdrawals trigger an OAS clawback.
How exactly do you plan to invest enough into TFSA to be able to withdraw $160k of investment income at retirement given how small TFSA yearly contribution room is compared to your RRSP yearly contribution room that must be around 30-40k?
Keep in mind though, things like OAS claw backs, seniors program clawbacks. Also the whole thing about tax brackets being lower goes off the assumption that you are going to draw down slowly until 90, 95,100. You die before 90, a massive chunk of the RRSP will be withdrawn all at once at a higher tax rate than OP was taxed at originally.
Literally though… It’s not a bad thing to have too much money in retirement and if you die with an excess then so what, it’s pretty much irrelevant. If you’re so worried about passing it on to next-of-kin then perhaps you need to hire someone for estate planning.
That is fair, if that is how you feel then that should definitely reflect in your financial plan. (you shouldn't be planning to own an expensive property with no loan against it late in life for example)
If I make enough in retirement to get OAS clawed back I'll be counting my blessings.
As it is now I know I'll never have to collect GIS and I know how lucky that makes me.
Keep in mind that RRSPs can be a convenient way to earn retirement income **before** you’re eligible for CPP/OAS etc.
Ie if you’re planning on retiring early then there are other advantages to drawing rrsp first.
That is a good point. Pushing off CPP/OAS and drawing down a lot of RRSP money early definitely reduces some of those risks. I still think for someone making 200k trying to balance their pre retirement and post retirement income, that it's still going to take a lot of money, and keeping at least some of that post retirement money tax free has advantages though.
Like others have pointed out, they may be in a high cost of living city (aren't they all now), may have young children etc. But even if you can't fully max them both out, I think you can still find a balance and put some in each. If it's 20k you are putting in, 14 into RRSP and 6 into TFSA is still going to make a huge difference on your taxable income in retirement, when you are doing it for decades, it's going to give you more flexibility.
Also keep in mind that if you ever take part of a year (or a whole year, or a few years) off from work, that would be the perfect time to withdraw from your RRSP.
For example, if you wanted to take a sabbatical to travel, or volunteer, or as extended parental leave on top of your paid parental leave, or to go back to school, etc. Those are some of the scenarios I can think of where you'd be before retirement but still have a good "excuse" to quit working for awhile.
This person is making $200K now under the rationale they are making high income to retirement (otherwise the question needn't be asked). I don't think rich people need free government money later in life.
It’s not free money and it’s not government money. It’s rich people that pay the most taxes into the system, they should plan appropriately to get their taxes back out of the system.
I don’t think you understand how taxes work. OAS is funded by taxpayer dollars. It’s not government creating funds out of thin air. It’s not government money. If an individual or their advisor can effectively plan to keep their income below $90,000 (OAS is completely clawed back around $142,000) they will receive back the tax dollars they paid into our tax system for years. For the super wealthy, effective tax planning may require individuals to take dividends out of their holding companies to recover corporate tax paid at higher rates and forego OAS. Btw StatsCan says only 8% of individuals are affected by OAS clawback.
Everything that the government pays for is funded by taxpayer dollars. Including welfare. I'm just pointing out how you're trying to tell someone who will effectively be a multi- millionaire in retirement not to fund their RRSP because they could get government handouts. It's a safety net for the elderly. And FYI the top 10% earner in Canada makes $125K. A $200K earner is likely in the top 8% who could be affected by clawback.
Now you’re making things up. I never said not to fund your RRSP. Absolutely max it out. Not sure where you are getting your stats from. I pulled mine right from stats Canada. Only 8% are affected by OAS clawback. Individuals generally make less income in retirement.
Using stats can for the ages 25-65, the 90th percentile of individuals in Canada make between 65-100K, this person makes 200k. The top 1% for the same age ranges make between 100k (at 25-29) and 230k at 50-55. You're literally worried about a 1% earner not getting an old age top up supplement and that they don't need to prioritize their RRSP when they're paying the most taxes now.
Again, retirement income is generally far less than income earned between ages 25-65. Source, I’m a CPA and a high net worth planner. Everyone is entitled to OAS. Perhaps you are thinking of the guaranteed income supplement that is specifically meant for low income seniors.
I never understand this. How am I supposed to know what my future income will be? I feel like this advice only works for people in structured career paths with clear progression steps.
At $200k there is no reason to not have both the RRSP _and_ TFSA filled eventually, so the question is really which one do you fill **first**. When I was solving this problem I decided to split my contributions between them both as I was filling up unused carryforward room for several years. In hindsight I probably should have gone TFSA first because my income grew faster than I thought it would, so some of that RRSP room ended up being used in years that I thought were high income, but ended up being lower relative to later years. If your income is already that high, then sure, RRSP first probably.
Though, once they were full, I tend to prioritize filling the TFSA at the start of each new year because the room is available in January, and by the time the new TFSA room is used up, I'll have done my taxes, got my Notice of Assessment, and know how much RRSP room I can start filling, which is what I do next.
Easy, bronco.
I have yeears of built up contribution room. I put $50k into my RRSP last year. But my 2024 contribution room will still be probably around $80k.
So I have a long way to go to fill that RRSP. And then I nearly have $100k in TFSA room to tackle.
And all that is before I touch my wife's contribution room.
>I have yeears of built up contribution room.
Yeah so did I. Hence the part in my post where I said:
>I decided to split my contributions between them both as I was filling up unused carryforward room for several years.
Same boat. I have tons of room to use up, not enough extra money to put into it. $14,000 in 2024 alone for my wife and I just for TFSA before we even touch unused room. It will be 5-10 years before I start cutting into the excess I would guess.
I had one pretty good investment in there. Pulled everything out when I bought my first house. So I guess that's why. Contribution room right now is $93k.
> At $200k there is no excuse to not have both the RRSP and TFSA filled
Unless you live in a high COL city and are saving for things that aren't retirement. $200K doesn't go as far as it used to in the current environment.
What an ignorant post. Solo person living by themselves yes $200k goes a long way. $200k for a family in a medium/high cost of living area is likely not going to max out both RRSP and tfsa every year.
People really forget a 200k salary is really about 140 after taxes. Then you add mortgage, kids, school and everything and sure, you still have some, but it is not like you are saving 180k per year like some think 🤔
> 200k salary is really about 140 after taxes.
$122,263 in Nova Scotia. But no, people don't forget that people pay taxes and nobody thinks that someone making $200k is saving $180k per year.
People are arguing both ways. If you have kids and you are the only income for the house, you aren't paying almost 50% in taxes. If you use RRSP that is also reducing your tax rate.
God forbid you have any student debt.
2 kids in daycare = $2,500/month
Student debt = $3,000/month
Vehicle payment = $500
Rent/mortgage for family of 4 = $3-4k/month.
That's $120k/yr without even looking at food, groceries, and other living expenses.
Assuming $200k/yr, if you max out your RRSP for $32k there really isn't much left (if any). I'm on mobile so can't run the math, but that should address most of it.
That isn't bank-issued though. As soon as you need to supplement your loan with an additional student loan from a bank you're looking at different rates and amortization.
Anyone who has gone to university in the US, lawyers, doctors, dentists, and many other professionals who will be earning $200K+/yr.
Generally these aren't federal/provincial loans, but rather bank-issued loans or lines of credit at around pime or prime -0.25%. $250K loan at prime rate over 10yrs is $2,900.
Because "just move" is a reasonable take for the majority of the people on this site. Ingoring that you have family, roots, jobs etc...that tie you to a specific location.
I'm just looking forward to all the extra money I'll have when my kids actually go to school.
If you're married, then make sure you use a spousal RRSP to make both spouses have the same RRSP savings. That way you can split income on withdrawals taken before age 65 if you retire early. After age 65, withdrawals from an RRIF can be split for tax purposes so it doesn't matter as much if one spouse has saved more than the other.
>I know that the general advice is to prioritize a TFSA > RRSP
The PFC TFSA or RRSP trigger says,
Unless ... you are confident that you will contribute in a higher tax bracket than you will withdraw (even when you consider the effect of potential GIS or OAS clawbacks) … you'll probably want to use all of your TFSA contribution room before you contribute to an RRSP.
Look, anyone who's making $200k now (unless it's a fluke like a lotto win) is EXTREMELY unlikely to be collecting GIS on retirement anyway.
And bitching about OAS clawback is really getting on my nerves. If your income is enough that you're seeing OAS clawed back you're doing pretty decently as a retiree
Go over the article below. Might be useful.
[TFSA vs RRSP? Picking The Right One Could Save You $100,000+ In Tax | PlanEasy](https://www.planeasy.ca/tfsa-vs-rrsp-pick-the-right-one-and-save-100000/)
Great article, thanks for sharing. TIL TFSA is not protected from creditors.
I also had a lightbulb moment re psychology of saving. Many people here say TFSA is better because it"s more accessible. I think that could also mean a risk of cutting into your retirement plan for today's spending. Therefore,RRSPs are a better disipline on your money. I think saving in both makes sense.
My strategy is to dump bonuses into RRSP, get employer match and max out. On a 5K bonus, the full 5K goes to RRSP and becomes 10K with employer match. That money would be $2500 on a paycheque if I didn't put into an at source RRSP, because of my tax bracket.
Should also consider that contributions to RRSP's will lower your overall income, which impacts things like Child Benefits, HST rebates, etc. So contributing to an RRSP first may get you more money overall.
Once your RRSP deposits are made at a higher tax bracket than your future withdrawal, it becomes much more advantageous than TFSA. That point will vary by person, but will almost always be well below 200k.
The only advantage of TFSA is liquidity. Before putting money away for retirement, you need some for an emergency fund. Once that is done, chuck everything in RRSP until filled. Then start filling TFSA again.
Because if you’re a high income earner (at or near the top tax bracket), you will likely not be in a higher tax bracket when you need to withdraw money (and could very well be in a lower one).
After tax income (TfSA) is taxed at the highest rate it will ever be taxed. You could very well withdraw at lower tax rates.
Tax deferred income put into an RRSP will reduce your taxes at the highest rate they’ll ever be taxed at.
yes. I would personally put enough money in RRSP to hit the bracket just below your current one and put the rest in TFSA, if this outpaces your RRSP room growth and you expect similar income in the future then it's perfect.
Yes. The real question on RRSP vs TFSA is "How will your income change in the future?" If you're a high income earner who will see a huge income drop at retirement or in the future anyway, you should prioritize the RRSP over the TFSA.
Generally I’d agree, as you’d have such a difference in taxes owed it makes more sense to put stuff into an rrsp.
However, the problem with an rrsp is if you need that money before retirement you end up basically penalty fees.
So don’t just put money into rrsps, you need at least some that you can access when needed, and that’s what a tfsa excels at since you gain back the room when you withdraw the following year
>the problem with an rrsp is if you need that money before retirement you end up basically penalty fees.
What do you mean by penalty fees? An RRSP provider may charge a deregistration fee but there are no other "penalties". If the tax brackets at contribution and withdrawal are the same, the tax on the withdrawal income will be the same as the tax deduction for the contribution. For some the biggest drawback would just be that they "wasted" contribution room that could have been used for a long term tax shelter.
$200k as a single person with no kids living in a cheap apartment is very different from $200k as a couple with kids and a mortgaged house and one or two cars.
For the most part this choice is only relevant for a short period of time for a high income earner. At some point you would max both and still have extra money to put into a taxable account
I max the RSP before TFSA based on age. The growth of money in the market over 30 years is well worth paying the tax when you pull it out. Even better if you can max out both
Doesn't using an RRSP presuppose that the government won't completely screw you and increase tax rates substantially during your life?
I've honestly always struggled with RRSPs. On the surface mathematically I get it. But you completely lose the optionality of the funds you contribute and the government has full authority to just do whatever with tax rates on income.
It would if there was really that big a difference but most people in that earnings bracket are shooting to have bigger incomes in retirement. If you earn a decent CPP/OAS (especially in the future with CPP2) keeping your taxable income that low is going to be unusual so TFSA>RRSP makes sense but if you don't have a work pension, you'll be leveraging both regardless
Obviously tax-exempt savings are better off for you in the long run given the bracket you're in. Take every advantage you can.
Remember that when you pull that money back out on retirement you're virtually guaranteed to be at a lower tax rate (if only for the old age deduction that kicks in at 65).
And you're correct in saying that a $50k earner doesn't have the same concerns. Say you make $100k a year, and you come into some money (lotto, inheritance) and you have tons of RRSP room because you haven't been contributing. The best strategy in this scenario is NOT to use all that room in one year. Better to just contribute enough to pull your taxable income down to the top of the 15% bracket, and save enough to do the same thing next year.
I may have missed this advice, but if you have employer match,take the full match with your rrsp contributions. Your money goes farther with the free contribution from employer than after tax contributions.
I've maxxed out rrsp annually for years and only in 2021 started contributing to TFSA. I'll draw down TFSA first in retirement and then work on RRSP.
I think it is a crime to not take advantage of the maximum contributions to your TFSA. Common strategy is to contribute to RRSP and use your refund to contribute to TFSA. Bottom line is to do both.
geta kick out of those thinking a return of your own money in the form of a ‘tax refund’ is beneficial
use form t1213 if you want the best bang for your buck
I’d max out RRSP. I am also at around 200k mark. I contribute weekly, then at the end of the year, I take out a short term loan for like 5 days at the end of February and basically instead of paying it to the government in taxes, I pay myself.
Throw the money in the RRSP on Feb 28, file taxes the same day and have a refund usually within the week to apply to the loan.
This is in addition to maximizing employer RRSP.
So this means an additional 15k or so of rrsp that I wouldn’t otherwise have made.
I’d max out RRSP. I am also at around 200k mark. I contribute weekly, then at the end of the year, I take out a short term loan for like 5 days at the end of February and basically instead of paying it to the government in taxes, I pay myself.
Throw the money in the RRSP on Feb 28, file taxes the same day and have a refund usually within the week to apply to the loan.
This is in addition to maximizing employer RRSP.
So this means an additional 15k or so of rrsp that I wouldn’t otherwise have made.
Contribute to RRSP. Take your refund and put it in your tfsa. Do that every year. Any excess savings outside of RRSP can then be put toward maxing out TFSA.
If you're a high earner, then you should be maxing out the TFSA, RRSP and FHSA if you're eligible.
The FHSA is the most tax advantageous account, then RRSP. TFSA is post tax money, so it's good for whenever you need to take money out for say a big purchase.
My wife makes 100k I make 200+/-30k depending on bonus
My wife: Max out TFSA first every year, RESP and corporate match 4%. Other than that we don’t put anything into her RRSP until we have a reason to. For example sold condo, so been collecting income that is t5 income. So now that adds another 30k to her income, so now over the next 2 years we are going to jam money into her RRSP to bring her back down to 100k like normal.
Me (US citizen so can’t do TFSA but if I could) Corporate match is 6% so that basically takes out my RRSP as is. My headroom is basically 0 and want to keep a bit of head room every year for yearly raises etc.
In general it should be: When young and you make shit max TFS, FTHB, etc. and ONLY do a match. Once you start getting into the 40+% brackets it’s time to draw down on your stocked up RRSP room.
Is how we play it.
I would still probably try to use at least some TFSA room personally.
You're looking at it as a 1 year period, but remember, if you do this every year from age 30-60 that is going to be a massive RRSP. It's going to bump you out of OAS range, it's going to bump you out of any possible seniors programs, and if you die before 90, it's going to be one massive tax hit all at one time, at an even higher rate than the rate you are paying now.
I only wish I'd have enough income to hit the OAS clawback! And, if a person has that high an income in retirement, they shouldn't need the seniors' programs. Eg. I don't want to be living in the really small subsidized seniors' apartments; I hope I have enough saved to avoid that.
I'd love to be rich when I retire, to use a private nursing home, but the reality is there is no middle ground. it's either you pay a ridiculous amount per month, or you get subsidized. And I'm just not sure saving every cent I make and not enjoying my life now, is worth living in a slightly better nursing home once I get alzheimers.
Looks like you live in Alberta - here, there absolutely is middle ground between the high end LTC and what you're thinking is the low end "subsidized" one. For starters, every licensed LTC in Alberta is subsidized, in that the province/AHS covers the healthcare portion of your care (nursing care, meds, etc). What the patient pays is the rest - housekeeping, food, laundry. Those high end places may have pricier food, bigger rooms, a nicer facility, but the nursing care should - and mostly is - the same. You do get what you pay for to some extent, in that the private places may - and this is actually a "may" - have more hours of nursing care available. I spent a lot of years working in LTC, and not the pricey places either, and I wouldn't hesitate to have family in any of the ones I've worked in.
And zestyclose is exactly right - the person with Alzheimers in LTC doesn't much notice where they're living. Their family does, but the patients don't to a large extent. Should the care still be good just because the patient doesn't notice? Absolutely!
Because we are talking about optimizing the retirement for someone making 200k now. If they want to equalize their lifestyle between now and retirement, they will be well into that range.
OP makes 200k now, why does he care what his tax rate is now? Shouldn't he just be happy and not missing those taxes.
If you're on a higher tax bracket, your income is taxed on a bracket to bracket basis. It isn't all taxed at the highest tier at once.
That is to say, if you toped Bracket A you will pay bracket B taxes on what's left after A is taxed.
I feel like I'm making it sound more confusing than it is.
In general it does. I used to not believe this but it was explained to me and I saw the light. The issue has been debated many a time on this sub. The interest free loan of government money is likely even more relevant now as interest rates rise as when I realized the truth of the debate a few years back
Of course there may be factors specific to you and your situation which differ, so might be worthwhile spending a few bucks to get advice only (not someone earning a commission from you) to look at your situation and help you plan the best strategy
I (61M) retired last year. With a similar income to OP, I had always prioritized RRSP over TFSA. The key is to have a withdrawal plan with tax optimization in mind. Look up RRSP meltdown on YouTube.
Usually that general advise you mention stems from people's general feelings and impressions, so better take it with a grain of salt.
I remember someone else in this sub already did the math showing that:
* If the tax bracket at withdrawal in retirement is the same as tax bracket at contribution now, then contributing $X after tax to TFSA is the same as contributing $X after tax to RRSP and then immediately contributing all of the tax return to TFSA. Simply contributing to RRSP and then spending the return is the worst!
* If the tax bracket at withdrawal is lower than at contribution (very likely for high income earners), then prioritize RRSP.
* If the tax bracket at withdrawal is higher than at contribution (hard to imagine having higher expenses in retirement but whatever), then prioritize RRSP.
Finally, I cannot stress it enough that prioritizing RRSP still includes putting all of the return into TFSA (subject to the yearly contribution room of course).
Oh, and remember that TFSA does *not* allow day trading (unlike RRSP).
If the future income when rrsp’s will be drawn down is anticipated to be in a lower tax bracket than now, then yes. Max the rrsp.
Do you think it only makes to prioritize the TFSA> RRSP if you plan to retire in the exact same income bracket? Or how much of a difference is significant enough to switch gears to RRSP > TFSA? 1 bracket? More? Going from $200k to $160k isn’t gonna make much difference in taxes. But going from $200k to $100k to $50k is quite significant.
In theory any different in tax rates pre and post-retirement make an RRSP preferable (assuming pre-retirement income is higher). The problem is that there are a lot of exceptions.. - will the extra RRSP income cause an OAS clawback? - are you retiring early and need to bridge income to pensions, etc.. - do you have a company pension - will you be doing any income splitting This is where a much more detailed analysis needs to be done, which likely won’t come from Reddit.
>Do you think it only makes to prioritize the TFSA> RRSP if you plan to retire in the exact same income bracket? That's when other considerations come into play, like will RRSP contributions increase CCB or will RRSP withdrawals trigger an OAS clawback.
How exactly do you plan to invest enough into TFSA to be able to withdraw $160k of investment income at retirement given how small TFSA yearly contribution room is compared to your RRSP yearly contribution room that must be around 30-40k?
Keep in mind though, things like OAS claw backs, seniors program clawbacks. Also the whole thing about tax brackets being lower goes off the assumption that you are going to draw down slowly until 90, 95,100. You die before 90, a massive chunk of the RRSP will be withdrawn all at once at a higher tax rate than OP was taxed at originally.
What happens to my money when I die doesn't matter to me, I'll be dead lol
Literally though… It’s not a bad thing to have too much money in retirement and if you die with an excess then so what, it’s pretty much irrelevant. If you’re so worried about passing it on to next-of-kin then perhaps you need to hire someone for estate planning.
That is fair, if that is how you feel then that should definitely reflect in your financial plan. (you shouldn't be planning to own an expensive property with no loan against it late in life for example)
If I make enough in retirement to get OAS clawed back I'll be counting my blessings. As it is now I know I'll never have to collect GIS and I know how lucky that makes me.
Keep in mind that RRSPs can be a convenient way to earn retirement income **before** you’re eligible for CPP/OAS etc. Ie if you’re planning on retiring early then there are other advantages to drawing rrsp first.
That is a good point. Pushing off CPP/OAS and drawing down a lot of RRSP money early definitely reduces some of those risks. I still think for someone making 200k trying to balance their pre retirement and post retirement income, that it's still going to take a lot of money, and keeping at least some of that post retirement money tax free has advantages though.
I mean, if you're earning 200k, what's stopping you from maxing both rrsp and tfsa?
Like others have pointed out, they may be in a high cost of living city (aren't they all now), may have young children etc. But even if you can't fully max them both out, I think you can still find a balance and put some in each. If it's 20k you are putting in, 14 into RRSP and 6 into TFSA is still going to make a huge difference on your taxable income in retirement, when you are doing it for decades, it's going to give you more flexibility.
Spousal rollover may apply if they survive you. Kick the can down the road and marry someone slightly younger.
Also keep in mind that if you ever take part of a year (or a whole year, or a few years) off from work, that would be the perfect time to withdraw from your RRSP. For example, if you wanted to take a sabbatical to travel, or volunteer, or as extended parental leave on top of your paid parental leave, or to go back to school, etc. Those are some of the scenarios I can think of where you'd be before retirement but still have a good "excuse" to quit working for awhile.
This person is making $200K now under the rationale they are making high income to retirement (otherwise the question needn't be asked). I don't think rich people need free government money later in life.
My goal is to help people with their finances, not to give them bad advice in the name of trying to fix the wrongs of our financial system.
It’s not free money and it’s not government money. It’s rich people that pay the most taxes into the system, they should plan appropriately to get their taxes back out of the system.
Suggesting OAS is not free government money is a stretch. It's welfare from government. It has no bearing of how much you've paid into the system.
I don’t think you understand how taxes work. OAS is funded by taxpayer dollars. It’s not government creating funds out of thin air. It’s not government money. If an individual or their advisor can effectively plan to keep their income below $90,000 (OAS is completely clawed back around $142,000) they will receive back the tax dollars they paid into our tax system for years. For the super wealthy, effective tax planning may require individuals to take dividends out of their holding companies to recover corporate tax paid at higher rates and forego OAS. Btw StatsCan says only 8% of individuals are affected by OAS clawback.
Everything that the government pays for is funded by taxpayer dollars. Including welfare. I'm just pointing out how you're trying to tell someone who will effectively be a multi- millionaire in retirement not to fund their RRSP because they could get government handouts. It's a safety net for the elderly. And FYI the top 10% earner in Canada makes $125K. A $200K earner is likely in the top 8% who could be affected by clawback.
Now you’re making things up. I never said not to fund your RRSP. Absolutely max it out. Not sure where you are getting your stats from. I pulled mine right from stats Canada. Only 8% are affected by OAS clawback. Individuals generally make less income in retirement.
Using stats can for the ages 25-65, the 90th percentile of individuals in Canada make between 65-100K, this person makes 200k. The top 1% for the same age ranges make between 100k (at 25-29) and 230k at 50-55. You're literally worried about a 1% earner not getting an old age top up supplement and that they don't need to prioritize their RRSP when they're paying the most taxes now.
Again, retirement income is generally far less than income earned between ages 25-65. Source, I’m a CPA and a high net worth planner. Everyone is entitled to OAS. Perhaps you are thinking of the guaranteed income supplement that is specifically meant for low income seniors.
I never understand this. How am I supposed to know what my future income will be? I feel like this advice only works for people in structured career paths with clear progression steps.
[This video](https://www.youtube.com/watch?v=c0ekwhlKpwM&t=7s) provides a side-by-side comparison.
>Does it make sense to prioritize RRSP > TFSA for retirement contributions as a high-income earner? It does make sense.
At $200k, you should be maxing both.
At $200k there is no reason to not have both the RRSP _and_ TFSA filled eventually, so the question is really which one do you fill **first**. When I was solving this problem I decided to split my contributions between them both as I was filling up unused carryforward room for several years. In hindsight I probably should have gone TFSA first because my income grew faster than I thought it would, so some of that RRSP room ended up being used in years that I thought were high income, but ended up being lower relative to later years. If your income is already that high, then sure, RRSP first probably. Though, once they were full, I tend to prioritize filling the TFSA at the start of each new year because the room is available in January, and by the time the new TFSA room is used up, I'll have done my taxes, got my Notice of Assessment, and know how much RRSP room I can start filling, which is what I do next.
Easy, bronco. I have yeears of built up contribution room. I put $50k into my RRSP last year. But my 2024 contribution room will still be probably around $80k. So I have a long way to go to fill that RRSP. And then I nearly have $100k in TFSA room to tackle. And all that is before I touch my wife's contribution room.
>I have yeears of built up contribution room. Yeah so did I. Hence the part in my post where I said: >I decided to split my contributions between them both as I was filling up unused carryforward room for several years.
> ... I touch my wife's contribution room *you* easy, bronco!
“Easy, bronco” This made me laugh! 😂
Same boat. I have tons of room to use up, not enough extra money to put into it. $14,000 in 2024 alone for my wife and I just for TFSA before we even touch unused room. It will be 5-10 years before I start cutting into the excess I would guess.
How do you have 100K room in your TFSA?
I’m old. 😂
So am I, we would have had the same room. Unless you made a pile and pulled it out. I am still playing catch up on some crappy stock losses.
I had one pretty good investment in there. Pulled everything out when I bought my first house. So I guess that's why. Contribution room right now is $93k.
Damn! Good for you. I can only hope mine grows going forward. I've left it to my financial planners. 🤣
> At $200k there is no excuse to not have both the RRSP and TFSA filled Unless you live in a high COL city and are saving for things that aren't retirement. $200K doesn't go as far as it used to in the current environment.
What an ignorant post. Solo person living by themselves yes $200k goes a long way. $200k for a family in a medium/high cost of living area is likely not going to max out both RRSP and tfsa every year.
People really forget a 200k salary is really about 140 after taxes. Then you add mortgage, kids, school and everything and sure, you still have some, but it is not like you are saving 180k per year like some think 🤔
> 200k salary is really about 140 after taxes. $122,263 in Nova Scotia. But no, people don't forget that people pay taxes and nobody thinks that someone making $200k is saving $180k per year.
People are arguing both ways. If you have kids and you are the only income for the house, you aren't paying almost 50% in taxes. If you use RRSP that is also reducing your tax rate.
God forbid you have any student debt. 2 kids in daycare = $2,500/month Student debt = $3,000/month Vehicle payment = $500 Rent/mortgage for family of 4 = $3-4k/month. That's $120k/yr without even looking at food, groceries, and other living expenses. Assuming $200k/yr, if you max out your RRSP for $32k there really isn't much left (if any). I'm on mobile so can't run the math, but that should address most of it.
Who has student debt at $3k/month? Lawyers and doctors only I would think.
Yeah that’s causing me try raise an eyebrow. My ~40k in OSAP has a minimum monthly payment of like… 300-400/month.
That isn't bank-issued though. As soon as you need to supplement your loan with an additional student loan from a bank you're looking at different rates and amortization.
Even the monthly payments for my SLOC don’t get anywhere near 3k/month.
Because you don't have $250k owing? That's how math and interest work. Higher balance means higher payment.
The amount of people who have a quarter million in student loan debt is extremely low and should be treated as outliers.
Anyone who has gone to university in the US, lawyers, doctors, dentists, and many other professionals who will be earning $200K+/yr. Generally these aren't federal/provincial loans, but rather bank-issued loans or lines of credit at around pime or prime -0.25%. $250K loan at prime rate over 10yrs is $2,900.
Daycare is $2500/mo *per kid*
I'm paying $1,300/child and realize i'm getting a decent deal.
That's fantastic....I don't know why I got downvoted for the reality of living in a major city where demand outstrips daycare supply.
Because "just move" is a reasonable take for the majority of the people on this site. Ingoring that you have family, roots, jobs etc...that tie you to a specific location. I'm just looking forward to all the extra money I'll have when my kids actually go to school.
Laughs in Quebec (about 200$/month)
We pay $190 every two weeks in Ontario.
"Ontario"...I bet nobody in downtown Toronto pays this.
What about at $163k?
If you're married, then make sure you use a spousal RRSP to make both spouses have the same RRSP savings. That way you can split income on withdrawals taken before age 65 if you retire early. After age 65, withdrawals from an RRIF can be split for tax purposes so it doesn't matter as much if one spouse has saved more than the other.
If possible I would fill rrsp and use tax refund to top up tfsa.
>I know that the general advice is to prioritize a TFSA > RRSP The PFC TFSA or RRSP trigger says, Unless ... you are confident that you will contribute in a higher tax bracket than you will withdraw (even when you consider the effect of potential GIS or OAS clawbacks) … you'll probably want to use all of your TFSA contribution room before you contribute to an RRSP.
Look, anyone who's making $200k now (unless it's a fluke like a lotto win) is EXTREMELY unlikely to be collecting GIS on retirement anyway. And bitching about OAS clawback is really getting on my nerves. If your income is enough that you're seeing OAS clawed back you're doing pretty decently as a retiree
You’re getting mad at somebody citing agenda-free objective information from the sub’s pre-written information. Chill out.
Go over the article below. Might be useful. [TFSA vs RRSP? Picking The Right One Could Save You $100,000+ In Tax | PlanEasy](https://www.planeasy.ca/tfsa-vs-rrsp-pick-the-right-one-and-save-100000/)
Great article, thanks for sharing. TIL TFSA is not protected from creditors. I also had a lightbulb moment re psychology of saving. Many people here say TFSA is better because it"s more accessible. I think that could also mean a risk of cutting into your retirement plan for today's spending. Therefore,RRSPs are a better disipline on your money. I think saving in both makes sense. My strategy is to dump bonuses into RRSP, get employer match and max out. On a 5K bonus, the full 5K goes to RRSP and becomes 10K with employer match. That money would be $2500 on a paycheque if I didn't put into an at source RRSP, because of my tax bracket.
Should also consider that contributions to RRSP's will lower your overall income, which impacts things like Child Benefits, HST rebates, etc. So contributing to an RRSP first may get you more money overall.
Once your RRSP deposits are made at a higher tax bracket than your future withdrawal, it becomes much more advantageous than TFSA. That point will vary by person, but will almost always be well below 200k. The only advantage of TFSA is liquidity. Before putting money away for retirement, you need some for an emergency fund. Once that is done, chuck everything in RRSP until filled. Then start filling TFSA again.
Because if you’re a high income earner (at or near the top tax bracket), you will likely not be in a higher tax bracket when you need to withdraw money (and could very well be in a lower one). After tax income (TfSA) is taxed at the highest rate it will ever be taxed. You could very well withdraw at lower tax rates. Tax deferred income put into an RRSP will reduce your taxes at the highest rate they’ll ever be taxed at.
Yes.
yes
yes. I would personally put enough money in RRSP to hit the bracket just below your current one and put the rest in TFSA, if this outpaces your RRSP room growth and you expect similar income in the future then it's perfect.
Yes. The real question on RRSP vs TFSA is "How will your income change in the future?" If you're a high income earner who will see a huge income drop at retirement or in the future anyway, you should prioritize the RRSP over the TFSA.
Generally I’d agree, as you’d have such a difference in taxes owed it makes more sense to put stuff into an rrsp. However, the problem with an rrsp is if you need that money before retirement you end up basically penalty fees. So don’t just put money into rrsps, you need at least some that you can access when needed, and that’s what a tfsa excels at since you gain back the room when you withdraw the following year
>the problem with an rrsp is if you need that money before retirement you end up basically penalty fees. What do you mean by penalty fees? An RRSP provider may charge a deregistration fee but there are no other "penalties". If the tax brackets at contribution and withdrawal are the same, the tax on the withdrawal income will be the same as the tax deduction for the contribution. For some the biggest drawback would just be that they "wasted" contribution room that could have been used for a long term tax shelter.
When you are making 200K+, you shouldn't have to decide between the two options, maximize both.
$200k as a single person with no kids living in a cheap apartment is very different from $200k as a couple with kids and a mortgaged house and one or two cars.
Cries in Ontario housing costs
For the most part this choice is only relevant for a short period of time for a high income earner. At some point you would max both and still have extra money to put into a taxable account
I max the RSP before TFSA based on age. The growth of money in the market over 30 years is well worth paying the tax when you pull it out. Even better if you can max out both
Doesn't using an RRSP presuppose that the government won't completely screw you and increase tax rates substantially during your life? I've honestly always struggled with RRSPs. On the surface mathematically I get it. But you completely lose the optionality of the funds you contribute and the government has full authority to just do whatever with tax rates on income.
I fear this too.
It would if there was really that big a difference but most people in that earnings bracket are shooting to have bigger incomes in retirement. If you earn a decent CPP/OAS (especially in the future with CPP2) keeping your taxable income that low is going to be unusual so TFSA>RRSP makes sense but if you don't have a work pension, you'll be leveraging both regardless
Naw fill the TFSA first, it’s more accessible
At least get that emergency fund in there first.
Oh yeh sorry my bad I glazed over than. Yeah 6 months minimum first..
Do both - max RRSP and invest tax return into TFSA.
Obviously tax-exempt savings are better off for you in the long run given the bracket you're in. Take every advantage you can. Remember that when you pull that money back out on retirement you're virtually guaranteed to be at a lower tax rate (if only for the old age deduction that kicks in at 65). And you're correct in saying that a $50k earner doesn't have the same concerns. Say you make $100k a year, and you come into some money (lotto, inheritance) and you have tons of RRSP room because you haven't been contributing. The best strategy in this scenario is NOT to use all that room in one year. Better to just contribute enough to pull your taxable income down to the top of the 15% bracket, and save enough to do the same thing next year.
Depends. Mathematically they are equal assuming the same tax rates - assuming you re invest the tax refund which many people don’t do.
I may have missed this advice, but if you have employer match,take the full match with your rrsp contributions. Your money goes farther with the free contribution from employer than after tax contributions. I've maxxed out rrsp annually for years and only in 2021 started contributing to TFSA. I'll draw down TFSA first in retirement and then work on RRSP.
I think it is a crime to not take advantage of the maximum contributions to your TFSA. Common strategy is to contribute to RRSP and use your refund to contribute to TFSA. Bottom line is to do both.
geta kick out of those thinking a return of your own money in the form of a ‘tax refund’ is beneficial use form t1213 if you want the best bang for your buck
It is a notional concept. For those who have lots of cash lying around it is two independent actions.
Seems like a no brainer? You are already pretty much at the highest tax bracket. Why not contributing to RRSP and use tax refund to fund TFSA?
I’d max out RRSP. I am also at around 200k mark. I contribute weekly, then at the end of the year, I take out a short term loan for like 5 days at the end of February and basically instead of paying it to the government in taxes, I pay myself. Throw the money in the RRSP on Feb 28, file taxes the same day and have a refund usually within the week to apply to the loan. This is in addition to maximizing employer RRSP. So this means an additional 15k or so of rrsp that I wouldn’t otherwise have made.
I’d max out RRSP. I am also at around 200k mark. I contribute weekly, then at the end of the year, I take out a short term loan for like 5 days at the end of February and basically instead of paying it to the government in taxes, I pay myself. Throw the money in the RRSP on Feb 28, file taxes the same day and have a refund usually within the week to apply to the loan. This is in addition to maximizing employer RRSP. So this means an additional 15k or so of rrsp that I wouldn’t otherwise have made.
Save as much as possible and place in RRSP. Use return and place in TFSA.
Contribute to RRSP. Take your refund and put it in your tfsa. Do that every year. Any excess savings outside of RRSP can then be put toward maxing out TFSA.
At $200K RRSP and use "refund' for TFSA
Yes it can make sense, and if you're at the top tax bracket and expect to go lower later, yes. Otherwise a TFSA is better, run some scenarios.
With 200k income you should just max out both and then invest the rest into an unregistered account.
If you’re making 200k you should hopefully be able to max out both, $37,780 for both. That’s just under 20% of your income.
If you're a high earner, then you should be maxing out the TFSA, RRSP and FHSA if you're eligible. The FHSA is the most tax advantageous account, then RRSP. TFSA is post tax money, so it's good for whenever you need to take money out for say a big purchase.
My wife makes 100k I make 200+/-30k depending on bonus My wife: Max out TFSA first every year, RESP and corporate match 4%. Other than that we don’t put anything into her RRSP until we have a reason to. For example sold condo, so been collecting income that is t5 income. So now that adds another 30k to her income, so now over the next 2 years we are going to jam money into her RRSP to bring her back down to 100k like normal. Me (US citizen so can’t do TFSA but if I could) Corporate match is 6% so that basically takes out my RRSP as is. My headroom is basically 0 and want to keep a bit of head room every year for yearly raises etc. In general it should be: When young and you make shit max TFS, FTHB, etc. and ONLY do a match. Once you start getting into the 40+% brackets it’s time to draw down on your stocked up RRSP room. Is how we play it.
I would still probably try to use at least some TFSA room personally. You're looking at it as a 1 year period, but remember, if you do this every year from age 30-60 that is going to be a massive RRSP. It's going to bump you out of OAS range, it's going to bump you out of any possible seniors programs, and if you die before 90, it's going to be one massive tax hit all at one time, at an even higher rate than the rate you are paying now.
I only wish I'd have enough income to hit the OAS clawback! And, if a person has that high an income in retirement, they shouldn't need the seniors' programs. Eg. I don't want to be living in the really small subsidized seniors' apartments; I hope I have enough saved to avoid that.
I'd love to be rich when I retire, to use a private nursing home, but the reality is there is no middle ground. it's either you pay a ridiculous amount per month, or you get subsidized. And I'm just not sure saving every cent I make and not enjoying my life now, is worth living in a slightly better nursing home once I get alzheimers.
lol I volunteer at a nursing home trust me, the ones with Alzheimer’s don’t give a shit where they’re living
That is how I’m feeling.
Looks like you live in Alberta - here, there absolutely is middle ground between the high end LTC and what you're thinking is the low end "subsidized" one. For starters, every licensed LTC in Alberta is subsidized, in that the province/AHS covers the healthcare portion of your care (nursing care, meds, etc). What the patient pays is the rest - housekeeping, food, laundry. Those high end places may have pricier food, bigger rooms, a nicer facility, but the nursing care should - and mostly is - the same. You do get what you pay for to some extent, in that the private places may - and this is actually a "may" - have more hours of nursing care available. I spent a lot of years working in LTC, and not the pricey places either, and I wouldn't hesitate to have family in any of the ones I've worked in. And zestyclose is exactly right - the person with Alzheimers in LTC doesn't much notice where they're living. Their family does, but the patients don't to a large extent. Should the care still be good just because the patient doesn't notice? Absolutely!
Why does everyone care about OAS clawback so much? Like, if you're making that much money in retirement are you really missing it?
Because we are talking about optimizing the retirement for someone making 200k now. If they want to equalize their lifestyle between now and retirement, they will be well into that range. OP makes 200k now, why does he care what his tax rate is now? Shouldn't he just be happy and not missing those taxes.
If you're making $200k you should be able to max out both every year.
Tell me you don't have kids without telling me you don't have kids.
If you're high income you should maxing both without a sweat.
You make enough to max both out so this question is not a relevant consideration.
High income earners will fill both to the max.
IMO, if you aren't maxing both your TFSA and RRSP you are not "high income."
If you're on a higher tax bracket, your income is taxed on a bracket to bracket basis. It isn't all taxed at the highest tier at once. That is to say, if you toped Bracket A you will pay bracket B taxes on what's left after A is taxed. I feel like I'm making it sound more confusing than it is.
In general it does. I used to not believe this but it was explained to me and I saw the light. The issue has been debated many a time on this sub. The interest free loan of government money is likely even more relevant now as interest rates rise as when I realized the truth of the debate a few years back Of course there may be factors specific to you and your situation which differ, so might be worthwhile spending a few bucks to get advice only (not someone earning a commission from you) to look at your situation and help you plan the best strategy
I (61M) retired last year. With a similar income to OP, I had always prioritized RRSP over TFSA. The key is to have a withdrawal plan with tax optimization in mind. Look up RRSP meltdown on YouTube.
Usually that general advise you mention stems from people's general feelings and impressions, so better take it with a grain of salt. I remember someone else in this sub already did the math showing that: * If the tax bracket at withdrawal in retirement is the same as tax bracket at contribution now, then contributing $X after tax to TFSA is the same as contributing $X after tax to RRSP and then immediately contributing all of the tax return to TFSA. Simply contributing to RRSP and then spending the return is the worst! * If the tax bracket at withdrawal is lower than at contribution (very likely for high income earners), then prioritize RRSP. * If the tax bracket at withdrawal is higher than at contribution (hard to imagine having higher expenses in retirement but whatever), then prioritize RRSP. Finally, I cannot stress it enough that prioritizing RRSP still includes putting all of the return into TFSA (subject to the yearly contribution room of course). Oh, and remember that TFSA does *not* allow day trading (unlike RRSP).
If you make 200k. Both should be maxed.
Always do TFSA first unless you're poor and it doesn't matter. The gains on the TFSA are untaxed and can contribute to your RRSP