Savings and Investment Accounts

Registered Retirement Savings Plan (RRSP)

Registered Retirement Savings Plan is a type of Canadian account for holding retirement savings and investment assets. Rules specified in the Income Tax Act determine the maximum contributions, the timing of contributions, the assets allowed, and the eventual conversion to a Registered Retirement Income Fund (RRIF), which must take place by age 71. Approved assets include, but are not limited to, savings accounts, guaranteed investment certificates (GICs), bonds, mutual funds, segregated funds, corporate shares, and labour-sponsored funds. Contributions to an RRSP are fully tax deductible, growth within an RRSP is tax-deferred and withdrawals from an RRSP are fully taxable.

Tax-Free Savings Account (TFSA)

Tax-Free Savings Account is a type of Canadian account which can be used for short or long-term savings. A TFSA can hold any investments that are RRSP eligible, however, unlike RRSPs, contributions to a TFSA are not tax deductible. Another key difference between TFSAs and RRSPs is that investment income, including capital gains and dividends, earned in a TFSA is not taxed while held in the TFSA or when withdrawn. TFSAs are a relatively new initiative by the Canadian government, established Jan 1, 2009.

Mutual Funds

Mutual funds are a collection of stocks, bonds, or other securities owned by a group of investors and managed by a professional investment company. When you put money into a mutual fund, it is combined with money from similar-minded investors. This large pool of money gives you much greater purchasing power than you could possibly have investing on your own. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Segregated Funds

Segregated funds are a type of pooled investment product, similar to mutual funds, administered by Canadian insurance companies. Although they are an investment product, by law, they are technically considered life insurance. Unlike mutual funds, segregated funds offer certain guarantees on maturity and death to the unit holders. Also, value in segregated funds does not become part of an individual’s estate upon death, if there is a named beneficiary, thereby avoiding probate fees. Similar to mutual funds, segregated funds are managed by professional money managers who seek to produce capital gains and income, doing so in accordance with the investment objectives stated in its information folder.

Registered Education Savings Plan (RESP)

Registered Education Savings Plan (RESP) is a type of Canadian account for holding education savings. Contributions to an RESP are not tax deductible and withdrawals from an RESP are fully taxable in the hands of the beneficiary, who in many instances is a young adult earning modest income. If certain conditions are met, RESP contributions are eligible to be matched up to 20% by the Canadian government through a Canadian Education Savings Grant (CESG). Additional grants and incentives are available depending on the annual income of the RESP owner(s) and the province in which they reside.

Registered Disability Savings Plan (RDSP)

Registered Disability Savings Plan (RDSP) is a type of Canadian account designed to enable individuals with disabilities to save for their financial future. The Canadian Government assists people to save through the Canada Disability Savings Grant and Canada Disability Savings Bond. A person who establishes an RDSP can make contributions to the plan up to a lifetime limit for the benefit of the person named the beneficiary. Contributions are not tax-deductible, and earnings and growth accrue on a tax-deferred basis until withdrawn – at which time a proportion of the plan (earnings and growth received) is taxable and will need to be declared as income in the hands of the beneficiary.