TFSA or CPP? A Business Owner’s Dilemma

Evelyn Jacks & Walter Harder

Over age 65 and still working?  Should you stop contributing to the CPP at age 65 in favour of a TFSA contribution?  It’s a commonly asked question.  In fact, the TFSA has an especially important multi-generational role in 2020. 

PROS FOR THE TFSA

It’s a great option for:

1. residents of Canada who are at least 18 years old who may have received the CERB and want to start an emergency fund.(Remember, you can withdraw without penalty and recontribute the principal and earnings removed, but only at the start of the next calendar year.)
2. Millennials who have no earned income for RRSP purposes but want to save for a home
3. GenXers who have no RRSP room due to employer-sponsored RPP contributions
4. people taking only dividends out of their small business corporations
5. seniors who withdraw RRSP or RRIF payments and want to re-invest in a tax-free solution
6. any older workers who can opt out of CPP: the TFSA provides better survivor and death benefits than the CPP, while creating tax-free rather than taxable income.
7. anyone who has TFSA room but must make CPP contributions, which are rising:mandatory CPP premiums may squeeze out TFSA savings room in the future, so contributing voluntarily to the TFSA now makes sense.

PROS FOR THE CPP

1. A portion of the premiums can be written off on the tax return, generating some tax savings
2. There is a disability benefit available through the plan
3. There is an orphan’s benefit available through the plan
4. The employer contributes an equal amount for employees

Next Time:  Planning Considerations

Additional educational resources: Help Canadians plan for a tax-efficient retirement as an MFA™-Pension & Estate Services Specialist.