RRSP, TSFA, and RESP stand for what.
RRSP: Registered Retirement Savings Plan
Your RSP is a valuable retirement tool. It’s important to learn as much as you can about how RRSP works and how it can benefit you.
RRSP is the most effective retirement saving and investing tool available to most Canadians. It lets the money you invest grow unaffected by taxes until withdrawn. That means your money has the potential to grow faster and you’ll accumulate more than if you invest outside RRSP. What’s more, you’ll get a tax deduction for every dollar you put into RRSP, reducing your annual tax bill.
Investments in RRSP grow on a tax-deferred basis until money is withdrawn. The fact that your plan is “registered” with the Canada Revenue Agency allows you to benefit from this tax-deferred growth.
Outside RRSP, most investments are taxed. Interest is fully taxable, half of capital gains are taxable and dividends are taxable but eligible for the dividend tax credit. Inside RRSP, none of these taxes apply.
Because you pay no tax on investment growth while your money remains inside RRSP, your investments compound far more quickly. At the end of the road, that makes a huge difference.
RRSP vs. Non-RRSP Investing
|
| Amount Invested | $10,000 | $10,000 |
| Years Invested | 30 years | 30 years |
| Marginal Tax Rate | N/A | 46% |
| Average Annual Return | 6% | 6% |
| Total Savings | $838,016.77 | $510,717.60 |
| Difference | $327,299.17 |
|
Even though you’ll be taxed on amounts you withdraw from RRSP savings in retirement, your tax rate is likely to be lower than during your working years. So the tax bite will be considerably less. And the money left in a retirement plan continues to grow sheltered from tax.
are tax deductible. So they lower your annual taxable income and your yearly income tax bill. The tax savings will depend on your marginal tax rate and how much you contribute to your RRSP. In 2013 you’re allowed to contribute the lesser of $23,820 or 18% of the earned income reported on your previous year’s tax return. If you make less than your maximum allowable contribution in any year, the shortfall can be carried forward to future years.
You have until March 1 of the following calendar year to make contributions for the current tax year (subject to change if March 1 falls on a weekend or holiday or if it’s a leap year).
RRSP CALCULATOR:
http://calculators.mackenzieinvestments.com/mackenzie/jsp/RRSPcalculator/RRSPcalculator.jsp
RESP:
Education is the key to your children's future. But it's costly - currently as much as $60,000*for a four year degree at a Canadian university. A Registered Education Savings Plan (RESP) is a smart way to maximize education savings. Tax-sheltered investment growth and eligibility for government grants can make a big contribution to your child's future.
You can open an RESP for an individual child, or opt for a flexible family plan that lets you save for all your children.
An individual plan is set up for one person, who does not have to be related to you. There are no age limits, so you can even set up an RESP for yourself or another adult.
With a family plan you can name one or more children as beneficiaries. The children must be related to you. You can add or change beneficiaries at any time.
TSFA:
A Tax-Free Savings Account (TFSA) is a great way to save without worrying about taxes eating away at your investment profits. You can save and invest up to $5,500 a year without paying tax on any earnings that may accrue. You can use a TFSA to enhance your overall financial plan and help you save for both long and short term goals.
