Should I Put US stocks in TFSA or RRSP (2024)

Views 2834Sep 5, 2024

Can I buy US stocks in a TFSA?

Can I Buy US Stocks in an RRSP?

Yes, you can definitely buy US stocks in a TFSA!

All the investment in the TFSA account, whether from capital gains or dividends, is tax-free within Canada. However, U.S. dividends are subject to a 15% withholding tax. This tax is applied directly by the U.S. government and, unfortunately, you can't reclaim it through foreign tax credits within a TFSA. So while your investments grow tax-free in Canada, you'll still lose a small portion of your U.S. dividends to this withholding tax.

Yes, you can also buy US stocks in an RRSP!

One of the most significant benefits of holding US stocks in an RRSP is the exemption from the 15% U.S. withholding tax on dividends. Additionally, contributions to an RRSP are tax deductible, which can reduce your taxable income for the year. Your investments grow tax-deferred, meaning you won't pay any taxes on them until you withdraw the money, typically in retirement when you might be in a lower tax bracket.

Buying US stocks in TFSA or RRSP?

Choosing between a TFSA and an RRSP for your US stocks depends on your personal financial goals and circ*mstances, here are the key differences between TFSA and RRSP:

TFSA

Tax-free growth: Gains from US stocks in a TFSA are not taxed in Canada, allowing for tax-free growth.
U.S. withholding tax: Dividends from US stocks are subject to a 15% withholding tax by the U.S. government. This tax is not recoverable within a TFSA.
Contribution limits: Be mindful of annual contribution limits to avoid penalties.

RRSP

Tax-deferred growth: Gains from US stocks in an RRSP are tax-deferred until withdrawal, at which point they are taxed as ordinary income.
No U.S. withholding tax: on dividends: Dividends from US stocks in an RRSP are not subject to the 15% U.S. withholding tax due to a tax treaty between Canada and the U.S.
Immediate tax deductions: Contributions to an RRSP provide immediate tax deductions, reducing your taxable income for the year.

Considerations of choosing a TFSA or RRSP

Currency exchange fees: Buying US stocks involves converting Canadian dollars to U.S. dollars, which may incur currency exchange fees.
Diversification: Holding US stocks can diversify your portfolio, but be aware of geopolitical and economic risks associated with foreign investments.
Investment Goals: Choose the account type based on your investment goals and tax considerations. An RRSP may be more beneficial for long-term retirement savings, while a TFSA offers more flexibility for shorter-term goals.

By understanding the benefits and limitations of each account, you can make informed decisions when buying US stocks in a TFSA or RRSP.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsem*nt of any specific investment or investment strategy.

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