Do you have a $10,000 surplus to invest for the long term? If yes, the next decision you make can determine whether you retire a millionaire. Where you invest depends on your current financial situation and future financial needs.
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When should you invest in an RRSP?
The Registered Retirement Savings Plan (RRSP) gives an immediate tax advantage, as you can deduct the amount you invest in an RRSP from your taxable income. However, it has a limit of $32,490 or 18% of your previous year’s income. If you invest before March 3, 2026, you can reduce your 2025 taxable income.
Who should invest?
If you have a significant taxable income and your tax bracket is beyond 20.5%, a $10,000 investment in an RRSP can bring tax savings between $2,050 and $2,600. High-income earners should prefer investing in an RRSP as the higher the tax bracket, the bigger the tax savings.
Also, RRSPs can grow your money tax-free until age 71. That doesn’t mean you never pay tax. An RRSP defers the tax until the time of withdrawal. RRSP withdrawals are added to your taxable income. However, they can impact your Old Age Security and other CRA benefits.
Thus, the RRSP is only beneficial when you need immediate tax relief. Early withdrawals are subject to withholding tax and other tax-free withdrawals, like the Home Buyer’s Plan, requiring you to recontribute the money.
When should you invest in a TFSA?
RRSP disadvantages are removed in the Tax-Free Savings Account (TFSA). It does not give immediate tax relief as you invest your after-tax income in a TFSA. However, withdrawals are flexible, making it perfect for short, medium, and long-term financial goals.
You can withdraw any amount at any time without informing the CRA. So, if you hit a jackpot and get that $10,000 invested in the next Apple, you can have a million-dollar tax-free capital gain at your disposal. And the best part is you can continue a TFSA even after age 71.
What you withdraw you can re-contribute in the next tax year, but that is an option. Unlike an RRSP, there is no obligation of recontribution.
A TFSA is ideal for every Canadian, young and old, low and high-income earner. The reason behind creating TFSA was to inculcate a savings culture among Canadians after the 2009 Financial Crisis.
If tax liability is low and you have enough contribution room, invest $10,000 in a TFSA. And if you have exhausted your limit, the CRA has added a $7,000 TFSA contribution limit for 2026, effective January 1. You can invest $7,000 here and another $3,000 in an RRSP.
Where should you invest $10,000, in a TFSA or RRSP?
RRSP investment
The best RRSP investment is dividend stocks, as withdrawals will be taxed. Canadian Natural Resources (TSX: CNQ) is a good investment option in an RRSP as it can give you assured dividends. The company has grown dividends in the last two decades despite the Financial Crisis, oil crisis, and pandemic.
The trade negotiations between the US and Canada seem to be heating up as America imposes more tariffs. Canadian Prime Minister Mark Carney’s warning that the old US-Canada relationship is ‘over’ is setting the stage for a new supply chain. Canada is seeking European countries as new trade partners for its oil and gas.
The hopes of a more diversified supply chain could reduce concentration risk and give Canadian Natural Resources room to sell more natural gas on favourable trade terms. The short-term could be volatile, but the long-term dividend growth potential is significant and can help you beat inflation.
TFSA investment
The best TFSA investment is Constellation Software’s European arm Topicus.com (TSXV: TOI), because of its limited exposure to the United States. Working as a binge acquirer of vertical-specific software companies in mission-critical applications, it’s consistently growing free cash flow and could attract a premium in an uncertain market.
Topicus.com’s diverse verticals and exposure to multiple European countries diversify the risk. The one threat of artificial intelligence (AI) making traditional software obsolete seems unwarranted, especially when geopolitical tensions are decentralizing technology and the supply chain. Topicus.com’s share price could rise as the value of smaller and specific companies grows.
