With the deadline to get RRSPs looming, many people are weighing up their choices.
The two main tools Canadians have to help build wealth are Registered Retirement Savings Plans (RRSP) and Tax Free Savings Accounts (TFSA).
"If you can do both, do both," said Caroline Hanna, an investment advisor and portfolio manager with Shewfelt McMillan in South Surrey.
There are pros and cons to both though and people should understand each before making any final decisions.
RRSPs give an immediate benefit in that it can help to lower a person's taxable income for that year, while helping to build up savings for a future time when the person expects to have a lower income and therefore be in a lower tax bracket. But there is always some tax that will be assessed on funds withdrawn from an RRSP.
Funds in TFSAs, on the other hand, are not taxed when withdrawn. The idea is to put in money and have it grow over time to function as either an additional pension fund or a wealth-building tool.
"If you can build up both, it's huge," said Hanna. "It's one of the best things we've been given."
The amount a person can put into their RRSP depends on their earnings, with a maximum contribution of $23,820 for 2013. TFSAs started in 2009 with a $5,000 annual contribution limit, which has been increased to $5,500 this year.
Hanna said the TFSA limits will likely continue to increase over time, just as RRSPs have since their launch in the 1950s.
And with both RRSPs and TFSAs, unused contribution room carries forward.
To help people understand the potential of a TFSA, Hanna said that $5,500 a year works out to $458.33 a month, or $115 a week. That is $15 per day.
To put this into perspective, if a person put $400 a month into a TFSA, which is less than the maximum, and invested it into something that earned nine per cent interest over 20 years, they would end up with $255,541, all tax-free.
While nine per cent is a high return, it is not without risks. However, she also points out that every person's financial situation is unique, and because of that, there is no one-size-fits-all advice when it comes to finances. The best option is to find a qualified advisor you trust and consider all the facets of your situation, including retirement planning, estate planning, tax planning and investments.
"It's never too late, but start now." The deadline to get RRSPs for the 2012 tax year is March 1, while TFSAs are tallied by calendar year.