Until 2009, most chiropractors held their retirement savings in an RRSP, where they could claim a deduction for their con- tributions and then defer tax on withdraw- als until retirement. The introduction of TFSAs has provided another powerful sav- ings vehicle that allows investment growth to accumulate and be withdrawn at any time tax-free. Unlike an RESP, you cannot claim a tax deduction for the contributions you make to a TFSA. On the plus side, if you need to withdraw money from your TFSA, you have an opportunity to replace that money because all TFSA withdrawals are added back to your unused contribu- tion room in the following year. If you have children or grandchildren, RESPs are another popular option. The contributor makes contributions on behalf of a beneficiary (the child). The contribu- tions are not deductible or taxable on with- drawal. The growth is tax-deferred until withdrawal at which time it can be taxed in the beneficiary’s hands if he or she enrols in a qualifying educational program. Con- tributions to a child’s RESP qualify for the Canada Education Savings Grant (CESG) and, if your family’s income is below cer- tain thresholds, you may also qualify for the Canada Learning Bond (CLB). THE rETirEmEnT dilEmma If you are saving for retirement, then you may be torn between an RRSP and a TFSA. Ideally, you would maximize contributions to both, but if that’s not an option, here are some thoughts to consider. Whether the best choice is to save in an RRSP or a TFSA, depends on your savings needs, as well as your current and expected future financial situation and income level. Generally, an RRSP is used for saving for retirement, while a TFSA can be used for both saving for retirement and other shorter-term purchases. If you are in a low tax bracket, saving in a TFSA may be more advantageous than saving in an RRSP since TFSA withdrawals have no impact on federal income-tested benefits and credits such as child tax ben- efits and Old Age Security. On the other hand, RESPs may be a better option if your tax rate, at the time you contribute, is high- er than it will be with you withdraw your savings. You’ll benefit from a tax deduction when you make your contribution and withdrawals will be taxed at your lower fu- ture rate. provide better results. www.canadianchiropractor.ca EdUCaTion savings CHoiCEs If you are saving for your child’s edu- cation, then you are probably weigh- ing the pros and cons of an RESP or a TFSA. Contributions to an RESP for a child under 18 years of age qualify for the CESG mentioned above, which pays 20 per cent of the annual contri- butions you make, up to a maximum of $500 per year, per beneficiary – or a maximum of $1,000 if there is un- used grant room from a previous year – to a lifetime limit of $7,200. (You may be entitled to an enhanced CESG if your family’s income is below cer- tain thresholds.) Thus, for children under 18 years of age, RESPs are pre- ferred savings vehicles because of the CESG. For children over age 18, the CESG no longer applies, so you may want to help them start their own TF- SAs. If you want to maintain control over the funds, then you could save for their education in your own TFSA instead. Continued on Page 40 If the reverse is true, a TFSA can CANADIAN CHIROPRACTOR | FEBRUARY 2010 • 15
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