Plan Types
TAX FREE SAVINGS ACCOUNT (TFSA)
The TFSA is a registered savings account that allows taxpayers to earn investment income tax-free inside the account. Contributions to the account are not deductible for tax purposes, and withdrawals of contributions and earnings from the account are not taxable.
Any individual (other than a trust) who is resident in Canada and 18 years of age or older is eligible to establish a TFSA.
Each year individuals can contribute an amount up to their contribution room for the year. Your contribution room would be made up of three amounts:
Each year you would be allocated and allowed to contribute up to the annual maximum ($6,500 for 2023.)
Any withdrawals made in the previous year would be added to the contribution room for the year.
Any unused contribution room from the previous year would be added to the contribution room for the year.
A TFSA is permitted to hold the same investments as a registered retirement savings plan. This includes mutual funds, GICs, fixed income investments and certain shares of small business corporations.
The CRA will determine TFSA contribution room (based on information provided by issuers) for each eligible individual who files an annual T1 individual income tax return.
REGISTERED RETIREMENT SAVINGS PLAN (RRSP)
A Registered Retirement Savings Plan (RRSP) is a retirement plan that is registered with the federal government and that you or your spouse or common-law partner can establish and contribute into until the end of the year when the plan holder turns 71.
Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is exempt from tax for the time the funds remain in the plan. However, you generally have to pay tax when you cash in or receive payments from the plan.
SPOUSAL RRSPS (Spsl RRSP)
With a spousal RRSP, you can direct part or all of your maximum allowable contribution to an RRSP in your spouse's name. A spousal RRSP will help you save tax during retirement through income splitting, since the income eventually created from the funds will then be taxed at your spouse's lower tax rate
LOCKED-IN RETIREMENT ACCOUNT (LIRA)
The Locked-In Retirement Account (LIRA) and Locked-In Retirement Savings Plan (LRSP) enable you, as an employee, to maintain the tax-deferred status of pension plan proceeds received when you leave a company. LIRA's lock in your money, but not your investment options. These plans are governed by federal or provincial pension legislation.
REGISTERED RETIREMENT INCOME FUND (RRIF)
A RRIF is an investment plan, established in accordance with Government of Canada requirements, into which you can transfer registered funds (ex: RRSP) without tax liability to establish a source of retirement income.
You can choose any payment level, as long as the total each year is at least equal to the minimum annual amount. There is no maximum payment level. RRIFs can continue for the lifetime of the holder or their spouse.
PRESCRIBED RETIREMENT INCOME FUND (PRIF)
Saskatchewan and Manitoba have an option called the PRIF. Pension funds from a LIRA can transfer into a PRIF. The PRIF provides increased flexibility in determining withdrawals because they do not have a maximum annual withdrawal limit. Unlike a regular RRIF, the PRIF is governed by provincial pension legislation.
REGISTERED EDUCATION SAVINGS PLAN (RESP)
RESPs are registered education savings plans that grow tax-deferred until the beneficiary withdraws funds for post-secondary education. Students usually pay little or no tax on those funds when withdrawn. RESP contributions are nontaxable and students are generally at a lower income tax rate.
The Canada Education Savings Grant (CESG) provides free government funds to help pay for your child’s education. Through the CESG the federal government matches 20% of annual RESP contributions, to a maximum of $500 a year and $7,200 over a child’s lifetime. Lower-income families may be eligible for additional CESG payments.
There are many rules associates with deposits and withdrawals from the RESP. See CRA’s website for more information or contact your financial advisor.
REGISTERED DISABILITY SAVINGS PLAN (RDSP)
The Registered disability savings plan (RDSP) - Canada.ca is available to Canadians who qualify for the disability tax credit, and it offers a tremendous bonus to those who are eligible.
RDSP contributions are not tax deductible, however earnings and growth within the plan grow tax-deferred. The Canadian Government provides generous grants to eligible beneficiaries when contributing into a RDSP plan.
There are many rules associates with deposits and withdrawals from the RDSP. See CRA’s website for more information or contact your financial advisor.