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Q:   I don’t have a TFSA account yet.  My accountant said it wasn’t worth it for me.  I keep reading articles that say a tfsa is better than an RSP.  Should I open a tfsa?

A:  This is a common question, with a long answer- look for a blog post covering TFSA & planning details soon.  For this post, let’s look at why you might be receiving this advice.  You don’t say whether you have a corporation- if so, and you have retained cash, it is more tax-efficient in the short-term to leave the cash in the corporation.  There is a significant difference between the corporation’s tax rate and your own personal tax rate- your personal tax rate is triggered on any money that you withdraw from a corporation to contribute to a TFSA. 

Is a TFSA better than an RSP?  Not necessarily better, just different.  Each account serves a different purpose in your plan- RSP contributions lower your yearly tax bills, but withdrawals become taxable in future.  TFSA- no tax deduction now, no tax implications later.  Make sure you are structuring your savings based on personal advice, not on news article opinions.

Should you open a TFSA?  I think it’s worth finding out specifically why your accountant is giving that advice, and whether there are any factors that haven’t been considered.  Then review your long-term goals with your planner and look at whether a TFSA is beneficial.  If it is, have your advisors get together to find the best way to get from no TFSA to ‘best amount for you’ TFSA.  However, there certainly are situations where a TFSA isn’t the best structure to meet your goals.

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