There are many types of investment accounts available to investors today. Along with a regular investment account, where all income is taxable in the year it’s earned, there are a variety of registered plans with numerous tax advantages. The following registered accounts enable investors to experience tax-sheltered growth and tax-deferred investment earnings.
Overview
The following enable investors to experience tax-sheltered growth and tax-deferred investment earnings:
- Registered Retirement Income Fund (RRIF)
- Registered Education Savings Plan (RESP)
- Registered Disability Savings Plan (RDSP)
Your advisor can assist you in determining which plan type is best to meet your goals.
Tax-Free Savings Account (TFSA)
A TFSA is a flexible investment account that can help you meet both your short- and long-term goals.
Investment income in a TFSA — whether interest, dividends or capital gains — is not taxed, even when withdrawn. This tax-free compound growth means your money grows more quickly in a TFSA than a taxable account.
Advantages of a TFSA
- Tax-free investment income and withdrawals
- Unlike other registered tax-deferred plans, earnings throughout your lifetime from qualified investments in your TFSA are never subject to Canadian tax. You don’t pay taxes, even when you withdraw your money.
- Flexible withdrawals
- You can withdraw funds from your TFSA whenever you want (depending on what you've invested in) and use the funds for multiple purposes. This makes a TFSA ideal for both your short- and long-term investment goals. For example, you could save to purchase a new car, renovate your home, buy a new home, start a small business, take a vacation, build an emergency fund, grow your retirement nest egg and more.
- No income requirement
- You don’t need to have earned income to contribute to a TFSA. Any individual 18 years or older can contribute.
- Indefinite carry-forwards
- With a TFSA, unused contribution room is carried forward indefinitely, so you can contribute whenever you have the money. Withdrawals are also added to your unused contribution room starting the following year.
- Lifelong eligibility
- There is no requirement to collapse your TFSA at a set age. You can keep it as long as you live. This makes it especially valuable as part of a long-term strategy that also includes RRSPs/RRIFs.
- No lifetime contribution limits
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There is no lifetime limit on the amount of contributions you can make to a TFSA. Eligible Canadian residents may contribute up to:
- $5,000 annually for 2009 to 2012
- $5,500 for 2013, 2014, 2016, 2017 and 2018
- $10,000 for 2015
- No impact on federal benefits or credits
- Income earned and TFSA withdrawals are not included as income for tax purposes, which means they will not affect your eligibility for federal income-tested government benefits and credits such as Old Age Security (OAS) or the Goods and Services Tax (GST) credit.
For more information on Tax-Free Savings Accounts, please visit the RBC Royal Bank TFSA site or talk to your advisor.
Registered Retirement Savings Plan (RRSP)
An RRSP is a personal savings plan that allows you to save for the future on a tax-sheltered basis. What makes an RRSP special is your contributions are tax-deductible and your portfolio grows tax-sheltered. If you are under 72 years of age and earn income, we encourage you to take advantage of the benefits an RRSP can offer.
Making Contributions to Your RRSP
- Currently, you can invest 18% of what you earned in the previous year up to a maximum of $26,010 for 2017.
- Your Notice of Assessment indicates your personal contribution amount.
- You can carry the unused portion of your contribution amount forward indefinitely.
- There are no limits on carry-forward amounts.
Withdrawing Money from Your RRSP
- For any withdrawal, you are immediately charged tax and lose compound growth potential.
- With the Home Buyers Plan, you can withdraw up to $25,000 if you meet the criteria of a first-time homebuyer, but must repay 1/15th of the amount you borrowed annually, repaying all funds within 15 years.
- With the Lifelong Learning Plan, you can withdraw up to $20,000 over four years to fund full-time studies at a qualifying educational institution, repaying the money over a 10-year period.
- If you miss a payment on either plan, the amount will be added to your taxable income in that year.
For more information on registered retirement plans, please visit the RBC Royal Bank RRSP site or talk to your advisor.
Regardless of whether you require income at retirement, it is mandatory to convert your RRSP to an eligible retirement income option by December 31 the year you turn 71. A RRIF delivers a regular stream of income based on a minimum annual withdrawal amount.
RRIFs Offer Several Advantages
For more information on RRIFs, visit the RBC Royal Bank RRIF site or talk with your advisor.
- Money in your RRIF continues to grow tax-sheltered until it's withdrawn.
- You have the flexibility to control your investments by choosing payment amount (subject to a minimum annual withdrawal amount), payment frequency, investment options and liquidation of assets.
- You can convert an RRSP to a RRIF at any time, regardless of your age.
- You are required to withdraw at least the minimum amount from your RRIF on an annual basis. The RRIF minimum payment is based on a formula as prescribed by the Income Tax Act (Canada).
Registered Education Savings Plan (RESP)
Setting up an RESP enables you to contribute money over a period of time on behalf of a beneficiary to finance their post-secondary education.
Setting up an RESP
You can choose an individual or family plan, depending on the number of beneficiaries you want to designate. Individual plans allow only one beneficiary. Family plans allow multiple beneficiaries and provide the flexibility to move invested funds around based on the educational needs of the chosen beneficiaries.
How It Works
The lifetime maximum contribution amount per beneficiary is $50,000. In addition, you can earn a 20% grant (Canada Education Savings Grant) on the annual contribution up to $2,500 per year to a lifetime maximum of $7,200. This amount is automatically added to the RESP on your behalf on a quarterly basis.
Once you begin contributing to your RESP, all capital appreciation including interest, dividends and capital gains grows on a tax-deferred basis. Contributions are not tax-deductible, but your investment can grow without any income tax liability until the beneficiary begins to receive Educational Assistance Payments (EAPs). Most plans allow a return of your contributions at any time. However, there may be tax implications if you withdraw the growth from the RESP.
Financing Education
When the beneficiary enrols as a full-time student in a qualifying post-secondary education program, you can begin to withdraw money in the form of EAPs. Spreading payments over the number of years a student is enrolled in school minimizes the income tax payable. If the beneficiary decides not to continue with their studies, you can choose to:
- Share accumulated funds with other beneficiaries (for family plans)
- Designate a new beneficiary
- Withdraw your contributions
For more information on RESPs, visit the RBC Royal Bank RESP site or consult with your advisor.
A Smart and Easy Way to Save for a Post-Secondary Education
The RBC Target Education Funds are an innovative approach to education savings. They are designed for those who are uncertain of the best way to invest for a child’s education or do not have the time to do it themselves. To start saving, you simply select the fund that is closest to your child’s target education date – RBC Target 2020, 2025, 2030 or 2035 Education Fund.
The RBC Target Education Funds feature an asset mix that evolves over time, with a greater weighting in equities in the early years and a more conservative asset mix favouring fixed income investments as your child's target education date approaches. The advantage? You get the investments that provide growth potential up front to help keep pace with the rising cost of education. And as the target date approaches, each fund becomes more conservative, reducing both volatility and the potential for erosion of capital.
RBC Target Education Funds make saving for your child’s education easy.
The RDSP is intended to assist eligible Canadians with disabilities and their families in saving for the long-term financial security of the person with a disability.
This unique savings program allows savings to grow in a tax-deferred environment. The RDSP is also eligible to receive government assistance in the form of grants totalling up to $70,000 and bonds totalling up to $20,000.
For more information, visit the RBC Royal Bank RDSP site or consult your advisor.
Key Features of the RDSP
- There is no annual contribution limit, but there is a lifetime limit of $200,000 for total contributions. Contributions can be made up until the end of the year the beneficiary turns 59. Investment income and capital gains remain tax-deferred while in the RDSP. Contributions are not tax-deductible.
- Contributions may be eligible for the Canada Disability Savings Grant (CDSG), which provides matching contributions of up to $3,500 annually until the end of the year the beneficiary turns 49 ($70,000 lifetime limit).
- The plan may also be eligible for the Canada Disability Savings Bond (CDSB), which pays up to $1,000 annually to low-income families until the end of the year the beneficiary turns 49, regardless of whether RDSP contributions were made ($20,000 lifetime limit).
- Withdrawals can be used for any purpose, as long as they are for the benefit of the person with the disability (the plan's beneficiary).
- The beneficiary must begin receiving payments from the plan by the end of the year they turn 60.
- The beneficiary can have only one RDSP.
