A registered savings plan is a type of savings plan that is registered with the Canadian government and offers special tax advantages. Registered savings plans can be opened at various financial institutions including mutual fund dealers, investment dealers, banks, credit unions and insurance companies. A broad range of investment options are available including mutual funds, ETFs, stocks and bonds.
Registered savings plans give you a tax incentive to save money, which can help you reach your financial goals. The Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA) are two of the most common types of registered plans.
Registered Retirement Savings Plan (RRSP)
An RRSP is a savings plan that allows you to make tax deductible contributions to save towards your retirement. The income you earn in your RRSP is usually tax exempt, as long as it remains in the plan. Tax is generally payable when you take money out of your RRSP.
You can contribute the lower of 18% of your income from the previous year or the annual RRSP limit for the current year; which is $26,500 for 2019. If you are a member of a pension plan, contributions to your pension plan will reduce the amount you can contribute to your RRSP. Unused contribution room can be carried forward to use in the future. In some circumstances, it may be beneficial for your spouse or common-law partner to make contributions to your RRSP using their RRSP contribution room.
RRSPs offer unique programs, such as the Home Buyers’ Plan which allows first-time homebuyers to withdraw up to $25,000 from their RRSP to help build or buy a home, and the Lifelong Learning Plan which allows you to withdraw amounts from your RRSP to finance full-time training or education for you, your spouse or common law partner. For each program, funds must be returned to your RRSP over time to avoid tax consequences.
Tax-Free Savings Account (TFSA)
A TFSA is a savings account that can be used to save towards any goal. Contributions to a TFSA are not tax deductible but investments in your TFSA are allowed to grow tax-free. You do not pay tax when you take money out of your TFSA.
Starting in 2009, TFSA contribution room accumulates each year based upon the annual limits set by the government; the TFSA limit for 2019 is $6,000.
Other Registered Plans
Examples of other registered plans include:
- The Registered Retirement Income Fund (RRIF) gives you a steady stream of retirement income and is opened by transferring money from your RRSP.
- The Registered Education Savings Plan (RESP) helps you save for a child’s post-secondary education and allows the government to supplement your contributions through education savings grants or learning bonds.
Your financial advisor can work with you to decide what registered accounts and investment options might be suitable for you.