Registered Retirement Savings Plan (RRSP)

A Registered Retirement Savings Plan (RRSP) is a retirement savings and investing tool for employees and the self-employed in Canada. The money is placed into an RRSP and the growth made on top of it stays tax-free until withdrawal. At the time of withdrawal, it is taxed at the marginal rate. The growth of an RRSP is determined by its contents. Simply having money in an RRSP is not a guarantee that you may retire comfortably; however, it is a guarantee that the investments will compound without being taxed, as long as the funds are not withdrawn.

There are a number of RRSP types

1. Individual RRSP:This is set up by a single person who is both the account holder and the contributor.


2. Spousal RRSP:Provides benefits for a single spouse and also a tax benefit for both spouses. A high-earner (spousal contributor) may contribute to a Spousal RRSP in their spouse's name (the account holder). Since retirement income is divided evenly, each spouse can benefit from a lower marginal tax rate.


3. Group RRSP:This is set up by an employer for employees and is funded with payroll deductions.


4. Pooled RRSP:An option created for small business employees and employers, as well as the self-employed.

Tax-Free Savings Account (TFSA)

A tax-free savings account (TFSA) is an account in which contributions, interest earned, dividends, and capital gains are not taxed, and can be withdrawn tax-free. Although it's type of savings account, fund in TFSA can be invested in mutual funds, securities, and bonds as well as cash. This account is available to individuals ages 18 and older in Canada and can be used for any purpose.

Advantages of TFSA

1. Interest income or capital gains earned within your TFSA have tax-free savings account interest rate.


2. Any TFSA withdrawals are not taxed.


3. When you withdraw an amount, your contribution is restored the next calendar year.


4. Any TFSA withdrawals will not affect your income-tested credits and benefits from GST credit, Employment Insurance and Old Age Security.


5. You pay no tax on the growth of your investments


6. You pay no tax on withdrawals


7. You pay no tax when your TFSA is passed to your heirs

Registered Education Savings Plan (RESP)

A Registered Education Savings Plan (RESP), sponsored by the Canadian government, encourages investing in a child's future post-secondary education. Subscribers to a RESP make contributions that build up tax-free earnings. The government contributes a certain amount to these plans for children under age 18. Contributors do not receive a tax deduction for investments in an RESP. There are no taxes due until funds are taken out to pay for a child’s education. At that time, contributions made into the RESP are returned tax-free, although contributors’ earnings from the plan are taxed. The money the government pays out is taxed to the students. However, since a large number of students have little to no income, many can withdraw the money tax-free.