A new survey from TD reveals mixed views when it comes to the best way to save for a down payment on a first home. Forty-one per cent of surveyed Canadians believe a TFSA is the best choice, compared to 25 per cent who think an RRSP is the better option. Even experienced homeowners are conflicted, with 15 per cent saying they believe an RRSP is the right option to help save for a down payment on a new home (that isn’t their first), despite the associated tax implications.
Many Canadians surveyed are confused when it comes to the best way to save for the future. While more than half of Canadians surveyed agree that Tax-Free Savings Accounts (TFSAs) (59 per cent) and Registered Retirement Savings Plans (RRSPs) (57 per cent) are a crucial part of their savings strategy, one in four (27 per cent) admit they don’t know the differences between the two financial products.
“Regardless of whether you’re planning for long-term retirement or for a shorter-term goal, RRSPs and TFSAs are two popular and important options to help grow your savings,” says Jenny Diplock, Associate Vice President, Personal Savings and Investing at TD. “Many Canadians have both short-and long-term goals, so a mix of both TFSAs and RRSPs is often a good solution. However, it’s important to understand the key differences between the two so you can feel confident about having the right plan in place to help meet your financial needs and goals.”
Canadians surveyed are even more unsure when it comes to the impact the two savings vehicles have on their taxes. Thirty-five per cent of survey respondents say they don’t understand the tax implications of a TFSA, and another 30 per cent say the same when it comes to an RRSP. Furthermore, almost one in four (22 per cent) respondents say they would choose a TFSA to help reduce their taxable income for the following year, reaffirming a lack of understanding of how TFSAs work given that TFSAs do not allow you to reduce your taxable income.
“The survey data show that many Canadians do not fully understand key characteristics of a TFSA and an RRSP, such as the tax benefits and withdrawal considerations,” says Diplock. “An advisor can help educate on these financial products and work with you to assess your personal situation and find the right solutions for your specific goals and financial needs.” -CINEWS