Three Reasons to Open an RRSP or TFSA Now

While you may be a long way from retirement, a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) can provide short-term benefits that can improve your financial well-being – even if you are not thinking about retirement.

Here are three reasons to open an RRSP or TFSA now:

  1. Immediate tax relief – An RRSP contribution can reduce your taxable income in the year you make a contribution and it is claimed. Depending on your situation, this may result in a refund of income taxes, which could be saved or invested towards your future goals.
  2. Tax-shelter the interest or investment gains on your savings:  With a TFSA, you do not pay taxes on interest, dividends or other investment gains accrued inside the account. Given that taxes are not payable on withdrawals from the TFSA account at any time, it could be used as a short, medium or long-term savings vehicle.
  3. Use your RRSP for a down payment on a home:  You can borrow up to $25,000 from your RRSP to be used as a down payment on a purchase under the Home Buyers’ Plan. Your spouse can also borrow up to $25,000 from their RRSP for a total of $50,000 as a couple.

You must be considered a first time home buyer or have not owned a home in five years. You must also intend to occupy the home as your principal place of residence. For additional eligibility and repayment conditions of the Home Buyers Plan, click here.

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Where you save – RRSP, TFSA, or both – depends on your short-term and long-term objectives.

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Click on the following for definitions of Registered Retirement Income Fund, Old Age Security and Guaranteed Income Supplement.

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  • The money you put into an RRSP or TFSA benefits from year-over-year savings and compound growth on the investments inside the plan.

RRSP and TFSAs: How the money adds up

  • A dentist, aged 27, earns an annual salary of $136,968 in 2015 and 2016. The RRSP limit is set as 18% of earned income to a maximum of $24,930 in the 2015 tax year and $25,370 in the 2016 tax year.
  • In the 2015 and 2016 tax years, the dentist can contribute 18% of his/her earned income or $24,654.24, as per the calculation: 136,968 x 18% ÷ 100.
  • Even if  only $24,000 was saved every year from age 27 to 60, the total, with a modest and yearly  compounding  rate of return of 5%, would come to $1,921,531.50
  • A dentist earning the same salary can save $440,350.74 by age 60 if $5,500 is contributed to a TFSA every year with a modest and yearly compounding rate of return of 5%

 Calculations are sourced from GetSmarterAboutMoney.ca

Ready to open or contribute to an existing CDSPI RRSP or TFSA account?

 Transfer to CDSPI

When you open an RRSP or TFSA with CDSPI, your funds are allocated to the CDSPI Family of 36 investment funds. A Certified Investment Planner (CFP) can determine your RRSP/TFSA contribution(s) and help you save – now and for the future. Call 1-800-561-9401 or email investment@cdspi.com

Figures marked with an asterisk * ($5,500, $24,930 and $25,370) are sourced from the Canada Revenue Agency. The 18% maximum contribution amount you make to an RRSP is less the previous year’s pension adjustment. $5,500* can be contributed to your TFSA for 2015. You may also be able to make a lump sum catch-up contribution, as TFSA contribution room is carried forward from previous years.  You must meet certain age and residency requirements. This information is intended as a general source of information and is current as of the publication date. This information is not intended to provide specific financial, tax, investment, legal or accounting advice. Individuals should consult with their professional tax advisor, accountant, legal professional or other professional. Financial planning services and investment advice are provided by licensed advisors at CDSPI Advisory Services Inc.