RRSP Guide

C M Y K Page 3 RRSPGuide FRIDAY, FEBRUARY 3, 2017 ● WINNIPEGFREEPRESS.COM B 7 SPECIAL SECTION Both the RRSP and TFSA are similar plans allowing a lot of flexibility in how you save for your future. The vehicle which is right for you depends mostly on your stage of life. BY KATHY REIMER Welcome to the busiest time of year for investing, otherwise known as acronym season; RRSP, TFSA, RRIF, GIC, RESP. It's enough to make your head spin as you wonder what to do and what's best for you. The short answer is, it depends on what stage you're at in life. The longer answer is, it's not as daunting as you might think. You just need to be aware of what each brings to the table as far as your investments are concerned. T he tax-free savings account (TFSA) was introduced in 2009 and is considered the best tax break since the registered retirement savings plan (RRSP). The TFSA allows you to save for your future without paying taxes on any investment income — interest, capital gains and dividends — earned. The TFSA has specific contribution limits. As of 2017, the lifetime total amount you can contribute is $52,000. You can start contributing at the age of 18, and if you miss a contribution you can carry it forward to a future year. Also, you can withdraw from a TFSA at any time without paying tax, and later replace the amount withdrawn in addition to the annual new amount. However, don't replace the funds withdrawn until the following tax year, due to stiff penalties on over-contributions. TFSA contributions do not reduce your taxable income. However, the big benefit of the TFSA is that once the money is in the plan, it not only grows tax-free but also can be withdrawn tax-free. Like an RRSP, you can name a beneficiary, and the rules to roll over to a spouse at death are the same. The RRSP is a savings vehicle for your retirement. When you make an RRSP contribution, you can deduct that amount from your taxable income as long as it falls within your contribution limit. If you do not use your entire RRSP limit, you can save the unused portion to create future additional room. You can contribute to an RRSP from the age of 18 up to the age of 71 as long as you have earned income, which builds your RRSP room. You can also contribute beyond the age of 71 to an RRSP for a younger spouse, as long as you still have RRSP room. For those who have a pension plan, your ability to contribute to an RRSP is limited and your contribution room is reduced by the value of your pension benefits earned. The investments inside your RRSP grow tax-free while the funds remain in the plan. When money is withdrawn — either directly from the RRSP or from a registered retirement income fund (RRIF) or annuity to which the RRSP has been converted — it will become taxable. The RRSP also has two special options which allow you to withdraw RRSP funds without tax consequences — the homebuyers' plan (HBP) and the lifelong learning plan (LLP). Under the HBP, first-time homebuyers can withdraw funds tax-free to buy or build a qualifying home. The funds withdrawn must be paid back to the RRSP within 15 years. Under the LLP, qualifying students can withdraw funds tax-free to fund qualifying educational programs. Withdrawn funds must be repaid to the RRSP within 10 years. Both the RRSP and TFSA are similar plans allowing a lot of flexibility in how you save for your future. The vehicle which is right for you depends mostly on your stage of life. A TFSA may be the best choice for young taxpayers, because their income during retirement will likely be higher than their current income. During peak earning years, contributing to the RRSP makes more sense due to the tax deduction, and the likelihood that your tax rate will be lower when funds are withdrawn from the RRSP. Both TFSA and RRSP investment options can play an important role in helping you save your money. To help ensure you get the best results, talk to your financial adviser to determine what works for you now and in the future. Kathy Reimer is an Investment Advisor, Senior Wealth Consultant with the Assiniboine Financial Group. TFSA RRSP? WHICH IS BEST FOR YOU? OR

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