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The ABCs of investment accounts: RRSPs aren’t always the best choice for retirement saving

TFSAs, RRSPs, RESPs, and more — White Rock Wealth Advisor explains the best use for each type
Scotia Wealth Management Senior Wealth Advisor, Dave Lee, offers Total Wealth Planning in White Rock. To book an appointment, call 604.535.4743 or email

Most British Columbians know it’s important to save for retirement. They also know that the earlier they start saving, the better off they’ll be. The trouble, says White Rock Senior Wealth Advisor Dave Lee, is assuming that retirement savings should only go into an RRSP.

“Contributing to your RRSP isn’t best for everyone,” he says. “It’s universal that people should live within their means, and it’s universal that everyone who hasn’t achieved financial independence should be putting money away for the future. But should savings be directed toward accelerated mortgage payments, TFSAs, RRSPs or other strategies? The best option is different for everybody.”

Save your RRSP contribution room until you need it

RRSPs work well when you contribute in years when your income is relatively high, and you expect that your taxable income during retirement will be lower.

“Contributions are great in a high-income year where that money would have been taxed at 53.5 per cent, and instead you can pull it out in retirement at 28 per cent. But the reverse situation can actually be harmful,” Dave says.

A recent college graduate working an entry-level job at an income tax rate of 20 per cent may believe it’s responsible to contribute to an RRSP. But they’re likely to have a higher income later in their career and may face a higher tax rate when withdrawing the money in retirement.

“One of my clients was tempted to contribute to his RRSP every year, but knowing he owned a rental property, we saved the contribution room. As a result, he was able to get much more significant tax savings in the year he sold the property because the capital gain pushed him into a much higher tax bracket,” Dave says.

How to make RRSPs work for you

Think of RRSPs as just one of the tools in your toolbox — useful at certain times for certain people.

“I look at the Total Wealth Plan and consider your home, your pension, your TFSA, your career — it’s important to take a close look at everything before creating a custom strategy.”

Dave can optimize your portfolio and tax situation by restructuring investments. You may want to move Canadian content out of an RRSP to an account where it benefits from the dividend tax credit, or gradually shuffle funds from registered accounts to TFSAs as contribution allows.

“It’s crucial to look at RRSPs as part of a bigger picture, not in isolation.”

To discuss investments, life insurance, retirement planning, estate planning, generating income and minimizing your taxes, make an appointment with Dave Lee in White Rock. Call 604.535.4743 or email, and follow him on Facebook, Twitter and LinkedIn for more financial insights.

ScotiaMcLeod, a division of Scotia Capital Inc.

READ MORE: The ABCs of investment accounts: Use your TFSA for long-term investments