Research Memo #5

Client name: Patty O'Furniture

Patty has $10,000 in pre-tax income that she would like to contribute to a TFSA or an RRSP. Her marginal tax rate is currently 45% and will be for the next 10 years. She expects her investments to earn 10% compounded annually. She does not need the funds for the next 10 years. Patty has come to you for tax advice on whether she should invest in a TFSA or an RRSP. Your advice should include a detailed explanation regarding the two investment options, as well as which option would be in her best interests based on the information presented. Consider as well, as part of your advice if Patty's marginal tax rate was reduced to 35% in 10 years time.