Reader question: Whenever some suit starts yammering about RRSPs and TFSAs I just wanna be like yo SmyDCK, am I right? eh? EH?

You know what’s lame? Like super lame? Like lamer than getting caught peeing in public at 3 in the afternoon when you’re sober and 25? Taxes. Sure we all recognize that taxes are necessary for the government to like… govern…. and build shit… and whatever….. but fuck that noise someone else can pay THOSE taxes right? Well the government agrees….sort of. So they hooked us up with what are known as tax advantaged accounts. You still gotta pay taxes…. just less of em. This article centers on the Canadian version of these accounts, but most countries have some variety of this goin on.

Well it goes like this; you go to work with your lunchpail and your short sleeved dress shirt, stuff yourself in your work box, chuckle at Dagwood Bumstead's latest antics, slang some mild sexual harassment at the sultry new secretary, go to the women’s washroom and talk about feelings n’ shit, try to break the glass ceiling, and bring home the bacon cause you are a strong independent lioness woman! You get your bi-weekly paycheque ($2,500 from $60,000 annually), the government hops in and hustles 35% in a canvas sack with a dollar sign on it ($875) and boom bam baby it’s saving time with the rest ($1,625). After paying off your monthly installment on the platinum edition sex swing, you toss $250 into a well diversified RRSP filled with ETFs and sit back feeling pretty damn good about yourself…. So where the shit are the tax advantages you should be asking yourself at this point?

Well my friend, when tax season rolls around at the end of the year and you are crushing wine and filling out your taxes with your sexy tax glasses on, you get to deduct all that money that you put into your RRSP from your annual taxes. So, break out your abbacus, say you paid off the swing and were able to maintain contributing $250 every two weeks, so $500 a month * 12 months = 6gnos over the year. So you got taxed at 35% all year on your 60K salary (60000 * 0.35 = 21000). Now that 21K is already giggity goooone, but you deduct your 6K that you contributed to your RRSP and your “taxable” income is only (60K-6K = 54K). The taxes on this are then (54K * 0.35 = 18900) so a diff of (21000-18900 = 2100)….. which gets sent back to your hot little hands. This effect is larger the more money you make and the higher tax bracket you are in, however there are limits to the amount you can contribute each year. K I’ll pause while everyone goes to brush their teeth after vomming from all those numbers savagely forcing themselves into eachother in front of your eyes. It was a necessary evil, trust a brotha.

So it’s 40 years later and you’re a wise powerful wealthy women. You’ve retired your sexy tax glasses for sexy tax robot eyes and you are ready to wrap it up and retire yourself. You’ve racked up a ton of paperz in your RRSP account and now, since you no longer technically have any income your tax bracket is way down at the lowest amount. The second way RRSPs help you out is to allow you to withdraw from your account at this new, way lower tax bracket. Essentially what you are doing with an RRSP is deferring paying tax on your income from now, when you make pooploads of money and are taxed a ton on it, to later when you are making no money and just pooping loads. Plus your money is growing the whole time (tax free as well!) you are saving it. RRSPs make sense for people saving long term who are in a high tax bracket.

Next we have the brand spankin' new Tax Free Savings Account (TFSA), which in essence does the opposite of the RRSP. So now you are a nubile young student making 20K a year part time sassing unnecessary cellphones into the pockets of the elderly. You are getting taxed practically nothing to start cause you are so damn poor and anything you do get taxed you get back due to tuition credits (which reduce your income similar to the RRSP contributions above). So all your earnings now are pretty much tax free, or at least very lightly taxed, and so you put just a smidge away monthly in a TFSA. So this money grows, you grow up and get a big boy job, and start getting the shit taxed out of you, luckily for you you got this nice little lump saved up in this account that you can pull out at any time and not get taxed on because you already got taxed on it when you were a kid making dick all.

To wrap it up, you’re gonna get taxed. Deal with it. But, if you’re a student getting coddled before having lubeless tax sex done to you later in life, stuff some of your money in a TFSA and have it grow tax free for bonus money time later in life. If you are already deep into the tax Slave/Master dynamic, start getting a bit of your dignity back by putting your cashish into an RRSP and bustin’ it out later in life when things are much….. gentler.