Matching each saving option to your specific financial situation

Building savings can be challenging – after all, there are plenty of fun things to spend money on. 

But the satisfaction of watching your savings grow will likely outlast the thrill of your latest online purchase.

To maximize your savings potential, you can add guaranteed investment certificates (GICs), mutual funds, segregated funds, stocks and bonds to your registered retirement savings plan (RRSP) or tax-free savings account (TFSA)

Accelerate your savings

Here are a few options you can consider to make the most of your contributions:

Pay yourself first with a pre-authorized chequing contribution plan

A pre-authorized chequing (PAC) contribution plan helps you make regular, automatic contributions to your investments. It’s “paying yourself first” by treating regular saving like any re-occurring payment. This strategy is more effective because contributing more frequently gives you the advantage of dollar-cost averaging.

Talk to your advisor or investment representative about adding an option that gradually increases the amount you contribute over time. It’s like giving your investments an annual raise, which can make a big difference to your savings over time.

Catch up on unused RRSP contribution room with an RRSP loan

An RRSP loan can boost your savings by allowing you to catch up on RRSP contributions. By catching up on contributions using a loan, you’re giving your investments the most available time to grow. It helps you now and in the future because it:

Gives you more money earlier to grow your investment.
Potentially creates a larger nest egg down the road.
Reduces this year's tax bill through an income deduction equal to the amount of your allowable RRSP contribution.

Borrowing your RRSP contribution doesn’t have to be costly and you can use any tax refund to help pay down your RRSP loan. This means you’re benefitting from tax advantages right away.

Despite the advantages, RRSP loans aren’t right for everyone.

Contribute to a spousal RRSP

In a spousal RRSP, the higher income spouse makes an RRSP contribution and claims the tax deduction but the other spouse owns the plan and the money in it. Spousal RRSPs are generally used to equalize income during retirement, lowering the overall family tax rate.

This type of plan can be an advantage if one spouse earns a lot more income than the other. Any contributions made by the higher income spouse will reduce their individual RRSP contribution room for the year but won’t affect how much the lower income spouse can contribute to their individual RRSP.

If money is withdrawn within three years of contributing to the spousal RRSP, all or part of this amount will be taxed as income to the spouse who made the contribution.

1)If you want to add segregated funds to your RRSP, you must be 16 years of age (18 in Quebec). If you want to add segregated funds to your RRSP, you must be 16 years of age (18 in Quebec).

2)Dollar cost averaging means investing smaller amounts at regular intervals, rather than saving up to invest in one lump sum. It can help you avoid jumping into the market at peak times by purchasing more fund units when values are low and fewer fund units when values are high.

3)While borrowing to invest has many potential benefits (investing an initial lump sum creates greater potential for compound-growth compared to making smaller regular investment purchases), leveraging also has potential risks (market volatility may result in poor investment returns and the possibility of owning more on the loan than the investments are worth).

4)RRSP loan proceeds cannot be used to fund TFSA contributions.

When you decide to invest your money, the options can seem endless.

Among the choices are usually RRSPs and TFSAs – but what’s the difference between the two? More importantly, what are the benefits of each?

What’s an RRSP?

An RRSP is a  Registered Retirement Savings Plan where you can contribute until you’re 71 . Here’s how you can benefit from an RRSP:

You don’t pay tax on the money saved in an RRSP, until it’s withdrawn.
You or your spouse/common law partner can contribute to your RRSP.
Your RRSP contributions are not included in your income, making them tax-deductible.
You only pay tax on the money you withdraw from your RRSP. If you’re retired and ready to withdraw money often, your tax rates may be lower because your earned income may be less at that time.

What’s a TFSA?

A TFSA is a Tax-Free Savings Account to which you can contribute at age 18 or older. Here’s how you can benefit from a TFSA:

You don’t pay tax on any money earned in a TFSA or on money you withdraw.
There’s no contribution deadline, which means you can contribute to a TFSA at any time. Any unused contribution room is carried forward on January 1 each year.
If you withdraw money from a TFSA, you can add it back to your account (but you must wait until the following year to do so).
You can put your TFSA funds towards many things, including academic courses, a down payment on a home and other large expenses.

 Here are some common misconceptions about RRSPs and TFSAs:

RRSPs are pointless if you have to pay tax once retired.
Not necessarily. As you build your savings in an RRSP, that growth is tax sheltered until it’s withdrawn. So, by the time you start withdrawing a steady amount from your RRSP, you’ll be retired and may no longer be receiving an income. That means your tax rates may be lower on withdrawals, so the money that you’ve saved for years in an RRSP can still help you live out your dream retirement.
Plus, each year you contribute to your RRSP, you can claim an income tax deduction for the amount you’ve contributed. So, while you’ll pay tax on withdrawals during retirement, you can save on your taxes in the years you contribute.
RRSPs and TFSAs are investments.
Not true. RRSPs and TFSAs are simply accounts with some tax-saving features . You can hold a variety of saving or investing products within an RRSP or TFSA.
RRSPs are only for retirement.
The money that you invest in an RRSP can go towards more than your retirement. Here are some other big life events that you can put your RRSP funds towards:
- Financing a home: You can borrow money from your RRSP for a down payment on your first home under the government’s Home Buyers’ Plan. You don’t have to pay tax on this money, so long as you pay it back within 15 years after it’s withdrawn.
- Saving for an education: You can borrow money from your RRSP to pay for full-time education or training for yourself or your spouse under the government’s Lifelong Learning Plan. You don’t have to pay tax on this money, so long as you pay it back over a period of 10 years.
Investing money with many financial companies is the easiest way to diversify.
To have a well-diversified portfolio, your money doesn’t have to be spread across different institutions. Instead, you can invest your money with one institution and put it in different investment options.
Keeping your assets with one institution provides your advisor with a complete view of your portfolio, which can help determine if it’s meeting your financial goals.
You should only put money in an RRSP right before the annual deadline.
That’s not necessarily true. Every year, the deadline to contribute to your RRSP is March 1. However, you can contribute up to the maximum amount at any point throughout the year, which can help you save at a steady rate.

If you contribute any funds after the March 1 deadline, those contributions will result in a tax receipt for the following year. For example, if you contribute on April 1, 2018, those contributions will be on your 2018 tax receipt. However, if you contribute on February 1, 2018, (or any time before March 1, 2018), your contributions will result in a 2017 tax receipt.

How you can get the most from your RRSP contributions