Which would be the better place to invest in first, TFSA (Roth IRA equivalent) or RRSP? (401k plan equivalent.) According to one study by Caligiuri Financial Group, it depends on your present and future income tax rates. In each of the 3 scenarios below, someone invests $5000 pre-tax income in an RRSP and the equivalent after-tax amount to a TFSA. Growth assumes a 7% annual rate of return for 20 years. (click image to enlarge)
It’s difficult to predict what someone’s tax bracket will be 20 years from now, plus there are other many factors to consider. I put money in both every year, but I always try to max out my TFSA first because I have a feeling taxes will rise in the future to support a global aging population.
[…] general lower income, and younger folks should prioritize saving in a TFSA before considering RRSP, and vice-versa for high income earners. I like to put bonds in my RRSP, […]