Tax-Free Savings Account (TFSA)

The TFSA program was introduced in 2009 as an alternative tax-sheltered investment. Your maximum contribution to your TFSA is limited to the amount of room in your TFSA in any given year. The room available for contributions accumulates every year starting from 2009. How much room will be available in any given year will vary from person to person depending on how much you have contributed in the past.

TFSAs offer a great way to save, tax-sheltered, for any financial goal, whether it’s for a long-term goal like your retirement, or short-term goal like that dream vacation or a new family car.

Key features of a TFSA:

• Tax-free growth
• Flexibility to contribute and make withdrawals
• Save for short- or long-term goals
• No tax on withdrawals
• Any amount withdrawn can be re-contributed in future years
• Withdrawals are not considered income as they do not affect your eligibility for income-tested government benefits or tax credits
• Can hold many of the same investments as RRSPs

For more details about TFSAs, visit the Canada Revenue Agency website or talk to your financial advisor.

Registered Retirement Savings Plan (RRSP)

An RRSP provides tax benefits that can help you to save for your retirement. Some key benefits of RRSPs:

• Contributions to RRSPs, up to predetermined limits, may be deducted from your income before calculating income tax due.
• Income earned within the RRSP (interest, corporate dividends, trust distributions, capital gains) is not taxed until money is withdrawn from the plan, allowing the plan to grow faster than the same investments would grow if they were held outside the plan and were thus subject to tax.
• Money may be withdrawn from an RRSP during the years when you are in a lower income-tax bracket due to reduced income i.e. retirement. The money withdrawn will be taxed, but at your current tax rate, which could be lower than your tax rate when you earned the money.

By the end of the year that you turn 71, you are required to convert your RRSP to an eligible payout plan such as Registered Retirement Income Funds (RRIF).

Non-registered plans

In contrast to the first two options above, a non-registered plan has no contribution room limit. It allows you to invest as much money as you want and have less restriction in terms of what you can and cannot invest your money in. The downside of this freedom is that it does not provide any tax-deferral benefits.

Amounts invested in a non-registered plan are after tax dollars and any growth or fund movement in the year will be reported annually.

Registered Retirement Income Funds (RRIF)

The option exists to convert an RRSP into an RRIF anytime on or before the end of the year in which you turn 71. It is mandatory to either withdraw all funds from your RRSP plan or convert your RRSP to an RRIF or life annuity by the end of the year in which you turn 71.

Investments held inside an RRIF grow in a tax-deferred manner just as with an RRSP, but there are some differences. For example, with an RRIF, no further contributions may be made and minimum withdrawals are required. These minimums change annually, based on your age and total value of the RRIF at the beginning of the year. Your advisor can provide further information.

Life Income Fund (LIF)

A (LIF) is similar to a RRIF but for funds that have been contributed through a pension plan. Money held within a LIF is highly regulated and there is a set minimum and maximum amount you may withdraw during any calendar year.

Locked-in Retirement Account (LIRA)

When you transfer assets from a registered pension plan (RPP), a defined contribution pension plan, or the commuted value of a defined benefit pension plan sponsored by a former employer, the assets must go into a LIRA.¹ These funds are sheltered much like an RRSP but are locked in and not accessible² until the account is converted to a locked-in payout plan³ or an eligible life annuity. You may need to reach a certain age, based on the applicable pension legislation, before the assets can be converted to a locked-in payout plan³ or an eligible life annuity. By the end of the year that you turn 71, you are required to convert your locked-in accumulation plan to an eligible life annuity and/or locked-in payout plan.

Also note that once a plan is converted to a locked-in accumulation plan, you cannot make further contributions to it.