The Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) are both valuable retirement accounts with unique features. Rather than comparing the two, Canadians should consider how each can help them achieve their financial goals.
Unfortunately, not all RRSP and TFSA users have maximized their contribution limits. Understanding the utilization of each account and the level of contributions can be beneficial, especially in light of financial challenges in 2024.
According to the Bank of Montreal’s Annual Investment Survey released in January, the average TFSA account balance in 2023 was $41,510, while the average RRSP account balance was $113,070, a 27.9% decrease from the previous year. Factors like high interest rates and inflation have impacted respondents’ ability to save for retirement, but there is optimism that this trend will reverse as economic conditions improve.
The TFSA contribution limit for 2024 is $7,000, while the RRSP contribution limit for tax year 2024 is $31,560 (with a contribution deadline of March 1, 2025).
For TFSA investors looking for passive income and faster compounding, dividend growers like Fortis (TSX:FTS) could be a solid choice. Fortis, a dividend king with 50 consecutive years of dividend increases, offers a 3.9% dividend yield and expects annual dividend growth between 4% and 6% by 2028.
On the other hand, Canadian Natural Resources (TSX:CNQ) is a suitable anchor stock for an RRSP. As a dividend aristocrat with a 24-year dividend growth streak, the company offers a 4.1% dividend yield. In Q2 2024, Canadian Natural Resources reported revenue and net earnings increases of 12.8% and 14.7%, respectively, compared to the previous year.
Overall, Canadians can benefit from opening and contributing to both RRSPs and TFSAs. High-income earners may find significant tax savings with an RRSP, while TFSA users in lower income brackets could benefit more from tax-free withdrawals.
