Canadians often contribute to their RRSP specifically for the purpose of reducing their income to receive a tax refund. However, it’s important to look at the bigger picture to determine whether those contributions would be better placed in a TFSA rather than an RRSP from a retirement tax perspective. Investing too much in an RRSP can cause a greater amount of funds to be paid in taxes depending on if you’re in a higher tax bracket when you retire and may include a reduction in benefits. Diverting some of your funds to a non-taxed TFSA can help you avoid paying too much of your hard-earned retirement income to taxes.

Key Takeaways:

• One of the problems of striking the right balance is not knowing how much investments will grow inside an RRSP.
• Canadians now have the advantage of diverting some of their retirement savings from an RRSP to a TFSA, where withdrawals are never taxed.
• Working with a professional can help you determine the mix of RRSP and TFSA contributions based on your situation.

“As odd as it may seem, there’s a real risk you could be contributing too much. Many senior Canadians regret packing their RRSPs through the years as they face higher tax brackets when they withdraw their money and, in some cases, forced minimum withdrawals that result in Old Age Security clawbacks.”

Read more: https://www.bnnbloomberg.ca/personal-investor-time-for-a-post-deadline-rrsp-tax-strategy-1.1229620