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R is for registered – and rewards


To make saving easier, Canadians have access to a number of special accounts – most of which begin with the letter “R.” R stands for registered, which means when you open the account it must be registered with the federal government, taking note of your social insurance number. The government wants to ensure no one enjoys too much of a good thing (at its expense)!

RRSP – A Registered Retirement Savings Plan lets you save for retirement while providing the potential to lower your income taxes during the working years. Your contributions up to certain limits are tax deductible and your money grows tax-deferred while in the plan. You don’t pay tax until you eventually take money out.

Spousal RRSP – Set up as a separate account for a spouse or life partner, a spousal RRSP lets one spouse (typically the higher earner) put money in the plan for the other spouse and claim the tax deduction themselves. If the funds remain in the account at least three calendar years, future withdrawals will be taxed in the hands of the other spouse – at a presumably lower rate. The goal is to split income and pay less tax as a couple.

RRIF – A Registered Retirement Income Fund holds your savings from an RRSP and provides income after you retire. There is a minimum total withdrawal you must make each year, based on your age at the beginning of the year (or the age of your spouse, if you so elect). Withdrawals are fully taxed, but any funds remaining in the plan continue to compound tax-deferred.

TFSA – Though it doesn’t begin with an R, a Tax-Free Savings Account is a registered savings plan that helps you save for any goal. Contributions up to certain limits grow tax-free in the plan. You can take money out whenever you want, for any reason, without tax or impact on government-tested benefits like Old Age Security. 

RESP – A Registered Education Savings Plan helps you save for a child's post-secondary education. Contributions attract government grants of 20% (and sometimes more) up to certain limits and grow tax-deferred in the plan. Original contributions can be withdrawn tax-free and the rest is eventually taxed in the student’s hands, likely at a low tax rate, if at all. 

RDSP – A Registered Disability Savings Plan helps a person who is eligible for the disability tax credit (or their families) to create long-term financial security. Contributions attract government deposits and grow tax-deferred in the plan. All earnings and government contributions are taxed when eventually withdrawn by the beneficiary, potentially at a low tax rate.

It pays to know your ABCs and, especially, your Rs. If you have any questions about how to reap the rewards of registered accounts, give us a call.   

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