What Motivates You To Contribute To Your RRSP Or TFSA?

Mon, 15 Apr 2024 17:42:16 GMT

A common question is whether an individual should maximize their RRSP or TFSA contribution.

I t is an excellent question without a simple answer as it can differ dramatically from individual to individual. Although they are both savings vehicles, they are very different so let us explain.

RRSP – a Registered Retirement Savings Plan (RRSP) contribution is made with ‘before’ tax dollars and is a tax deferral vehicle. An individual receives a tax benefit in the year of the contribution but will pay taxes when the funds are withdrawn during their retirement. The rule of thumb with respect to the RRSP is to make a contribution when your tax rate is higher than during your retirement. However, it is also not a flexible program so do not make RRSP contributions if there is a reasonable chance you will need the funds prior to retirement.

TFSA – a Tax Free Savings Account (TFSA) contribution is made with ‘after’ tax dollars. There are two primary benefits with a TFSA account. Firstly, any interest, income and capital gains in the account are not taxed. Secondly, a TFSA is a very flexible vehicle as it is easy to withdraw funds. For example, an individual can use a TFSA to save for the purchase of a house. The funds can be withdrawn when needed but you do not lose the room. The funds can be re-contributed at a later date.

Optimization Strategy – the ideal strategy is to make your maximum contribution to your RRSP and then use your tax refund as a contribution to your TFSA.

Want to talk further on registered account options that suit you best? Contact us.

Everything You Need to Know About The Home Buyers’ Plan

Tue, 09 Apr 2024 20:42:50 GMT

The Home Buyers’ Plan was created by the government to help Canadians get over the big hurdle of saving up a down payment for their home.

It allows qualified individuals to borrow up to $35,000 from their registered retirement savings plans (RRSPs) to use toward the down payment. The money needs to be repaid within 15 years to avoid having it count as taxable income.

While there are certainly advantages to using this program for your down payment, it may not be the right move for everyone. Learn more about the details so you can make an informed decision.

Who Should Borrow

The Home Buyers’ Plan is especially helpful for first-time homebuyers who are having a hard time saving up tens of thousands of dollars for a down payment. Paying rent can feel like you’re just throwing money away because you’re not building up any equity. But high rent payments make it hard to save up the money you need. Borrowing from your RRSP makes sense.

Even those who have a sizable amount of money saved up already may want to consider taking advantage of the program. You could use the money you borrow to give your savings a boost to reach a 20 percent down payment. This will allow you to avoid mortgage insurance, which adds to the cost of your monthly mortgage payment.

Qualifying for the Home Buyers’ Plan

To qualify for the Home Buyers’ Plan, you have to be a resident of Canada and a “first-time homebuyer”, but that’s a bit misleading. Actually, you can count as a first-time homebuyer even if you’ve owned your home in the past, as long as you haven’t owned a home in the past four years. You also need to have a purchase agreement for the home that you want to buy, and you have to be planning to make that home your sole residence.

As long as you meet these rules, you should be able to borrow from your RRSP.

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What Motivates You To Contribute To Your RRSP Or TFSA?

A common question is whether an individual should maximize their RRSP or TFSA contribution.

Everything You Need to Know About The Home Buyers’ Plan

The Home Buyers’ Plan was created by the government to help Canadians get over the big hurdle of saving up a down payment for their home.