Created in 2009, the TFSA was an immediate success, which continues unabated.
Of all registered plans, the TFSA is the only one that allows you to make withdrawals for any reason without ever having to pay a cent in tax.
Using funds from a TFSA is therefore the ideal way to finance both short and long term projects.
It is also appreciated by taxpayers who are already contributing the maximum authorized amount to their RRSPs and who are looking for an additional way to save tax.
The annual TFSA contribution limit has fluctuated over the years:
|From 2009 to 2012||$5,000|
|2013 and 2014||$5,500|
|2016 to 2018||$5,500|
|2019 to 2022||$6,000|
|Total contributions for 2023||$88,000|
Unused contribution room may be carried forward and used at a later time. For example, if you were 18 years of age or older in 2009 and do not have a TFSA, you could open one today and contribute a maximum of $88,000 before the end of 2023.Footnote 1
To find out the exact amount of contribution room available to you, visit the My Account - External link. Opens in a new window. section on the Canada Revenue Agency website.
To contribute to a TFSA, you must:
- Be a Canadian resident
- Be ages at least 18 years old
- Have a valid social insurance number
Another important feature to keep in mind is that when you dip into your TFSA, the amount withdrawn is added to your contribution room for the following year.
Be aware, however, that some investors have been penalized for an overly rapid succession of withdrawals and contributions. Therefore, it is important to ensure you always respect you contribution limits for the current year. For more details, please consult the Canada Revenue Agency - External link. Opens in a new window. website.
In addition, your withdrawals and any income your investments generate do not affect your eligibility for social programs based on net income (individual or family), i.e. the Canada Child Tax Benefit, GST credit, Old Age Security, Guaranteed Income Supplement.
Speak with your advisor about including a TFSA in your investment strategy
Contributions 100% Tax Deductible
The RRSP is an investment plan that was introduced by the federal government in 1957. The objective of an RRSP is to encourage Canadians to save for their retirement.
Still popular, RRSPs offer a distinct advantage. The contributions are fully deductible from your taxable income.
Every year, you are entitled to make an RRSP contribution equal to a maximum of 18% of the income you earned in the previous year, provided you do not exceed the annual limit ($30,780 in 2023 and $31,560 in 2024).Footnote 2
You can find your exact RRSP contribution limit on the notice of assessment sent to you by the Canada Revenue Agency upon receipt of your tax return. The amount is shown under your “RRSP/PRPP Deduction Limit statement.”
This information can also be found in the My Account - External link. Opens in a new window. section on the Canada Revenue Agency website.
Your RRSP contribution limit will be affected if you belong to an employer sponsored retirement savings plan (or pension fund).
Accumulated Unused Contributions
What happens if, over the course of a year, you do not contribute the maximum authorized amount? You will end up with unused contribution room that can be used in subsequent years. In other words, nothing goes to waste.
In some cases, contributing to your spouse's RRSP can be of value if you anticipate that his or her retirement income will be lower than your own.
Your spousal RRSP contributions are deductible from your taxable income while still belonging to your spouse.
Your advisor will talk you through the possibility of using this strategy.
Important: You will need to stop contributing three years before your spouse begins making withdrawals, or these withdrawals will be included in your taxable income.
Your investments grow tax free as long as they are kept in your RRSP.
In fact, the only time you have to pay tax is when you actually withdraw money from your RRSP. Ideally, this will be in retirement, when your tax rate is likely to be lower than while employed.
It is also possible to make tax free withdrawals before you retire, provided the money is used to buy a house or finance training or education.
Become a homeowner
You may withdraw up to $35,000 from your RRSP to buy or build a home and must intend to occupy the qualifying home as your principal place of residence within one year after buying or building it (maximum of $70,000 per couple). The withdrawal is tax free.
You are essentially granting yourself an interest free loan.
Your repayment period starts the second year after the year you withdrew funds and can be spread out over 15 years.
You and your spouse did not own a home in the year in which you retired or at any time in the four years previous.
The steps described in this section are not exhaustive. If you are a person with a disability, several special rules, exceptions and steps specific to your situation apply.
Please visit the Canada Revenue Agency - External link. Opens in a new window. website for further details.
You can participate in the HBP without having an RRSP
Speak with your advisor to learn more about strategy
Going back to school
Use your RRSP to pay for full time studies for you or your spouse.
Withdrawals remain non-taxable as long as they do not exceed $10,000 in a calendar year; and up to $20,000 in total.
You must repay the amount within 10 years.
This period is calculated from the earlier of the following two dates:
- Five years after your first withdrawal
- Two years after the last year you indicated you were entitled to the education amount on your federal tax return
For more details, visit the RRSP section of the Canada Revenue Agency - External link. Opens in a new window. website.
You will need to close your RRSP by the end of the year in which you turn 71.
Before this deadline, you can transfer your investment to a Registered Retirement Income Fund.
Meet with your advisor today to discover proven solutions for maximizing your RRSP - Put your trust in an expert
|Contribution deadline||January 1 to December 31 of current year||March 1, 2023|
|Age limit||None||The year of your 71st birthday|
|Contribution amount||Annual maximum:
||18% of income earned the preceding year, up to $30,780 in 2023 and $31,560 in 2024.Footnote 2|
|Are contributions income tax deductible?||No||Yes|
|Investment income||Non-taxable||Taxable when you withdraw|
|Unused contribution room||The unused portion of your maximum allowable contributions since 2009||The unused portion of your maximum annual amount deductible since 1991|
|Excess contributions||Not allowed||Up to $2,000 above the maximum allowable annual contribution|
|Impact of withdrawals on benefits from social programs||None||Added to taxable income.|
|Do withdrawals increase contribution room?||Yes, equal to the qualifying amount withdrawnFootnote 2 and added to the contribution room for the following year.||No|
|Are spousal contributions allowed?||No. However, money you give your spouse to contribute to a TFSA is not subject to attribution rules.||Yes. The contributing spouse claims the tax deduction even if he or she not the beneficiary.|
|Taxable upon death?||No. Amounts generated prior to death can be rolled over to the spouse tax-free.||Yes, except if rolled over to spouse, or to minor or disabled child.|
|Can it be used as collateral for a loan?||Yes||No|
Making use of your retirement savings
As its name suggests, the RRIF provides retirement income. It is aimed at investors who are looking for some flexibility in asset management.
A RRIF is like a sequel to your RRSP, but with a twist: you can’t make regular contributions to a RRIF, only withdrawals. A RRIF can only be funded by the transfer of stocks, bonds and cash inside your RRSPs. Like an RRSP, RRIF income is completely tax free inside your RRIF account.
Your withdrawals are taxable.
You are legally required to withdraw an annual minimum that increases every year.
To minimize this amount, it can be calculated based on the age of youngest of both partners.
Your withdrawals may vary depending on your needs and projects.
There is no maximum withdrawal limit.
- At death, the RRIF balance is transferred to the surviving spouse, or, in some cases, to the heirs
- Since July 1, 2011, you can roll over a maximum of $200,000 from a deceased annuitant’s RRIF to the registered disability savings plan (RDSP) of a child or grandchild who was financially dependent on the deceased because of an impairment in physical or mental functions, subject to the beneficiary’s unused RDSP contribution room. The amount rolled over reduces the beneficiary’s RDSP contribution room but doesn’t make them eligible for the Canada Disability Savings Grant.
From a tax standpoint, it is not always advisable to wait until the maximum age of 71 to switch from an RRSP to an RRIF. Find out what is best for you.
Money from your pension fund
Do you belong to a company pension plan? What happens if you leave your job before retirement?
- Leave amounts you have earned in the plan
- Transfer them into a tax free LIRA and manage them personally with the help of your advisor
Read the terms and conditions of your company plan carefully. Some will restrict you to a certain option. Others allow you to choose.
Remember that it is not possible to contribute directly to an LIRA.
The plan is considered "locked in" because it can only be used as retirement income (except in certain circumstances, which your advisor will be able to explain).
The plan goes by different names depending on the jurisdiction: Locked-In Retirement Account, Locked-In RRSP. However, the product is essentially the same.
By age 71, at the latest, you must convert it into an annuity or Life Income Fund (LIF).
Enables you to gradually withdrawing assets from your LIRA
The LIF is to the LIRA what the RRIF is to the RRSP.
Its features are similar to those of an RRIF
- Retirement income plan
- Tax sheltered investments
- No contributions permitted
- Withdrawals are taxed
- Minimum Annual withdrawal
Unlike the RRIF, the LIF has a maximum withdrawal limit.
In certain jurisdictions, there are also Locked-In Retirement Income Funds (LRIF), and Prescribed RRIFs. Don’t hesitate to speak with your advisor to find out more.
Grants for the taking
Investing so that a child can have the opportunity to pursue higher education is a great way to invest in their future.
All the more so when you have government support, specifically:
- Canada Education Savings Grant - External link. Opens in a new window. (up to $7,200).
- Canada Learning Bond - External link. Opens in a new window. (up to $2,000).
Additional provincial grants may also be available, depending on where you live. Contact your advisor for more information.
You may contribute a maximum of $50,000 per beneficiary, with no annual limit.
If you didn’t set up an RESP when your child was born, you can make up for lost time and even obtain grants retroactively.
- Canada Revenue Agency. Tax-Free Savings Account (TFSA), Guide for Individuals - External link. Opens in a new window., RC4466(E), Rev. 20. [cited January 24, 2022].
- Government of Canada. Registered Retirement Savings Plan (RRSP) - External link. Opens in a new window., modified 2021-01-07. [cited January 24, 2021].
- Following changes recommended by Finance Canada, withdrawals of overcontributions, non-qualified investments and amounts attributable to swap transactions, or of any related investment income, do not create additional TFSA contribution room. Some of this income will be taxed at 100%.
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