Poll reveals majority consensus on importance, but lack of clarity on tax implications and best uses
Canadians need no reminders on the importance of RRSPs and TFSAs in saving for the future — but they do need a refresher on the differences between the two.
In an Ipsos poll of 1,500 Canadians commissioned by TD Bank, the majority of respondents agreed that TFSAs (59%) and RRSPs (57%) are a crucial component of their savings strategy. However, one in four (27%) said they don’t know the key features that differentiate the two.
“Many Canadians have both short-and long-term goals, so a mix of both TFSAs and RRSPs is often a good solution,” said Jenny Diplock, Associate Vice President, Personal Savings and Investing at TD. “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.”
The survey looked into investors’ preferences in TFSA and RRSP usage. More respondents viewed RRSPs as better than TFSAs for retirement saving (61% of respondents, vs. 22% who said TFSAs are better). When it comes to home renovation, TFSAs were the preferred choice (51%, compared to 13% who chose RRSPs).
Respondents showed less conviction when it came to saving for a down payment on a first home. Only four tenths (41%) saw TFSAs as the best choice, while 25% said RRSPs are preferable. The conflict was present even among experienced homeowners, 15% of whom thought RRSPs are the right option when saving for a down payment on a new home in spite of the tax consequences.
Participants manifested an even greater lack of clarity on the tax impact of the two savings vehicles: 35% said they don’t understand the tax implications of a TFSA, while 30% said the same on RRSPs. And while TFSAs do not allow Canadians to reduce their taxable income, 22% said they would choose to use a TFSA to help reduce their taxable income for the following year.
Read more: RRSP vs TFSA: which serves the financial goal best?
“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,” Diplock said.
