RRSP vs TFSA vs normal account

[agiz]

Hi,

I was wondering if anyone has advice on the type of investments that should be put into a TFSA vs. RRSP vs. normal savings account - assuming that you can max out all of the above. I know some of the simple rules such as that RRSP's will tax you at 100% (as opposed to 50% for taxable capital gains) so I was leaning towards putting mainly bonds in the tax favored accounts and leaving equity for my savings account. However,  I'm sure there is a mountain of other things I should consider...

I've tried to search the site and previous postings to make sure this isn't a repeat question. If it is can someone point me in the right direction?

Thanks!

[Norman Johnson]

Assuming you aren't going to be taking out the money soon, long term investments go in the RRSP. You get an income tax return on the money you put in there and the pay income tax on the money you take out later. While in the RRSP, it grows tax free. The idea is to put money in your RRSP during years of high tax bracket income and take it out when your income is lower.

TFSA are great in that the money you earn on your investment is not taxed. Due to our income situation, this is what I plan to fill up first. Short term or high return stuff would go in here until full.

What other things were you considering?

(There probably isn't a lot of discussion on these boards about this stuff because it's mostly Americans on here. )

[Gerard]

If your marginal tax rate (the rate you pay on your last dollar earned) is very high right now, much higher than it will be in retirement: max out your RRSP, especially with highly-taxed stuff (bonds, GICs). Be sure you don't piss away the resulting tax refund!
If your marginal rate is high, and you plan to buy a house or go to university in the future: get at least $25K into the RRSP for at least 91 days, and withdraw it under the Home Buyers' Plan or Lifelong Learning Plan.
If your marginal rate is high, and you've maxed out the RRSP: put other highly-taxed stuff into a TFSA.
If you've maxed out your RRSP and TFSA, aim for tax-preferred stuff in regular savings (anything that pays dividends and/or is likely to result in capital gains).
If your marginal tax rate is low, max out your TFSA if you want (hey, it's free money), but save your RRSP contribution room for years when you earn more and your marginal tax rate is higher.
If your marginal tax rate is low, and you have a kid going to university in the future, look into RESPs instead of RRSPs.
If you suddenly find yourself with a very low-earnings year (e.g., you go back to school, take a year off for travel or growth), consider withdrawing funds from your RRSP to avoid paying deferred taxes.
(I realize this is all pretty basic stuff, but I hope it's some help.)

[agiz]

Thank you for the speedy replies Gerard and lilacorchid. My question was answered in the response " If you've maxed out your RRSP and TFSA, aim for tax-preferred stuff in regular savings (anything that pays dividends and/or is likely to result in capital gains)", although all the information provided was a great help.

I graduated university a few years ago and have been working over the last few years and next year will be the first year where I actually have to put some thought into where I invest my money (before I just dumped everything into my TFSA as it was not maxed out yet). I have been avoiding investing in my RRSP as I feel I am not at all in my earnings prime yet and thus am saving my RRSP deductions for the years when I am raking in the dough (and thus can save the most from my deductions). My clever boyfriend just informed me that I can still contribute into my RRSP and benefit from not paying taxes on my gains until I make my withdrawals - and save the RRSP deductions until I will be in a much higher tax bracket (sad what an engineer is teaching a commerce graduate). This is what spurred the questions of what to invest where for next year.

Thanks to your help - I will put most of my bonds into TFSA and RRSP and equity in normal savings!