RRSP and Tax-Free Savings Accounts: there's a product that's right for you
Whatever your goals are, we can help you figure out a plan that makes planning for retirement simple.
An RRSP is a registered plan that grows on a tax-deferred basis. With an RRSP, the money you contribute is deductible from your income when you file your tax return, which means that you could get some of that money back as a tax refund. Earnings on your investment are also exempt from taxes, as long as you keep them in your RRSP. Withdrawals from your RRSP are included in your regular income and are subject to tax at your marginal tax rate. It can be structured to hold various numerous investments, including mutual funds.
The government requires that your RRSP investments be converted to a retirement income option by the end of the year you turn 71. Most Canadians choose a RRIF, which allows you to control your choice of investments and gives you the flexibility to choose the timing of your income payments. Your RRIF income payments are considered to be a part of your ordinary income, so they are taxed as such by the Canada Revenue Agency in the year that you receive them. Minimum amounts need to be withdrawn yearly from a RRIF, but the remaining investments can remain in the plan, where they can continue to grow on a tax-deferred basis.
A TFSA is a registered savings plan that allows you to earn interest or other investment income tax-free inside the plan. As of 2013, Canadians 18 years and older have $5,500 of annual TFSA contribution room. These contributions are not tax deductible, and withdrawals of contributions and earnings from your TFSA are not taxable.