RRSP: save on tax
The Registered Retirement Savings Plan (RRSP) is a popular investment for retirement. Contributions are tax-free, which puts more money in your pocket to reinvest or to pay for other projects.
The amount you save will depend on how much you’ve invested, your tax bracket, and your province.
Can an RRSP be used for other projects? Yes! There are programs you can use to withdraw money tax-free.
- Home Buyers’ Plan (HBP): withdraw up to $35,000 to finance the purchase of your first home.
- Lifelong Learning Plan (LLP): withdraw up to $20,000 to finance going back to school.
TFSA: invest tax-free
Unlike an RRSP, a Tax-Free Savings Account (TFSA) does not reduce your taxable income, but it does provide tax-free investment income. And that means significant savings!
This tool is particularly beneficial if your goal is to save for short-term projects like a vacation or home renovations. It’s also great to have as an emergency fund.
If your net income is low, you could consider using a TFSA to save for retirement. Because it generates no taxable income, you’ll keep your Guaranteed Income Supplement (GIS).
RRSPs and TFSAs each have their advantages and disadvantages. An advisor can help you make the right choice for your situation.
FHSA: save for your first home
Are you looking to buy your first home, or you haven’t been a homeowner in the past four years? If so, you can start investing your savings in the First Home Savings Account (FHSA).
This registered plan is a great tax-free option to start saving towards a down payment. The FHSA combines the advantages of the RRSP and TFSA. Just like an RRSP, your contributions are tax-deductible, and same as the TFSA, your withdrawals are non-taxable.
More about the FHSA:
- You can contribute up to $8,000 per year, up to a lifetime maximum of $40,000.
- You can hold the account for a maximum of 15 years.
- It’s possible to combine the FHSA with the HBP to increase your down payment.
- Unlike the HBP, you don’t need to reimburse any amount withdrawn for your down payment.
Saving potential
Let's say you contribute the maximum amount of $8,000 per year for 5 years. You then invest that $40,000 in a balanced portfolio with an average annual rate of return of 2.8%. After 15 years, your FHSA could be worth more than $57,000, for a potential gain of $17,000.
RESP: invest in your kids’ futures
Are you planning to pay for your child’s post-secondary education? The Registered Educations Savings Plan (RESP) is the perfect tool to help you achieve your goal. You’ll get access to generous government grants that will help your money will grow even faster.
The following financial benefits are available within an RESP:
- Canada Education Savings Grant (CESG): equal to 20% of your RESP contributions, up to a maximum of $500 per year. You may also qualify for extra help if your family income is below a certain threshold. With this grant, you could benefit from a maximum amount of $7,200 for life.
- Quebec Education Savings Incentive(QESI): equal to 10% of your contributions, up to a maximum of $250 per year. The lifetime maximum is $3,600. Bonuses are available for low-income families.
In other words, if you invest $1,000, you’ll receive at least $300 in the form of grants!
The grants and investment income will become taxable to your child when you retire. However, since your child will most likely start out with a low income, he or she will have very little to pay.
Direct brokerage: take control
If you want more control over your finances, why not use a direct brokerage platform and personally manage your investments? You’ll learn everything there is to know about investments and how to best invest your savings.
This easy-to-use tool offers cost-effective pricing that can save you money. Your profile makes it easy to track your portfolio’s progress, while the speed of transactions means you can benefit from the best deals on the market. Make the right choices, and you'll make some money.
Even when investing on your own, you’re never alone. The platform provides powerful tools to help you make the right financial decisions. Plus, it’s always possible to speak with an agent to learn more.
Whatever your projects or your budget, it’s time to make smart investments and grow your money. Explore your options and decide what’s best for you.
Would you like to discuss this with us? Contact your National Bank advisor or your wealth advisor at National Bank Financial. Don't have an advisor?
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