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Are RRSP’s overstated

Hi Ross: My 18yr old goes into CIBC in Victoria requesting an RRSP account to deposit $50/month Bank says “No, you should get a TFSA”

Kid leaves confused because Mom taught her to get RRSP @ 18 but the bank says Mom is wrong. Now what do I tell her? Thanks, Mandy.

From Ross: Mum your advice was sound in that saving is a great idea, but yes it is true the TFSA is likely better. Both provide tax free growth, but the main advantage of the RRSP is tax deferral.

You put the money in the RRSP and you get a tax deduction based on your income. And when you take the money out, you pay taxes on that money at that time as it is then included in your income.

Chances are your daughter is not yet taxable, or if she is, her tax bracket is pretty low. So she would not get much, if any,tax deduction benefit from making an RRSP contribution now – but yet the money would be fully taxable much later in life when she withdraws it.

One of my client’s  is 25 and has a great job two years out of university. She finally made a large RRSP contribution in February of this year (using past year’s accumulated allowance) and she put in $20,000 and is getting a $6,200 refund soon.

Had she put that money in when she was younger she would not have got that refund.

BTW, if your daughter is responsible with money, I would urge her to begin creating a credit history, and ask her bank for a credit card with a $1,000 limit.

Hope this helps – ask anytime Mandy!

From Mandy: Thanks Ross! Not so responsible yet, getting there. I will let her know her bank is right. I appreciate you Ross! Thanks, Mandy