Registered Savings Plans
We have set up hundreds of registered savings plans for our clients and we can show you how to take maximum advantage of them as a part of your overall financial plan. Registered plans in Canada include:
Registered Retirement Savings Plans (RRSP)
An RRSP allows you to save money for your retirement on a tax-advantaged basis. You may deduct any allowable contributions you make to your RRSP from your annual income, thereby reducing the amount of income tax that you pay. As well, any income earned in your RRSP is tax deferred until the funds are withdrawn. Any income earned compounds — in other words, your income will earn income. This can significantly increase the amount of money you will accumulate for retirement. You must convert your RRSP to a Registered Retirement Income Fund (RRIF) by December 31 in the year you turn seventy-one. From that point forward, you are required to withdraw at least the prescribed minimum each year. RRIF withdrawals are taxable and depending on the amount withdrawn, tax may be withheld at the time of withdrawal. RRIF withdrawals do affect income-tested benefits and credits.
For a list of RRSP termination options, please click on the button below:
Registered Education Savings Plans (RESP)
RESPs are an excellent way for families to accumulate money for the future education needs of children. An RESP is essentially a tax-deferred savings plan. Contributions are not tax-deductible but the income earned on contributions compounds on a tax-deferred basis. In addition, a portion of contributions is matched by the government in the form of the Canada Education Savings Grant. As well, depending on your family income, your child may also be eligible for the Canada Learning Bond.
There are three types of RESP plans. Individual plans can only have one beneficiary and there are no restrictions on who can be a beneficiary under these plans. Family Plans can have one or more beneficiary and each beneficiary must be connected by blood or adoption to each living subscriber under the plan or to a deceased original subscriber. Group Plans are usually offered by non-taxable entities like foundations. Contributions to a group plan are calculated by the promoter’s actuary, and the amount and frequency of these contributions stay the same until the beneficiary reaches 18 years of age.
RESP withdrawals are taxable in the hands of the beneficiary. In the event that the child or children do not enroll in post-secondary education, grants and bonds must be repaid to the government and the earnings are taxable to the subscriber.
Registered Disability Savings Plans (RDSP)
A registered disability savings plan (RDSP) is intended to provide for the long-term financial security of a beneficiary who has a prolonged and severe physical or mental impairment. Contributions to the RDSP can be made to the plan by the beneficiary, by his or her parents or family members, or by other authorized contributors. There is a lifetime limit on contributions and contributions are not tax-deductible. However, the earnings generated on contributions are tax-exempt while they stay in the plan. When earnings are withdrawn as part of a disability assistance payment, they are taxable in the hands of the beneficiary.
To qualify as a beneficiary of an RDSP, an individual must be eligible for the disability tax credit. It makes sense to claim this tax credit even for children or those with no income as the credit can be transferred to a parent, spouse, or supporting individual. For qualifying individuals, the Canada Disability Savings Grant (CDSG) and Canada Disability Savings Bond (CDSB) are available to supplement the RDSP. Between these two programs, an annual contribution of $1,500 can result in as much as $4,500 of federal government contribution.
Tax Free Savings Accounts (TFSA)
The TFSA is another tax-advantaged registered savings vehicle. Contributions to a TFSA are not tax-deductible, but investment income earned grows tax free. A wide variety of products are available within a TFSA and there are no penalties or tax consequences for making withdrawals, nor do withdrawals impact your eligibility for income-tested benefits or credits. This makes the TFSA a suitable vehicle not only for long-term savings objectives, but for short and medium-term ones as well.