FAQ / Resources

Should I invest in a TFSA or RRSP?

What are the contribution limits?

How do I figure out my precise contribution limit?

Is my money better used elsewhere than a registered plan?

What happens if the beneficiary of an RESP does not attend post-secondary education?

 

Should I invest in a TFSA or RRSP?

With the introduction of the Tax Free Savings Account, there have been numerous debates on which strategy is the better option. As usual, the answer is, “It depends.” Everyone’s circumstances are unique, so it’s wise to step back and consider your needs to reduce and/or defer taxes before deciding. We can help make sure your plan is on the right path.

 

What are the contribution limits?

The TFSA has an annual limit of $5,500, with the ability to contribute more if you have not contributed in previous years, or you have made a withdrawal.

Your RRSP (Registered Retirement Savings Plan) contribution limit is based on your earned income – you can contribute up to 18% of your annual income, to a maximum of $25,370 for 2016. And you can top that up if you have unused contribution limits from previous years.

 

How do I figure out my precise contribution limit?

From the 18% or $25,370 figure, you must subtract your pension adjustment (PA). This amount takes into account the money you or your company contributed to an employer-sponsored pension plan. Your T4 slip will tell you what your PA was for the year.


Then you can add the total carry-forward of unused RRSP contributions since 1991. You can check the Notice of Assessment you received from the Canada Revenue Agency after your last tax return for the number as of your last filing. Or you can phone the CRA T.I.P.S. line at 1-800-267-6999. You will be asked to provide your social insurance number, your month and year of birth, and the total income you reported on line 150 of your most recent processed tax return.

For some taxpayers who haven't been stuffing their RRSPs, the cumulative unused contribution limit can amount to more than $100,000. As of the end of 2009, Canadians had used only 8% of their available RRSP contribution room - more than $330 billion.
 

Is my money better used elsewhere than a registered plan?

RRSP contributions might not hurt, but it might pay to step back and look at the bigger picture. For instance, people with credit card debt compounding at nearly 20% are probably better off clearing that first. Your Orr Insurance & Investment Advisor is a qualified financial planner, who would be happy to help you make sense of your finances and make suggestions.

 

What happens if the beneficiary of an RESP does not attend post-secondary education?

In that case, there are two options:

  • the funds can be transferred to a sibling’s RESP, if they are under the age of 21
  • the funds can be transferred to an RRSP,  up to a maximum of $50,000, and any government grant money gets returned to the government.