Page 23 - A Canuck's Guide to Financial Literacy 2020

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In Canada, we have the options to choose from various types of investment accounts.
Below is a list of common accounts that you may find yourself investing in over the years.
There is no such thing as “the best account” as your choice would depend on your goals,
account ownership needs and eligibility. These accounts are discussed in detail in the Tax
Planning section.

Registered Retirement Savings Plan

RRSPs is an investment vehicle registered with the Canadian government which allow you
to defer paying tax on money deposited into it. They’re a great way for saving for retirement
as when you contribute into an RRSP, you get a tax deduction for the amount contributed
which reduces your taxable income for the year. Withdrawals are subject to withholding tax.
The greater your tax rate, the greater your tax savings.

Registered Retirement Income Fund

At the end of the year you turn 71, your RRSP matures and you must convert it to a
Registered Retirement Income Fund, an annuity or withdraw it as a lump sum. The gist of a
Registered Retirement Income Fund is to provide you with a regular stream of income as a
minimum percentage must be withdrawn each year.

Tax Free Savings Account

Tax Free Savings Account or ‘TFSA’ is an investment vehicle that allows Canadians who
are 18 years of age or older to invest money tax-free. Any investment income, capital gains
or other earnings are not subject to tax. You may also withdraw your funds at any time. The
program started in 2009 with a $5,000 limit and over the years, the limit has increased each
year. As of 2020, the limit is $69,500.

Cash/Non-Registered Account

A non-registered account also known as a cash account is a investment account that is not
registered with the Canadian government. These types of accounts do not provide tax-
deferred growth and are utilized by Canadians when they’ve maxed out their registered
accounts such as an RRSP or a TFSA. There is no limit on the amount of money you can
deposit into a non-registered account but withdrawals might be subject to capital gains.

Registered Education Savings Plan

A Registered Education Savings Plan, also known as a RESP is a savings account for
parents who want to save for their child’s education. Its an investment vehicle that allows
investment income to accumulate on a tax deferred basis. Funds within a RESP are used to
pay for post secondary education and related expenses.