Preparing for a Great 2019 with RRSPs and TFSAs
Important Dates in 2019
March 1: Deadline for 2018 RRSP contributions
April 30: Individual Filing Income Tax Returns & Instalments
June 17: Self-employed individual Filing Income Tax Returns & Instalments
November 30: Year-End Planning
December 27: Last day for 2019 tax loss selling
December 31: Year-End Planning
Deceased—Final Tax Return:
Death Between January 1 and October 31: April 30 of following year
Death Between November 1 and December 31: Six months after date of death
Quarterly Tax Instalments: March 15, June 15, September 15, December 15
RRSP or TFSA?
An important question is whether a TFSA or an RRSP is better for you to put your money in. TFSAs were created with the intention to supplement RRSPs. Once an RRSP is maxed out, the TFSA becomes another way to protect earnings from income taxes. The value of reducing your annual income tax burden with an RRSP is difficult to beat. While both offer no tax payable on investment growth on funds within the account, these are key differences.
- Whereas in an RRSP your contribution limit is based on your income, the TFSA has standardized limits.
- In an RRSP, contributions are tax-deductible, in a TFSA they are not.
- In an RRSP, withdrawals are subject to income tax but in a TFSA they are not.
- In an RRSP, withdrawals may only be re-deposited if you have the necessary contribution room, in a TFSA withdrawals may be re-deposited in the following years.
The type of account that is better for you depends on your particular situation and should be considered with a Wealth Management Advisor.
Here is more information on each to help you with your decision.
RRSP
In 2019, the maximum contribution to a registered retirement savings plan is $26,230. Contributions to an RRSP are tax-deferred, therefore only taxed when withdrawn. Money contributed up to the limit, a percentage of your earned income plus previously unused room, reduces taxable income for that year. You will find your unused RRSP room listed on your CRA notice. Contributions can be made to your RRSP until the end of the year you turn 71, as long as you have employment income.
RRSPs can provide special benefits. For example, a Spousal RRSP allow Canadian couples to split income in retirement. This can help lighten the tax load for couples with big income disparity. There is also the RRSP Home Buyers’ Plan to aid in the purchase of a first home, the Lifelong Learning Plan (LLP) to use RRSP contribution to help fund your education. For all the intricacies of RRSP investing, we recommend speaking to one of our Wealth Management Advisors.
TFSA
In 2019, another $6,000 of contribution room has been allotted in Tax-Free Savings Accounts for a total of $63,500. TFSAs are one of many ways to reduce the burden of taxes on a portfolio. Opening one for the first time, it can be unclear how best to use the contribution room available.
Once money is in a TFSA, that money can be used for all kinds of investments—stocks, mutual funds, ETFs, and more. The way your TFSA can best improve your overall investment portfolio should be determined with an advisor. Our wealth management advisors are regularly updated with the latest to offer you the best advice.
TFSAs are also offer much easier access to funds than other registered plans, which is a plus if that flexibility is important to you. Further, TFSA withdrawals are not involved with most government benefits and will therefore not negatively impact old age security or guaranteed income supplement payments. You may also continue to use and contribute to your TFSA past the age of 71.
Conclusion
An RRSP and a TFSA can bring unique advantages to your portfolio. We invite you to try our retirement savings calculators, and to discuss these questions with one of our Wealth Management Advisors. Call us at 514-934-0568 or click here to make an appointment.
