You can’t work forever, so it is essential to save for your retirement years. It is also important to save for other momentous life events like your child going to university or college. Depending on your savings objectives there are a number of saving plans you can use such as an RRSP, TFSA and RESP. Here is a guide to some of the popular savings accounts in Canada.
An RRSP is a registered retirement savings plan. This is a personal savings account with special tax benefits. Under this plan, your contributions are tax deductible up to your contribution limit. Your investments are also able to grow tax-free while inside the plan. RRSPs also give you another tax advantage. When you do pay taxes on your investments, they will likely be taxed at a relatively low rate since you are likely to withdraw the bulk of the cash when you are retired and presumably in a lower tax bracket.
What is a TFSA?
A TFSA is a tax-free savings account. You can put aside money in a TFSA so that it grows tax-free inside the account. You can withdraw this money at any point in the future. TFSAs are great ways to create an emergency fund and supplement your retirement savings.
What is an RESP?
RESP stands for registered education savings plan. For many people, paying for their children’s post-secondary education is a primary concern. An RESP allows parents, grandparents and friends to contribute towards building a fund for a child’s education. The contributions are not tax deductible, but the interest earned on the contributions inside the plan is not taxed until it is paid to the student and is taxed to the student.
How to pick the perfect plan?
An RRSP is an important retirement savings vehicle. It is also a good way to invest tax refunds especially if you want to use the money to buy a home. TFSAs are good tools for short-term and long-term savings. It is more liquid than an RRSP and allows you to invest in a range of investments tax-free. If you have children or grandchildren dependent on you for their education, opening up an RESP is a must. This account can be started even while your child is still in diapers, so long as there student has a Social Insurance Number.
How to get started
The first step is to do your homework and look into the various options available. Now, you may read a lot of information online and in magazines but this won’t make you an expert. That is why it’s important to talk to a financial advisor. An advisor can help you understand the pros and cons of each plan and determine which one is best suited to you. That’s not all. Your advisor will also help you complete the formalities and necessary paperwork. Once your investments have been made, an advisor can help you review your portfolio regularly.
This post contains sponsored links from Sun Life Financial.