Q&A With Gordon Pape: RRSP and TFSA

One reader’s daughter has a good pension plan, but should she save more in these programs?

Q: My daughter is a teacher age 29 with a defined benefit pension plan (salary $60,000). She can afford to maximize TFSA and RRSP contributions. Should she do both? Thank you. —Ron B.

A: As far as the TFSA is concerned, absolutely. And if she has carry-forward room from previous years (the plans started in 2009) she should use that too. Given her age, if she continues the contributions on a regular basis and invests wisely, she could end up with a TFSA worth many hundreds of thousands of dollars.

The RRSP is more problematic. She will be allowed a tax deduction for the contributions but given her income level that will only amount to a saving of about 30 per cent (Ontario resident). Since teacher’s pensions are generally quite generous, she may end up paying a higher marginal rate of tax on RRSP withdrawals after she retires. —G.P.