‘I’m maxed out’ – looking beyond RRSPs
Saving in an RRSP alone may not be enough to reach your retirement goals. Here are some additional options you should look at implementing.
For years, you’ve invested in a Registered Retirement Savings Plan (RRSP) – good for you, an RRSP is the best tax-saving, income-building investment vehicle for most Canadians. And to get the most in immediate tax savings and to maximize the potential long-term growth of yourRRSPs, you always make your maximum allowable contribution each taxation year.
But with all of that taken care of, what do you do now? Let’s look at money-saving and financial growth options beyond your RRSP.
Contribute to investments held in a Tax-Free Savings Account (TFSA) It complements your RRSP because investments within a TFSA grow tax-free. You can currently contribute up to $5,500 in new money to a TFSA each year and get your contributions and accumulated income out at any time, for any purpose, tax-free. However, there is no deduction against your taxable income for TFSA contributions.
Add to your non-registered investments With your RRSP and TFSA topped up, consider adding your tax refund to your non-registered investments. The most tax-efficient strategy is to hold your fixed-income investments in a RRSP or TFSA, and stocks and equity mutual funds in a non-registered account (to the extent your investments exceed your RRSP and TFSA contribution room). This is because RRSP withdrawals are included in your taxable income in the year of the withdrawal and are taxed at your marginal tax rate, but stocks and equity mutual funds held in a non-registered account are taxed at a more favourable capital gains inclusion rate when you dispose of them. As well, dividends from most Canadian corporations are eligible for the dividend tax credit.
Pay down debt It’s a fact: Simply paying down debt delivers a risk-free, after-tax return which may be comparable to many investments. Start with costly, high-interest credit card debt and then pay down non-deductible debt such as your home mortgage – a single prepayment could save hundreds, even thousands of dollars in interest payments.
For parents and grandparents Establish and contribute to a Registered Education Savings Plan (RESP) for your children or grandchildren. An RESP is the most effective way to create an education fund that grows to offset the future cost of education.
For (some) business owners It can make sense to build a retirement investment portfolio inside your company instead of paying out that corporate income to a shareholder. The company can also fund an Individual Pension Plan (IPP), which has the potential for greater taxassisted savings than through RRSPs or Defined Contribution pension plans. Be aware, however, that these business-related options require careful planning and the guidance of financial and legal professionals.
There are tax and income-building advantages and disadvantages to each of these “beyond RRSP”options. You need to look at them in relation to your overall tax situation and financial objectives. Your professional advisor can help you make the right decisions for your unique situation.
This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.