It is time to start saving your money and plan ahead. Using your money to get you even more money in the future is one of the best things you can do. Knowing where to put your money may be a struggle for some but there are options that can and will help you get on the right track.

RRSP

A RRSP stands for ‘Registered Retirement Savings Plans’ and is established so you and spouse or common law partner can contribute and save for the future.  It can be used to hold savings and investment assets. What makes an RRSP special is that your contributions are tax deductible.

Advantages:

  • Under the Federal Home Buyers’ Plan, first-time buyers are able to withdraw up to $25,000 to buy or build a home. Your obligation in doing so is to repay the money to your RRSP within a period no more than 15 years.
  • The Lifelong Learning Plan allows you to withdraw $10,000 annually and up to $20,000 in order to pay for full-time education or training for yourself or a spouse. If not paid back into your RRSP within 10 years the difference is added to your income and taxed accordingly.

There are two main benefits of having a RRSP

  1. a) There is no tax on interest, dividends or capital gains within a RRSP
  2. b) If your marginal tax rate is lower at the time of withdrawal than your tax rate at the time you made contributions, a RRSP will be more beneficial to you if you are planning to withdrawal from your RRSP in retirement as many individuals me is lower when it is time to retire.

 Tax Free Savings Account

A TFSA is a savings account to help you save, whether it be for a new car or a rainy day fund. The idea is to grow your savings faster while not being taxed on any contributions, interest earned, dividends or capital gains and can be withdrawn tax free.  TFSA’s are limited to $5,000 a year but will rise along with inflation of future years.

Advantages

  • Any Interest your money makes is not taxable
  • Withdrawals are tax free
  • You can re-contribute the amount you withdrew any time after the year of withdrawal
  • You can carry forward any unused contribution room to future years. The federal government will report to you your TSFA contribution room annually.

The trick is to do your homework and visit your favorite bank to find out what option is best for you. There is no better time than now to put money aside, no matter what it is to be used for. Your future self will thank you when money gets tight.