# Should young professionals contribute to the RRSP?



## Edgar (Mar 24, 2014)

Hey,

First and foremost, I think we can all agree that savings are important. I'm also going to make a blanket statement that I hope you agree with but I'm open to discussion: When you are young, max your TFSA before contributing to your RRSP.

Now the question: Should a young professional even bother contributing to an RRSP? I ask because it seems like someone in their early 20s will be posting the lowest tax rates of their lives (including in retirement). If this is the case, is it worth deferring your tax on income via an RRSP or am I missing a piece of the puzzle?


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## twa2w (Mar 5, 2016)

What does age have to do with it. Lots of young professionals are in middle and top tax brackets.
I do generally agree with the tfsa first but for different reasons. It is easier to access. Life changes can happen quickly when young and the tfsa gives them more flexibility.

Remember just because you contribute to an RSP doesn't mean you have to take the deduction. You can save those for higher income years.


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## Eclectic12 (Oct 20, 2010)

Edgar said:


> ... I'm also going to make a blanket statement that I hope you agree with but I'm open to discussion: When you are young, max your TFSA before contributing to your RRSP.


Won't one's income & retirement plans affect this?
Using the RRSP means more $$$ to invest today ... especially if for one's profession, one is on their own for retirement funding.

If one's income is low, then yes ... the RRSP room is better saved for higher income levels.




Edgar said:


> ... Now the question: Should a young professional even bother contributing to an RRSP? I ask because it seems like someone in their early 20s will be posting the lowest tax rates of their lives (including in retirement). If this is the case, is it worth deferring your tax on income via an RRSP or am I missing a piece of the puzzle?


Too many variables to try to assess this ... 
What sort of retirement is desired?
Are there opportunities to make the RRSP withdrawals at low income times?
Does the profession have a history of unstable employment where an RRSP would be a nice buffer?
Are they spending everything they earn?
What sort of retirement coverage does the profession provide? (Some I know make good $$$ but have CPP, their TFSA and their RRSP for retirement.)

If the assumption that the tax rates in their 20's *and* retirement are the lowest (despite CPP being added), if they have much higher income during their working years ... won't having something in their RRSP be to their overall benefit?


Then if there's a spouse in the picture with a significantly lower income ... a spousal RRSP might be a significant benefit.


Cheers


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## OnlyMyOpinion (Sep 1, 2013)

TSFA before RRSP? I'd say yes if there is only sufficient money to contribute to one or the other.
Did you mean to have no RRSP - or to defer the RRSP? If you are talking about deferral I'd consider whether it is easier to contribute smaller amounts annually rather than assuming you can catch up to your accrued contribution room later, including using the annual tax refund as 'forced' savings for the TSFA contribution. Ther is also the time value of having the money invested and growing sooner than later.


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## Eclectic12 (Oct 20, 2010)

twa2w said:


> What does age have to do with it. Lots of young professionals are in middle and top tax brackets.
> I do generally agree with the tfsa first but for different reasons. It is easier to access. Life changes can happen quickly when young and the tfsa gives them more flexibility.


True ... though funding part of the TFSA from an RRSP tax refund may give a bit of both.




twa2w said:


> Remember just because you contribute to an RSP doesn't mean you have to take the deduction. You can save those for higher income years.


Also true ... though there is the cost of not having use of the refund money. 


Cheers


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## nobleea (Oct 11, 2013)

Most young professionals will have access to a matching RRSP contribution from work. Contribute whatever is required to get the maximum amount of free money. Over and above that, yes there are lots of unknowns that you'd have to figure out. I like the idea of TFSAs when young for the fact that it's accessible.


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## heyjude (May 16, 2009)

nobleea said:


> Most young professionals will have access to a matching RRSP contribution from work.


Bwah-ha-ha!


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## canew90 (Jul 13, 2016)

Edgar said:


> When you are young, max your TFSA before contributing to your RRSP.


Agree 100%, but usually a young person will not have sufficient to invest the max each year. If not, I suggest opening a drip with spp and transfer to a tfsa when it becomes large enough. If one has sufficient means to to both (tfsa & rrsp) than I would also suggest not spending the tax savings but reinvest the money.


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## cashinstinct (Apr 4, 2009)

If there is a match from employer for anything, max it out.

After, TFSA.

I would have love to have TFSA 10 years ago


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## ian (Jun 18, 2016)

What surprises me is the number of employees who do not take advantage of employer matching pension opportunities. The percentage is quite high, in the mid 30's I believe.


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## OnlyMyOpinion (Sep 1, 2013)

Pro/con TSFA/RRSP discussion here: http://business.financialpost.com/personal-finance/retirement/rrsp/the-rising-power-of-the-tfsa-are-rrsps-even-relevant-anymore


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## twa2w (Mar 5, 2016)

canew90 said:


> Agree 100%, but usually a young person will not have sufficient to invest the max each year. If not, I suggest opening a drip with spp and transfer to a tfsa when it becomes large enough. If one has sufficient means to to both (tfsa & rrsp) than I would also suggest not spending the tax savings but reinvest the money.


Wasn't there something reported recently that 40% of adults between age 20 and 30 are living with their parents. They should have lots of cash to max out a tfsa if they are working .


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## latebuyer (Nov 15, 2015)

I didn't realize if you are in the same tax bracket in retirement both the tfsa and rrsp give equal returns. This made me think i should invest in tfsa first since it is more flexible as i have a pension and may end up in same tax bracket. I can always catch up on rrsp once i've paid down my mortgage.


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## canew90 (Jul 13, 2016)

latebuyer said:


> I didn't realize if you are in the same tax bracket in retirement both the tfsa and rrsp give equal returns. This made me think i should invest in tfsa first since it is more flexible as i have a pension and may end up in same tax bracket. I can always catch up on rrsp once i've paid down my mortgage.


I'm retired and the tax brackets have changed considerably over my time. I'd bet the tax brackets will continue to be higher 10, 15 or 20 years from now.


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## pwm (Jan 19, 2012)

I retired in 2005. My MTR in retirement is the same as when I was working. However, I am getting some tax advantage because about half our RRSPs are in a spousal account. Since my wife didn't work, I can get 50% of my RRIF withdrawal on her tax return. I'm in the third tax bracket; she is in the second, so her MTR is lower. It helps a bit. 

Looking back, I wish I had no RRSP myself, and had contributed 100% of my allowable limit to her spousal RRSP.


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## Eclectic12 (Oct 20, 2010)

^^^^

My sympathies for not making more use of the spousal RRSP.

My co-worker have buffer as retirement retirement income based on his target date is about five tax levels lower. I think he has to adjust for his investment income but it sounds like he plans to convert the taxable account to all CG.

Out of curiosity - it sounds like you had ample time to adjust your RRSP contributions to the spousal RRSP. What distracted you from doing so?

I'd have to check to be sure but I seem to recall him saying that the first year the spousal RRSP became available to him, he dropped his RRSP contributions down to 30% from 100%.


Cheers


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## pwm (Jan 19, 2012)

^^^

Didn't pay enough attention to it. Seemed like 50/50 was a good plan, but it was not. 

It's not a big problem because I don't have a huge amount of registered investments for 2 reasons: I paid off my mortgage before starting RRSPs and I had a DB pension with a large PA.


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## Spudd (Oct 11, 2011)

I can't speak for PWM, but for myself, I didn't realize the advantages of the spousal RRSP, and that my RRSP wouldn't stay mine in the case of a divorce, until quite late in my career. I started doing a spousal as soon as I realized the above facts, but the spousal is still way smaller than my personal RRSP.


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## My Own Advisor (Sep 24, 2012)

Should young professionals contribute to an RRSP?

If they have a company matching program, absolutely they should.

If not, then the question for me becomes - can they max out their TFSA? If not, then fill up the TFSA first. 

If you can fill up the TFSA, and with money left over, then start contributing to your RRSP.

If you have a good job, but not a great job, unless you are very good at saving there is little way you can max out your TFSA and RRSP. Max out the TFSA first, then move forward from there. 

Just my $0.02.


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