TFSA
Tax-Free Savings Account
Investments made in a TFSA grow tax-free and can be withdrawn tax-free. There is an annual limit to how much can be contributed into a TFSA which is decided and published by the Government of Canada in advance of each calendar year. The contribution limit for 2023 is $6,500.
In order to invest in a TFSA you must:
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be 18 years old or older
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be a Canadian Citizen or permanent resident
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have a valid Social Insurance Number
You gain contribution room once you turn 18 and it accumulates every year as indicated in the chart to the right. So if you miss a year, you can always catch up in the following years. When you withdraw from your TFSA, you lose that contribution room for that calendar year but your contribution room is fully restored January 1 of the following year.
Find your TFSA contribution room for the year 2023:
RRSP
Registered Retirement Savings Plan
An RRSP is a savings account that is used to save money that will supplement your income in retirement. All you need to do to contribute to an RRSP is start earning an income that is reported to the Canada Revenue Agency. Investments made in an RRSP grow tax-deferred until they are withdrawn at which point they are taxed as income. When you contribute to your RRSP, your contribution is tax-deductible, meaning you don't pay taxes on that income.
Important facts to know about RRSPs:
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There is an annual limit for contributing to your RRSP of 18% of your earned income up to a maximum amount. The maximum contribution limit for the 2022 taxation year is $29,210.
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You can contribute to your RRSP until age 71 at which point it is converted to a Registered Retirement Income Fund.
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RRSPs offer additional benefits such as the Home Buyers' Plan and Lifelong Learning Plan which both allow the RRSP owner to make tax-free 'loans' to themselves under certain conditions.
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Like a TFSA, unused contribution room from previous years is carried over and can be used in following years.
Are you a
first-time
home buyer?
Take advantage of the Home Buyers' Plan using your RRSP.
RESP
Registered Education Savings Plan
Through tax-deferred growth, RESPs offer an effective way to maximize the money available to your children or grandchildren when they enroll in post-secondary studies.
An additional benefit of opening an RESP is that it is a government sponsored program. The Government of Canada will contribute grants and bonds in proportion to your contribution as an added incentive to save for your children or grandchildren's education. How much of a grant and bond you receive depends on your income level. In order to open an RESP, the child must be a Canadian resident and have a valid Social Insurance Number. When money is withdrawn for post-secondary school expenses, your own contributions will not be taxed. Grants and growth that have accumulated in the RESP are taxed at the student's tax rate.
The maximum lifetime contributions to an RESP is $50,000 per child. If your child decides to not pursue a post-secondary education, you can withdraw your original contribution tax-free.
Did you know that with an RESP, the first $36,000 you contribute is eligible for the 20% Canada Education Savings Grant (CESG), which works out to $7,200 per child?
RDSP
Registered Disability Savings Plan
RDSPs offer an effective way to save money for the later stages of a disabled individual's life. In addition to tax-deferred growth, RDSPs are a government sponsored program. The Government of Canada offers generous grant and bond contributions in proportion to your contribution. How much of a grant and bond you receive depends on your income level.
In order to open an RDSP, the beneficiary must:
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be a Canadian resident
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have a valid Social Insurance Number
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be under the age of 60
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qualify for the Disability Tax Credit
Contributions can be made to the RDSP until the end of the calendar year in which the beneficiary turns 59 years old. The lifetime contribution limit is $200,000.
Did you know that with an RDSP, you can receive a government grant of up to $3 for every $1 contributed?
RRIF
Registered Retirement Income Fund
An RRSP is converted to an RRIF before Dec. 31 of the year you turn 71. An RRIF does the opposite of what an RRSP does in that it requires you to withdraw money from it as taxable earned income every year. There are minimum withdrawals but no maximum withdrawals. You can still choose how to invest your money and the frequency in how you withdraw money every year.
Non-Registered
A non-registered investment account is a standard account that is most commonly used for investing after reaching maximum RRSP and TFSA contribution limits. There is no limit to contributions and investment income earned in this account is taxable.
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