Registered Retirement Savings Plan (RRSP)
An RRSP is a retirement savings plan that allows individuals to defer the taxes on investments until they are withdrawn at retirement. Contributions to an RRSP are tax deductible from the income generated in the year of the contribution. Taxes on interest income, dividend income, and capital gains are not paid while the investments are held within an RRSP. When it is time to make redeem from your RRSP to subsidize your retirement needs, the amount withdrawn is taxable at your marginal tax rate.
Registered Retirement Income Fund (RRIF)
RRIF is a fund that is established when an individual transfers an RRSP or RPP the year the annuitant turns 71 years of age. Once the RRIF is established, no more contributions can be made into the plan; however the annuitant can change the investments held within the RRIF. RRIFs require the annuitant to redeem a set minimum amount annually.
Tax Free Savings Account (TFSA)
The TFSA is a relatively new investment vehicle where the investments held within the plan can grow tax free. In a non-registered investment account, investors are subject to taxes on interest income, dividend income, and capital gains. How is the TFSA different than an RRSP? Well, the RRSP allows individuals to defer income taxes until retirement; whereas capital gains and income provided by the TFSA is exempt from any taxes; however contributions made to the TFSA are not tax deductible. The TFSA was established in 2009 and allows for annual contributions of $5,500 and that amount can be carried forward if it was not used for the previous year. An individual who was 18 years of age or older in 2009 can contribute $20,000 to a TFSA in 2012 if the individual has not contributed to the account previously. If an individual contributes $5000 annually and the investment grows at a rate of 5%, the value of the TFSA would be $238,635.49 after 25 years. The TFSA is a tax-efficient way of building wealth for the future.
Other Available Account Types:
- Locked-In Retirement Account (LIRA)
- Locked-in Income Fund (LIF)
- Non-Registered Account
- Registered Disability Savings Plan (RDSP)
- Registered Education Savings Plan (RESP)
Please contact an Equity Associates Inc. partner to discuss the intricacies of each plan type and how they can work to your advantage.