Tuesday, January 18, 2011

RRSP Vs. TFSA, 2011 Edition

Most of you reading this should know the differences between RRSPs and TFSAs. For this post, I'm going to presume you do. I'm taking a hard look at my 2011 Financial Goals, and what would be the best way to achieve them.

Current savings in RRSP: $1052.06
Current savings in TFSA: $ 31.78

2011 RRSP Goal: $3600 deposited
2011 TFSA Goal: $1200 deposited

I hope to increase my RRSP contributions this year, and every year after, seeing as I have no other 'pension' to speak of. I do contribute to CPP, but the amount is so minimal, I don't count whatever amount I may get from that fund at retirement time.

I've switched the TFSA account from being used as our Emergency Essential Expenses Account (and different from our Emergency Fund) to being the holding place for our children's education funds until such time as I manage to open RESPs.

As we work diligently this year to pay down some $25,000 worth of debt, additionally saving $4800 for these two goals alone will take some determination. Between hubby and I, we have approximately  $80,000 worth of unused RRSP contribution room. I am trying to set us up for 2012 as the year we 'catch up' as much as possible in RRSP contributions, without loans.

Other considerations: 2010 income was likely the same, or slightly less than 2009, meaning another tax bill for me in the $5000 range come spring. However, we're expecting 2011 Total income to be much less than previous years, and for it to take a jump again in 2012. I would like to offset Tax obligations as much as possible without borrowing money. We could manage a small RRSP loan of about $5000, but I'm also committed to reducing our total debt load, not adding to it.

We have no money set aside for the kids post-secondary educations. It is presumed that both of our younger kids will go to college or university. DD2 will be ready for this in about 5 years, and DS will be ready in about 15 years. If our children do not attend post-secondary school, they will not be getting this money. We will keep it for ourselves and contribute it to our RRSPs.

So the question is this: Do I contribute more than $3600 to my RRSP this year, to try to offset some of the tax burden that I am expecting? Do I consider a small RRSP loan that would be repaid within 12 months? Should I keep the RESP money in the TFSA, or just open up an RESP Account at the bank, so I can get the Canada Learning Bond? I don't think we can manage all 3 this year, even though ideally there should be 3 separate accounts.

Please give me your thoughts. I need some guidance on this issue. Comments graciously accepted today.


  1. Can you calculate what your refund would be if your contributed as much as you can to your RRSP? I've always maxed out my RSP by borrowing until the last few years and then used the refund to pay back the loan and pay down other debt. Plus you have the savings in the RSP so it's like your money is doing double duty.

  2. You need to know how much you'd pay in taxes before contributing the RRSP money and how much you will pay in taxes if you do contribute.

    As for the loan I wouldn't do it. If you are trying to pay off debt, why take on more? I did that once and it was hell to get paid off. I won't ever do it again.