Battle of the bands…RRSP vs TFSA

You hear these terms all the time, especially in January and February, so what do they mean?

RRSP (Registered Retirement Savings Plan)

Why?

Because you won’t be a musician forever, and need something for down the road and a contribution can reduce the amount of income tax you may need to pay AND you can use up to $25,000 towards the down payment of a property or up to $20,000 (10K per year) for furthering your education.

How much can you contribute?

18% of your earned income (line 150 on tax return) up to maximum of $26,230 for 2018.If you don’t maximise your RRSP, it’s carried forward to future years. If you work a day job and they have a group matching RRSP plan, go for it!

 

TFSA (Tax Free Savings Account)

 Why?

It’s the most flexible savings vehicle out there, and any income earned inside a TFSA is (yep) Tax Free when withdrawn.  It’s also a good place to stash money for income tax time.

How much can you contribute?

Max for 2018 if you don’t have a TFSA is $57,500.  Each year you can add more up to a set limit ($5,500). Maximize the TFSA accounts as much as you can. TFSA’s can be used for just about anything including transferring funds to RRSP when income increases (but NOT the other way around). Start saving some of your money somewhere.  You pay your booking agent, manager and PR agency, right?  What about yourself?  If you make $500 on a gig, move at least 10% or $50 to a savings vehicle. What’s better? TFSA or RRSP? It depends which side you are on.
The A side – You have $10,000 to invest now and currently make $50,000 income. In 10 years you hope to make $100,000 in income and would like to withdraw the money.  With a 5% rate of return, you would be ahead of the game by over $2,200 with a TFSA.

The B side – You are touring like crazy now and make $100,000 income.  In 10 years, you hope not to tour as much and will probably make $50,000. With the same 5% rate of return you would be ahead with an RRSP by over $2,200
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