In Canada, there are a number of different types of accounts, or investment vehicles, that an individual can use, and they all serve a different purpose. What follows is a quick discussion regarding some of the different investment vehicles available to Canadians.
Tax-Free Savings Account – Also known as a TFSA. These accounts are great for Canadians who want to save money for pretty much anything. The investment income earned in a TFSA is not generally taxable, and every year the contribution amount increases.
Registered Retirement Savings Plan – Also knowns as an RRSP. These accounts are great for saving for retirement because contributions made reduce taxable income. Future withdrawals are taxable. RRSPs are a legitimate way to defer tax. The key is that you don’t want to overcontribute. You must stay within your deduction limit each year or there will be penalties.
Registered Education Savings Plan – Also known as an RESP. These accounts are for parents or grandparents to use to save money for their children or grandchildren’s post secondary education. The best thing about them is that the government provides grants approximating 20% of the contributions up to a $7,200 maximum per child.
Registered Disability Savings Plan – Also known as an RDSP. These accounts are designed to be used to save money for individuals who are disabled. The government provides generous grants for these accounts, and if you are eligible, it is definitely something worth looking into.
First Home Savings Account – Also known as the FHSA. This account is quite new. It is designed to provide a tax deduction to those who are saving up to purchase their first home. The good news is that withdrawals are not taxable, which makes them more advantageous than RRSPs. However, a very select number of people are eligible to take advantage of this account, whereas anyone age 18 and over can open an RRSP.
Once you have decided which of the above is useful for your situation, it is important to note that you can choose how to invest your money within the account. For instance, you may want to invest in Guaranteed Investment Certificates, mutual funds, or a savings deposit. Some financial institutions will also allow you to hold stocks within the accounts. Be sure to seek advice on how to best utilize the accounts in order to wisely invest your hard earned money.
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