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TFSA can be an ideal savings vehicle if you’re in a low-income tax bracket.
RRSPs may not be well suited to low-income Canadians. As the earlier example demonstrates, the
RRSP account tax savings are insignificant and may be in a higher tax bracket when you withdraw. You may also consider that TFSA withdrawals don’t impact income-tested benefits and credits, such as child tax benefits and credits, Old Age Security, or Guaranteed Income Supplements.
If you now find yourself in a lower tax bracket, such as during maternity leave, and have previously made RRSP contributions. A strategic move is to consider withdrawing from your RRSP to facilitate a TFSA contribution. It’s important to note that while this maneuver can optimize your current financial situation. Funds withdrawn from your RRSP cannot be re-contributed later. Therefore, careful planning and consideration are essential to make the most of your savings and investment strategy.
