3.2.4 Registered savings plans

From: Financial Consumer Agency of Canada

  • Some types of savings plans offer extra benefits: they avoid or defer some of the taxes you pay. They are generally called registered savings plans because they must be registered with the Canada Revenue Agency in order to qualify for tax benefits.
  • There are four main types of savings plans with tax benefits:

Tax-Free Savings Accounts (TFSAs) let you put money in a registered plan, and any income the plan earns is tax-free.

  • You can put up to $6,000 in a TFSA without paying tax on the earnings for the year 2019. If you did not contribute the maximum in previous years, you may be able to contribute more.
  • You can take money out of a TFSA and put it back again the next year, but some limitations do apply.
  • A TFSA does not affect money you receive from other government sources such as GST Credit or Old Age Security.
  • A TFSA can include most common types of investments; however, there are some restrictions. Returns may be guaranteed or they may not.
  • For details, go to the Canada Revenue Agency’s information on The Tax-Free Savings Account.

Registered Retirement Savings Plans (RRSPs) let you put money into a registered plan and avoid paying taxes on the money you deposit, as well as any earnings it produces until you take it out of the plan.

  • When you put money into an RRSP, you can deduct that amount from your taxable income, so you don't have to pay income taxes on it until you take it out of the registered plan. You may pay lower taxes on the money in the plan when you take it out in the future, as most people enter a lower tax bracket after retirement.
  • An RRSP can include most common types of investment. Some plans are guaranteed by the government, like bank deposits. The returns may also be guaranteed by the financial institution. However, some types of investments can lose money, so you must find out how each investment works. For more information, see the Investing module.
  • The maximum amount you can put into an RRSP is 18 percent of your employment income, up to a limit. For example, the maximum limit for 2019 was $26,500. Your individual limit is listed on the Notice of Assessment that the Canada Revenue Agency sends you when you file your annual tax return. If you did not contribute the maximum in previous years, you may be able to contribute more.
  • RRSPs are designed to help you save money for your retirement. You can withdraw money temporarily for certain purposes, such as home buying and education. However, if you take your money out of the plan for any other reason before you retire, part of it will be withheld for taxes.
  • Money you receive from an RRSP may reduce the money you can receive from government income support programs. Discuss your retirement income plans with a financial adviser before you contribute to RRSPs.
  • For details, go to the Canada Revenue Agency’s information on RRSPs and related plans.

Tip

During the first sixty days of the year, you can put money in your RRSP to get a tax deduction for the previous year. But don't wait until February. Make regular monthly contributions and your savings will start to grow sooner.

Registered Education Savings Plans (RESPs) let you put money into a registered plan to save for a child's education.

  • When a student continues school after high school, he or she can withdraw the money including any earnings.
  • Money in an RESP is eligible for grants from the Government of Canada and the province of Quebec.
  • There's no yearly limit to the amount you can put into an RESP, but you can't contribute more than $50,000 in a lifetime for a single person.
  • You may be able to take out the money you paid into an RESP tax-free, but you will have to move it into an RRSP or pay taxes on any income the RESP earns (and return any government grants).
  • Often a student will pay little or no income tax on the income that the plan earns.
  • For details, go to Employment and Social Development Canada’s information on Registered Education Savings Plans.
  • Quebec also has a student savings plan. For information, go to:

Registered Disability Savings Plans (RDSPs) let you put money into a registered plan to support a person with a disability.

  • When someone with a disability needs money, he or she can withdraw the savings and any earnings they have produced.
  • Money in an RDSP is eligible for grants from the Government of Canada.
  • There's no yearly limit to the amount you can put into an RDSP, but you can't contribute more than $200,000 in a lifetime for a single person.
  • You can take out the money you paid into an RDSP tax-free, but you will have to pay taxes on any income the RDSP earns (and return any government grants).
  • Often a person with a disability will pay little or no income tax on the income that the plan earns.
  • For details, go to Employment and Social Development Canada’s information on the Registered Disability Savings Plan.

Many conditions apply to registered savings plans. Be sure you understand them so you can decide if they are the best way for you to meet your savings goals. Find out what fees and conditions apply. Some key questions are:

  • Are there rules about how much I can save each year?
  • What are the conditions and the risks? For example, what happens if a child for whom I start an RESP does not go to post-secondary school?
  • When do I contribute?
  • Who will invest my money?
  • How fast will my money grow?
  • How much will this plan cost?
  • What happens if my plans change? For example, what happens if I need to take money out of the plan?
  • Will income from the plan affect my other sources of future income?

For more consumer tips, read Before you sign any contract: 10 things you need to know by the Financial Consumer Agency of Canada.

See the video, Saving with registered plans, for an introduction to savings.

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