Savings & Growths

RRSP  If you’re like most Canadians, chances are you could use a little help when it comes to saving for your retirement. A registered retirement savings plan (RRSP) is a retirement account registered with the Canada Revenue Agency. Over the course of your lifetime, you can put money into your RRSP to accumulate savings.

An RRSP is designed to hold several qualified investments, such as:

• stocks
• bonds
• mutual funds units
• segregated fund contracts
• guaranteed investment certificates (GICs)

… and more.

Why invest in RRSPs?

• Your contributions can lower the amount of tax you pay while you’re still working.
• An RRSP can provide financial security for you and your family when you retire.

Your contributions are tax deductible and can be used to reduce your tax. Income or growth earned in the plan is usually exempt from tax while the funds remain in it, so an RRSP acts like a tax advantaged vehicle that gives you a powerful incentive to save money for your retirement years. RRSPs can work even better if you contribute while you’re in a high tax bracket (while you’re working) and withdraw when you’re in a lower tax bracket (when you’re retired). With compounding, your RRSP can grow much faster than it would if you had to pay tax on your profits each year.

If you withdraw from or close a registered retirement savings plan before it matures, you have to pay tax on the amount taken out that same year. You’ll have to include the gross amount of any RRSP withdrawal on your tax return.

How much can you contribute to an RRSP?
In any given calendar year, your RRSP deduction limit is equal to:

• any unused RRSP deduction room left over from prior years
• plus the lesser of 18% of your earned income for the previous year or the RRSP dollar limit for the current year
• minus the pension adjustment (PA) reported on your previous year’s T4 (to reflect the value of the benefits provided by your employer’s pension plan), if applicable
• minus any past service pension adjustment (PSPA) reported in the current year, if applicable
• plus any pension adjustment reversal (PAR) reported, if applicable.

What if I don’t use the full contribution amount each year?
Unused deduction room is the cumulative difference between your RRSP deduction limit and the contributions you’ve made. Since 1991, if you don’t make your maximum contributions in any year, you can carry forward the unused amount as long as you want to and make contributions later.

What’s a spousal RRSP?
A spousal RRSP is an RRSP that’s opened by your spouse but you contribute to it.

• Your contributions are based on your contribution limit and you claim the tax deduction.

• Your spouse is the legal owner of the plan and makes all investment decisions and withdrawals.

A spousal RRSP provides an opportunity for income splitting at any age (subject to the attribution rules), and you choose the amount to split by deciding how much to contribute.

TFSA 
Whether you’re saving for the short term or long term, a tax-free savings account (TFSA) can be a valuable addition to your financial plan. It can be a powerful tool for saving money in a tax-free environment.

What’s a TFSA?
A tax-free savings account is a flexible, general-purpose savings account that you can make contributions to each year and withdraw funds at any time in the future. A TFSA gives you a powerful incentive to save by allowing investment growth to accumulate and be withdrawn tax free. Unlike a registered retirement savings plan (RRSP), you can’t claim a tax deduction for contributions you make to a TFSA. Likewise, TFSA administration fees can’t be claimed as a tax deduction.

How much can you contribute to a TFSA?
The annual contribution limit in 2024 is $7,000 per calendar year. However, the total cumulative amount is based on contribution limits that were a bit lower in previous years, as this table shows:

Year	Annual limit	Cumulative total
2009–2012	$5,000	$20,000
2013–2014	$5,500	$31,000
2015	$10,000	$41,000
2016–2018	$5,500	$57,500
2019–2022	$6,000	$81,500
2023	$6,500	$88,000
2024	$7,000	$95,000

If you don’t contribute the full amount to your tax-free savings account, the unused amount carries forward to the next year—unused contribution room can be carried forward indefinitely.

Can I withdraw money from my TFSA?
You can withdraw from your tax-free savings account at any time. If you withdraw money from your account, the amount of your withdrawal will be added to your TFSA contribution room the next calendar year. You can’t contribute more than your TFSA contribution room in a given year, even if you make withdrawals from the account during the year.

What if I contribute too much money to a TFSA?
A tax penalty of 1% per month can be applied to the highest single amount that’s over the contribution limit anytime during the month. There are two circumstances when this could occur:

• if you put more money into your TFSA than the contribution limit allows
• if you withdraw an amount from your TFSA and recontribute it before the next year and don’t have the necessary room to make the contribution

In both situations, the penalty applies each month the excess amount stays in the account. You can withdraw the excess amount to prevent having to pay the penalty tax for the remaining months of the year.

RESP  Help your kids get a great education
An RESP is a program supported by the federal and some provincial governments. It helps you save money for a child’s future education, where the investments inside the investment account grow tax-free.

Take advantage of government contributions and tax-free savings to help your kids on their way to success.

There is life-time limit of $50,000 per beneficiary and amounts contributed in excess of this are subject to a penalty tax of 1% per month on the excess until the over-contribution is withdrawn.

How does an RESP work?

• Open an RESP account for one or more beneficiaries (child/children). They must be a Canadian resident and have a valid social insurance number (SIN).
• There’s no minimum amount to start.
• You can set a monthly contribution minimum of $25. You may also qualify for government grants based on your contributions.
• You and your spouse can contribute to one account.
• You may keep an RESP open for up to 35 years (or 40 years if you have a specified plan), so if the child doesn’t pursue education right away, there’s still time.
• When the money is withdrawn for post-secondary education, your own contributions will not be taxed. But grants and growth that accumulated inside the plan are taxed at the student rate. However, since many students have little or no other income, they can usually withdraw the money tax-free.

FHSA 
A first home savings account (FHSA) is a registered plan which allows you, if you are a first-time home buyer, to save to buy or build a qualifying first home tax-free (up to certain limits). If you opened an FHSA in 2023, you can claim up to $8,000 in FHSA contributions you made by December 31, 2023, as an FHSA deduction on your 2023 income tax and benefit return.

Who can open an FHSA
To open an FHSA, you must be a qualifying individual by meeting all of the conditions below when you open your account –

• • You are between age 18 to 71 as of December 31 of the year you open your FHSA
  • You are a resident of Canada
  • You did not live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that you owned or jointly owned in this calendar year or in the previous 4 calendar years.
  • One of the following is true:

You did not live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that your spouse or common-law partner owned or jointly owned in this calendar year or in the previous 4 calendar years
OR
You do not have a spouse or common-law partner at the time you open the account

SALIENT FEATURES

• An FHSA can remain open for 15 years or until the end of the year in which you turn 71, whichever event happens first.
• Eligible Canadians can make a tax-free withdrawal at any time for a single property purchase.
• You can carry forward unused contribution room for as long as you have the account.
• With a FHSA, you won’t pay tax on any growth on investments while it’s in your account and you have the flexibility to transfer your FHSA funds to an RRSP or RRIF.

With a $40,000 lifetime contribution limit over a maximum span of 15 years and a tax-free withdrawal for a single property purchase, the FHSA is by far the best tool designed to provide first-time homebuyers with a savings account geared towards buying a home.