Many Canadians don’t understand the key differences between RRSPs and TFSAs

By The IJ Staff | January 27 2020 02:02PM

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A new survey from TD Bank Group found that 27 per cent of Canadians do not understand the main differences between Registered Retirement Savings Plans and Tax-Free Savings Accounts.

Thirty-five per cent of respondents said they don't understand the tax implications of a TFSA, and another 30 per cent said the same when it comes to an RRSP. In addition, almost one in four respondents said they would choose a TFSA to help reduce their taxable income for the following year, which shows a lack of understanding of how TFSAs work since they do not allow for a reduction in taxable income, observed the bank.

Withdrawal considerations

The survey data show that many Canadians do not fully understand key characteristics of a TFSA and an RRSP, such as the tax benefits and withdrawal considerations," said Jenny Diplock, Associate Vice President, Personal Savings and Investing at TD.

"Many Canadians have both short-and long-term goals, so a mix of both TFSAs and RRSPs is often a good solution. However, it's important to understand the key differences between the two so you can feel confident about having the right plan in place to help meet your financial needs and goals." She suggested Canadians consult a financial advisor to learn more about how these financial vehicles work.

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