Saving for the future is the cornerstone of financial planning. There is a wealth of different types of products on the market and the first step starts with identifying your reasons for saving. We may have different purposes, be it saving for a house, your child’s future education or for your retirement. We can support you in choosing the most appropriate savings and investment option for your situation.
Types of Tax-Advantaged Savings and Investment Plans:
- Tax Free Savings Account (TFSA)
- Registered Retirement Savings Plan (RRSP)
- Registered Education Savings Plan (RESP)
- Locked-In Retirement Account (LIRA)
Time + Amount Saved + Your Return = Your Result
Lack of one requires overcompensation by the other two.
Tax-Free Savings Account (TFSA)
The Tax-Free Savings Account (TFSA) is often misunderstood. You can purchase guaranteed products or market based funds within your TFSA. It is not strictly a savings account with minimal interest earned. It can be used for short, medium or longer term purposes. The money you contribute is after tax dollars and that money, along with any growth, is tax free when withdrawn.
Registered Retirement Savings Plan (RRSP)
A Registered Retirement Savings Plan (RRSP) is an account that benefits from tax-deferred growth. In addition, the contributions to your RRSP are tax-deductible, which typically reduces your income tax. Should you withdraw from your RRSP, you are taxed at your marginal tax rate. You must convert your RRSP to a RRIF by end of the year in which you turn 71.
Registered Retirement Income Fund (RRIF)
Registered Retirement Income Fund (RRIF) allows you to continue the investments in your RRSP on a tax-sheltered basis while you withdraw income. There is a minimum withdrawal required each year and the income withdrawn is taxable. You have the option to withdraw more than the minimum.
Registered Education Savings Plan (RESP)
A Registered Education Savings Plan (RESP) is an investment account used to save for a child’s education. The money inside the account grows tax-deferred and taxed at the child’s tax rate when attending full or part-time studies after high school. The significant benefit is the government adds money to the RESP; the Canada Education Savings Grant (CESG) the Canada Learning Bond (CLB). Conditions apply. The BC government offers an additional grant, the British Columbia Training & Education Savings Grant (BCTESG).
Locked-In Retirement Account (LIRA)
A Locked-In Retirement Account (LIRA) is money that has been moved from a pension and is also regulated by provincial pension legislation which does not allow withdrawals. A LIRA must be converted to either a Life Income Fund (LIF) or an Annuity by the end of the year in which you turn 71. The LIF and Annuity are taxable when payments are received.
Other Types of Savings Plans:
- Non-Registered Account
- High Interest Savings Account (HISA)
A Non-Registered Account and a High Interest Savings Account (HISA) provide the ability to put money away. Growth is taxable depending on how it was received.
It is common for individuals to have a Savings Account, often through a bank, although insurance companies also offer Savings Accounts with the same ability to bypass probate. A High Interest Savings Account is a great place to keep money used for your emergency fund.
Segregated funds are investments and savings offered through an insurance company. Unlike other investments, benefits paid from a segregated fund contract bypass your estate upon death. Proceeds are paid directly to your beneficiaries without being subject to the estate administration/probate process and associated fees. Although there is an insurance component there is no need to qualify for the death benefit guarantees, as there is with personal insurance coverages.
You can choose either a 75% or 100% guarantee of your initial investment, less withdrawals, which will be guaranteed upon the maturation of your contract or in the event of your death. Some segregated fund contracts offer income guaranteed for life.
Insurance companies offer both High Interest Savings Accounts and ETFs, which provide guarantees and the benefits of bypassing probate.
We can help you determine which savings and investment vehicles will help you reach your wealth planning goals.