Registered Savings Plan
RRSP, TFSA, RESP, RDSP
In Canada, there are many tax-efficient ways to invest and save. Depending on your circumstance, consider one of the following plans:
- Registered Retirement Savings Plan (“RRSP”)
- Registered Education Savings Plan (“RESP”)
- Registered Disability Savings Plan (“RDSP”)
- Tax-Free Savings Account (“TFSA”)
Registered plans enjoy special tax treatment, depending on the type used
An individual who has earned employment or similar income can establish an RRSP. The maximum contribution amount is equal to 18% of the prior year’s earned income. Contributions are tax-deductible. The unused contribution room carries forward to future years. Income earned within the plan does not attract tax. However, amounts withdrawn are subject to tax.
A TFSA is available to Canadian residents. Contributions made to the account are not tax-deductible. Any income earned within the account is not subject to tax, nor are the withdrawals. Each year, the government sets an annual contribution limit. Any unused contributions carry forward to the next year.
An RESP can be set up by an individual to assist with the education of a beneficiary. For example, a parent or grandparent can establish an RESP for the benefit of a child or grandchild. The government matches contributions up to a specified limit each year. Income generated within the plan does not attract tax. There is generally no tax consequence to a beneficiary if the funds are used for educational purposes.
An RDSP assists those with a disability to save in many ways. Anyone can contribute to the plan for the beneficiary. The government also matches contributions up to a specified limit each year. The lifetime contribution limit to the plan is $200,000. Income earned within the plan and government contributions are taxed when withdrawn.
NOTE: Registered plans are helpful tools. Beware of penalties for non-compliance if the plans are not correctly used. Speak with your financial advisor and accountant to find out more about how best to use these plans.