National BestTypes of Investment Accounts
Money can be invested in an ‘open’ (Or non-registered) account. The various ‘registered’ accounts are created to suit a specific cause such as retirement or savings or education or for people with disabilities.
The main breakdown are as follows:
- Registered Retirement Savings Plan (RRSP)
- Registered Retirement Income Fund (RRIF)
- Locked-in Retirement Account (LIRA) (Variation of the RRSP)
- Locked-in Income Fund (LIF) (Variation of the RRIF)
- Tax Free Savings Account (TFSA)
- Registered Education Savings Plan (RESP)
- Registered Disability Savings Plan (RDSP)
Registered Retirement Savings Plan (RRSP)
The maximum annual tax-deductible contributions to RRSP’s an individual can make is the lesser of: 18% of the previous year’s earned income; and the RRSP dollar limit for the year [which was $24,930 in 2015. The contribution limit is indexed to inflation each year]. If you do not contribute the maximum allowable amount to your RRSP in any given year, you can carry forward the unused contribution indefinitely to future years.
How the RRSP Works
- RRSP Contribution Limit Updated for 2018 The maximum annual tax-deductible contributions to RRSP’s an individual can make is the lesser
of:18% of the previous year’s earned income; and the RRSP dollar limit for the year [which was $26,230 in 2018. The contribution limit is indexed to inflation each year].
- Investment income earned in a RRSP is tax-free.
- Withdrawals from a RRSP are fully taxable AND subject to a withholding tax if withdrawn before age 71.
- Unused RRSP contribution room is carried forward and accumulates in future years.
- Full amount of withdrawals CANNOT be put back into the RRSP unless you have available contribution room (Unlike a TFSA).
- Contributions are tax-deductible often creating a tax refund (Unlike a contribution to a TFSA).
Tax-Free Savings Account (TFSA)
How the Tax-Free Savings Account Works
- Annual contribution limit of $5,500 indexed.
- Investment income earned in a TFSA is tax-free.
- Withdrawals from a TFSA are tax-free.
- Unused TFSA contribution room is carried forward and accumulates in future years.
Fullamount of withdrawals can be put back into the TFSA in future years.
- Contributions are not tax-deductible
- Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
Registered Education Savings Plans (RESP)
How the Registered Education Savings Plans Work
- The is no Annual contribution limit but there is a $50,000 lifetime contribution limit per beneficiary.
- Investment income earned in a RESP is tax-free.
- Withdrawals from a RESP are taxable – although in the hands of the student.
- Money withdrawn must be used to help pay for post-secondary education of a child.
- Contributions are eligible for a CESG grant of $500 per year up to a lifetime limit of $7200 per beneficiary. (Additional grants are available for low income families)
- Contributions are not tax-deductible (Unlike an RRSP).
- RESP Plans must be wrapped up within 35 years of the starting date.
- Any unused RESP money must be withdrawn but can be transferred to a parent’s RRSP if they have unused contribution room.
Registered Disability Savings Plan (RDSP)
How the Registered Disability Savings Plans Work
- The is no Annual contribution limit but there is a $200,000 lifetime contribution limit per beneficiary up to the age of 59.
- Investment income earned in a RDSP is tax-free.
- Withdrawals from a RDSP are partially taxable (Contribution amounts are not) (Although in the hands of the beneficiary).
- Money withdrawn must remain in an RDSP for at least 10 years (Withdrawals in less than 10 years subject to sever penalties).
- Contributions are eligible for a grants and bonds grant of at least $1000 up to a possible $4500 per year with a combined maximum lifetime limit of $90,000 per beneficiary. (Additional grants are available for low income families)
- Contributions are not tax-deductible (Unlike an RRSP).
- RDSP Plans do not allow contribution after ager 59 and the plan will start paying a mandatory minimum lifetime disability assistance payment (Similar to a RRIF)
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