Registered Savings Plans

Did you know there is a way to earn investment income tax-free? A Tax Free Savings Account (TFSA) allows taxpayers to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetime. 

There are no restrictions on the way TFSA funds (contributions and earnings) can be used, making them good savings options for retirement and for other reasons (e.g. purchase a car, renovate a home, start a small business, take a family vacation, medical or long term care expenses or just save for a ’rainy day’).

All income levels and all walks of life can benefit from  a TFSA.

TFSA Eligibility

Any individual (not trusts or corporations) who meets all of the following criteria is eligible to open a TFSA:

  • Resident of Canada, and
  • 18 years of age* or older, and
  • Holds a valid social insurance number (SIN).

* In New Brunswick, Nova Scotia, Newfoundland & Labrador, British Columbia, the Northwest Territories, Yukon and Nunavut, the holder must be 19 years of age or older. 

Opening a TFSA

Contact your credit union to register your savings as a TFSA. They will need your SIN and date of birth to register the TFSA with the Canada Revenue Agency.

A Registered Retirement Savings Plan is a savings plan designed to both encourage and help Canadians save for retirement. Contributions to an RRSP are tax deductible, meaning that when you make a contribution to an RRSP, you are reducing your taxable income by the amount of money you contribute to the plan.

If you withdraw funds from an RRSP, the amount withdrawn will be added to your income in the year of the withdrawal and taxed at your marginal tax rate. As a result RRSPs are normally treated as long-term investments.

Types of RRSP Investments

Almost any type of investment can be held in an RRSP account. Two common investments are Variable Rate Deposits and Fixed Rate GICs.

Variable Rate Deposit

This type of deposit ensures your investment return keeps pace with current interest rate trends. Interest rates are reviewed and adjusted regularly by your credit union. This option is beneficial if you expect interest rates to rise.

Fixed Rate GICs

A Fixed Rate GIC locks in the interest rate you will receive. This provides the security of knowing your rate of return is guaranteed for a fixed period of time. You can choose the term that best fits your financial plan.

Mutual Funds and other market investments are also options for RRSP accounts. Speak with an Credential Asset Management advisor to discuss which investment vehicle is right for you.

RRSP Loans

Sometimes it’s tough to come up with the cash before the end-of-February deadline for RRSP contributions. We can help you with a convenient RRSP loan. We will also show you how the cost of borrowing can be offset by your tax savings.

TFSA or RRSP? It’s not always an either/or choice. TFSAs and RRSPs can be used together to build a savings plan that’s right for you. We recommend speaking with a Financial Advisor, who can review your current and projected financial circumstances and help you build a personalized retirement savings plan.

When building your retirement plan, you will want to consider:

Will you want, or need, to use a portion of the savings before retirement?

If so, investing funds in a TFSA account is a good option. Funds withdrawn from a TFSA will not be taxed and you do not lose your contribution room. You can re-contribute the amount withdrawn in a future year. If funds were held in an RRSP and withdrawn they are taxable at your marginal tax rate for the year.

Do you want to build savings as quickly as possible? The TFSA contribution limit ($6,000 in 2020) is not determined by income but rather is the same for all who qualify for a TFSA. The contribution maximum for an RRSP is based on income and therefore varies per person. For the 2020 taxation year, the maximum RRSP contribution is 18% of your 2019 earned income to a maximum of $27,230. This means, if you have a relatively high income, you will have greater contribution room in an RRSP than in a TFSA, allowing you to accumulate savings faster.

Will your marginal tax rate in the future be higher or lower than it is today?

If you expect your marginal tax rate to be lower in the future, then an RRSP may be a better savings option. If you expect your tax rate to be higher when you are in your retirement years, then investing in a TFSA may be the better choice. In some situations, moving funds from your TFSA to your RRSP makes sense.

For example, if you are young and starting out in your career, your tax rate may be low. If so you may wish to save within a TFSA and then as your income and tax rate increase, transfer the TFSA balance to an RRSP and thereby generate a larger tax return.

A Registered Education Savings Plan (RESP) is designed to help you save for post-secondary education for a child (the beneficiary). It offers flexibility, tax-deferred income and investment growth, and contributions are eligible for government grants. 

Below are some commonly asked questions, and our answers, on RESPs. For more information, contact your branch to speak with an Advisor.

What are the advantages of an RESP?

By opening an RESP and making regular contributions, the beneficiary may qualify for government grants such as the Canadian Educations Savings Grant, the Canadian Learning Bond and provincial grants. The income earned within the plan is tax-sheltered until withdrawn. When income and grants are withdrawn for the beneficiary for educational assistance, he or she will be a student and likely to have a low marginal tax rate.

How many years can I contribute to an RESP?

For an individual plan, you can make contributions to an RESP for 31 years, following the year the RESP is opened (35 years for a beneficiary eligible for the Disability Tax Credit). Contributions under a family plan must cease upon the beneficiary turning 31. Note, however, that to qualify for government grants on an individual or family plan, you need to make contributions by the end of the year the beneficiary turns 17.

How much can I contribute to an RESP?

The lifetime contribution limit for an RESP is $50,000 per beneficiary.

A registered disability savings plan provides disabled individuals and their families with a tax-sheltered investment option to provide long term income for a disabled beneficiary. All investment and interest income, as well as grants and bonds in an RDSP, are tax sheltered until withdrawn. Funds withdrawn are taxed as income by the beneficiary in the year of a withdrawal.

What Investments qualify for RDSPs?

Similar to other registered plans like TFSAs and RRSPs, there are a wide range of investments that can be held in an RDSP. These include:

  • Term deposits and GICs
  • Credit Union shares
  • Index-linked term deposits
  • Mutual funds
  • Publicly traded securities
  • Bonds

If you are considering an investment other than those mentioned above, check the rules carefully to ensure your investment vehicle qualifies.

Who can open an RDSP?

The plan holder is the qualifying individual who opens an RDSP; they authorize all transactions and make or authorize contributions on behalf of the beneficiary who qualifies for the Disability Tax Credit.

The beneficiary can open their own RDSP if they meet the following criteria:

  • Eligible for the Disability Tax Credit
  • Under the age of 60 (if they are 59, they must apply before the end of the calendar year in which they turned 59)
  • A Canadian resident at the time the plan is entered into and who has a Social Insurance Number (SIN)
  • Contractually competent and of the age of majority

Parents or legal guardians can be the holders of an RDSP, meaning they can open an RDSP for a qualified beneficiary. When the beneficiary reaches the age of majority and is contractually competent to enter into the plan, he or she becomes the holder of the account and the parents or legal guardians can remain on the account as joint holders.

How much can I contribute?

The lifetime contribution limit for an RDSP is $200,000. There is no annual contribution limit and contributions can be made until the end of the year the beneficiary turns 59.

Want to learn more about Registered Savings Plans?

Check out these resources:

Ready to get started?

Contact the Personal Banking Team

Dawn Kostyshen

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Anna Barber

Personal Banking Advisor

Anna Pucci-Theberge

Personal Banking Advisor

Brendan Van Doesburg

Personal Banking Advisor

Eliza Wiederspick

Personal Banking Advisor

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