While more than half of Canadians agreed tax-free savings accounts (59 per cent) and registered retirement savings plans (57 per cent) are a crucial part of their savings strategy, 27 per cent admitted they don’t know the difference between the two options, according to a new survey by TD Canada Trust.
“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 of personal savings and investing at TD, in a press release. “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.”
In terms of saving for retirement, survey respondents were more likely to view RRSPs as a better choice (61 per cent) than TFSAs (22 per cent).
In addition, just 35 per cent of respondents said they don’t understand the tax implications of a TFSA, while 30 per cent said the same about an RRSP. Further, 22 per cent said they would choose a TFSA to help reduce their taxable income for the following year. This finding reaffirms the lack of understanding of how TFSAs work given that they don’t allow a reduction in taxable income.