5 thoughts on “TFSA vs RRSP, Which Is Better?

  1. I’ve been asked a questions which might be helpful to other readers.

    Q: If I have my money in a RRSP mutual fund, can I switch it to another RRSP mutual fund without getting taxed?

    A: Yes it is possible without getting taxed.
    – At a branch, the mutual fund would be sold, but the proceeds would go into a regular RSP account, then the money would be used to purchase the other RRSP mutual fund.
    – Assuming you have passed the minimum holding period (if any), you wouldn’t need to pay certain fees. But there may be selling and other fees associated (back load, etc.). Usually, if its a big retail bank like BMO, RBC, TD, Scotia, CIBC, etc, there isn’t any other fees. But you should check first.
    – You can even switch to a different bank. It is called a “registered transfer”. It could be done in a number of ways, where it is sold off first then the cash transferred to another RRSP account, or it is transfered “as is”.
    – The important thing to note is that the money should never be taken out of an RRSP account and into a non-registered one, even if temporary. The second it goes into a non-registered account you will pay tax. It must always be directly from RRSP to RRSP account (saving/brokerage/etc).

  2. It has come to my attention there is some confusion about TFSA and foreign income. Foreign income in the TFSA is subject to withholding taxes (i.e. must pay the withholding taxes, like on US dividends). What’s left over after paying that, is tax sheltered (i.e. not taxed).

    There has also been some confusion about holding “savings accounts” within discount brokerages. Some financial institutions such as Manulife have “investment savings accounts” which you can purchase, much like a mutual fund or money market fund. You can buy and sell these within your discount brokerage account. They usually pay a bit more interest than the average bank savings account. The Manulife one that I had purchased once in my brokerage account had the symbol MIP510. Although I wouldn’t recommend to hold such low interest bearing instruments within a TFSA as an investment.
    Their webpage for those products are https://hermes.manulife.com/canada/repsrcfm-dir.nsf/Public/AB0403E/$File/AB0403E.pdf

    And yes, within a brokerage account you can purchase GICs of other financial institutions (i.e. Scotia, CIBC, Home Trust, etc). It is not widely known or used. With TDWaterhouse (brokerage I use), you have to call a TDWaterhouse rep.

    1. From what I understand, you are not allowed if it its a locked-in retirement account or LIRA. When you hit 71 you also must transfer the money to a Locked-in Retirement Income Fund LRIF, Life Income Fund LIF, or Life annuity. These also have their own withdrawal restrictions.

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