Personal RRSP and TFSA

Financial Planning
Personal RRSP and TFSA
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Retirement – the long-awaited goal for many Canadians who have worked hard to provide for themselves and their families. As an individual, you strive to build a stable financial future, save for retirement, and make the most of your hard-earned dollars. Registered Retirement Savings Plans and Tax-Free Savings Accounts are government-provided benefits that offer unique advantages to help you reach your goals.

At Gifford Carr, we take pride in helping you build strategies to reach the financial future of your dreams. Our goal is to provide you with the knowledge and insights necessary and help you make informed decisions about these valuable investment tools to optimize your financial well-being and achieve your long-term goals.

What is an RRSP?

Registered Retirement Savings Plans (RRSPs) are accounts that allow you to participate in a wide range of investments. Your investment Gifford Carr adviser can help make sure you are building a portfolio of investments suitable to your needs and goals.

How does it work?

It is a savings plan registered with the government that allows you to invest on a tax-deferred basis with the intent to provide income in retirement. It works by an individual contributing after-tax dollars to their plan, which reduces their taxable income by the amount they saved in the plan. Also, The investments you make with the contributions to your RRSP can grow tax-free until you begin taking withdrawals in retirement.

RRSP Withdrawals

Withdrawals from your RRSP are taxed in full as income, but some retirees may expect to have less taxable income in retirement compared to their working years, so your tax burden may be smaller.

Though you can start RRSP withdrawals sooner, at age 71 you are required to either withdraw the funds, use them to purchase an annuity or process an RRSP to RRIF conversion. A Gifford Carr investment adviser can help you invest your withdrawal—or RRIF—in a way that meets your needs.

In summary, the main advantages of a RRSP are:

  • Contributions are tax deductible (Claim your RRSP contribution as a deduction on your tax return.)
  • Savings grow tax free (Tax free compounding allows your money to grow faster.)
  • Potentially less tax when the funds are drawn out of the plan. (If you’re in a lower tax bracket in retirement when drawing on the funds as compared to while working, you’ll likely pay less tax).


How is the RRSP contribution room calculated?

RRSP contribution room is calculated based on a mathematical formula prescribed by the Canada Revenue Agency (CRA) being the lesser of; the annual RRSP contribution maximum, or 18% of your earned income from your previous year. CRA performs this calculation and provides you with your RRSP contribution room if you file your personal tax return for the following year. Your Gifford Carr advisor can help you navigate these calculations.

How is the TFSA contribution room calculated?

Unlike an RRSP, you do not have to have earned income to contribute to a TFSA. The maximum amount you can contribute to your account is limited by your TFSA contribution room, as outlined by CRA.

If I make RRSP contributions, am I able to access those dollars or are they locked in?

Yes, you may access those dollars at any time; however, they are subject to withholding taxes and will be included in your taxable income in the year withdrawn. Additionally, if you are looking to access those dollars for the purchase of a home (FHSA) or to attend post-secondary education or professional programs (LLP,) you can often do so on a tax-free basis with help from your advisor.

However, when you make a withdrawal from your RRSP, you do not get that contribution room added back in the following calendar year.

If I make TFSA contributions, am I able to access those dollars or are they locked in?

TFSA assets are never locked in. You may access these funds at any time, tax-free, with the benefit of typically receiving the contribution room back in the following calendar year.

What are the main differences between a TFSA and RRSP?

TFSAs and RRSPs are both investment vehicles with attractive tax advantages that can help map out your financial future. These two accounts have several differences, and it’s important to understand the benefits of each before making an investment decision.

A TFSA is an investment account that can be used dynamically. As your life and financial objectives change, your TFSA can adapt accordingly to optimize your goals.

One of the major advantages of a TFSA is that you can make withdrawals as you see fit, with no penalty. You are also free to reinvest those withdrawals in a later year.

All eligible investors are restricted to the same annual contribution amount: it is not determined by your income.

An RRSP, on the other hand, is an investing account meant to provide you with income at retirement. Unlike a TFSA, your annual contribution limit is determined by your prior year’s income, subject to a maximum annual limit.

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