Three friends, Jenna, Michael & Alice are debating whether an RRSP or a TFSA would be a better choice for them. Each of them is the same age and is saving for a goal that is 15 years into the future. Jenna has an income of $100,000, Michael has an income of $70,000 and Alice’s income is $40,000. After the target date, Jenna expects to have an income of $70,000, Michael expects to be earning about the same and Alice expects to be earning $70,000.
Assuming they use the tax refund generated from RRSP contributions to re-invest into their RRSP, which vehicle would be the best choice for each of Jenna, Michael and Alice? Assume they live in Ontario and will earn the same return in both vehicles. Identify any assumptions made. Your conclusions should focus on the reason(s) for selecting a RRSP or TFSA, including tax implications of a changing income level, and not just focused on calculations.
For Jenna RRSP is the best choice as her income is high now and decreases in the future.
Her tax bracket will be lower in the future when she makes a withdrawal and she will pay less tax.
Michael and Alice should go for the TFSA option as Michael’s income stays the same and Alice’s increases. They can withdraw the money whenever they want and the withdrawals will be tax free.
Three friends, Jenna, Michael & Alice are debating whether an RRSP or a TFSA would be...
Comprehensive Income Tax Course: Module 1 4. Randy turned 16 last year and had his first summer job. Even though his parents are claiming him as a dependent he wants to file a return in order to get his refund. He receives his W-2 and decides he can do his own return using form 1040-EZ. Which of the following information is not found on a Form W-2? a) The taxpayer’s Social Security number b) The taxpayer’s wages, tips and other...