My blog analytics show that the posts that get the most activity are the posts about money. This post is a quick overview of the different savings accounts I have and what I’ve learned about them.
Learning about finances is something that’s an ongoing journey. I’m not very good at math, I don’t like touching money, and I don’t know what I am signing at the bank half the time. (I know that’s terrible, but seriously, who reads the terms and conditions of anything?). I know we’re not taught financial literacy at school, so here’s what I’ve learned along the way about RRSPs and TFSAs
RRSP: Registered Retirement Savings Plan
- Within an RRSP account, you can have savings accounts, guaranteed investment certificates (GICs), bonds, mortgage loans, mutual funds, income trusts, corporate shares, foreign currency and labour-sponsored funds
- Contributions to RRSPs are deductible from total income (this means you can get more money back during tax season)
- Savings grow tax-free, but are fully taxed on withdrawal (you can take money out to buy your first house without tax penalties)
- Contribution limits are calculated at 18% of earned income (this means there is a limit on how much money you can put into the RRSP)
- RRSPs are meant for retirement. They are tax-free but you are taxed when you take money out.
- The starting age for contributions is 18.
- There’s no age limit to contributing to TFSAs; you can continue to invest even after the age of 71, the limit for RRSPs.
- You can only contribute $5,500 per year (you get a fine if you put more money in)
- If you have not contributed in the past or did not meet maximum contributions in any given year, you can catch up on unused contributions (Up to the $31,000 limit as of this calendar year). The best way to keep track of your unused contribution room is to check out your notice of assessment from the CRA.
- You can withdraw money at any time without penalty or tax consequences.
- TFSA withdrawals do not impact any government benefits or assistance programs such as child tax benefits, old age security or other guaranteed income supplements. This means low-income earners can generate tax-free income without it affecting their support.
- A TFSA is not just a cash account. It can be structured so you can invest in various vehicles, such as GICs, bonds, mutual funds, stocks and exchange-traded funds, among other options.
Info from: Denise Deveau, Postmedia News
Pretty much, RRSPs and TFSAs can house different types of accounts and they have various benefits.