Plan Comparison Flashcards
RRSP
Registered Retirement Savings Plan
(For Everyone)
Contributions- Deductible in other deductions
Withdrawal - 100% Taxable, except for when used for Home buyer plan or life long learning plan.
It’s an investing and retirement savings account registered with the (CRA) that provides Canadians benefits to save for retirement. The money you put towards an RRSP isn’t taxed as a part of your income, so you pay less income tax.
TFSA
Tax Free Savings Plan
(For Adults)
Contributions- Not Deductible
Withdrawal - 100% Not Taxable
You can think of a TFSA like a basket, where you can hold qualified investments that may generate interest, capital gains, and dividends, tax-free.
RDSP
Registered Disability Savings Plan
(Mainly for parents or people with disability)
Contributions - Not Deductible
Withdrawal -
Tax on earnings in the account
No tax on contributions returned
**Other - **
* Canada Disablity Savings Grant (Contributions you make will be matched upto 3,500 per year and 70,000 for lifetime)
* Canada Disability Savings Bond- Up to 1,000 per year for a lifetime of 20,000 for lifetime
A registered disability savings plan (RDSP) is a savings plan intended to help parents and others save for the long term financial security of a person who is disabled
RESP
Registered Education Savings Plan
Contributions - Not Deductible
Withdrawal -
Student
No tax on contributions returned
Tax on earnings in the account
Parent
No tax on contributions returned
No tax if earnings are transferred to RRSP
If cant put earnings into RRSP, taxed normally plus 20% penalty tax.
**Other - **
* Canada Education Savings Grant ($500 per year for up to $7,200)
* Canada Disability Savings Bond- Extra $2000 per year
A Registered Education Savings Plan (RESP) is a special savings account for parents who want to save for their child’s education after high school.
RPP
Registered Pension Plan
Contributions:
Employer - Not taxable
Employee- Deductible (from employment income)
Withdrawals
100% taxable
PRPP
Pooled Registered Pension Plan
Contributions:
Employer - Not taxable
Employee- Deductible (under other deductions)
Withdrawals
100% taxable
Contributions are limited, Plan is locked until retirement.
A PRPP is a new kind of deferred income plan designed to provide retirement income for employees and self-employed individuals who do not have access to a workplace pension.
Comparison of TFSA and RRSP
Contributions-
* TFSA is not deductible
* RRSP is deductible
Withdrawals-
TFSA is 100% non taxable
RRSP is taxable
Other - TFSA has less annual contributions at $6000, whereas RRSP changes yearly and is currently at $29,210
Example: In 2022, Sophia Scarponi has $5,000 in pre-tax income that she would like
to invest. She has asked your advice on whether she should contribute to a TFSA or to an
RRSP. She indicates that her marginal income tax rate is 45%, a rate that she expects to
remain unchanged for the next 10 years. She anticipates that funds invested in either the
TFSA or an RRSP will earn a compounded annual return of 10%. She does not anticipate
need for these funds for at least 10 years
Analysis: As the $5,000 is required to be included in her net income, then
income tax of $2,250 [(45%)($5,000)] will have to be paid, which will leave her with funds to invest in the TFSA of $2,750 [$5,000 - $2,250)]. If this amount is left in the TFSA for 10 years earning income at an annual compounded rate of 10% she will have a balance of $7,133. None of this amount will be subject to tax when it is withdrawn.
ANALYSIS—RRSP Since RRSP contributions are deductible in determining net income,
no income taxes will be paid on the $5,000, meaning the full amount can be invested in
an RRSP. At the end of the 10-year period the RRSP, with annual compounding of 10%,
will have grown to $12,969. The withdrawal of the full amount will result in income tax of
$5,836 [(45%)($12,969)], which leaves her with the same $7,133 [$12,969 - $5,836].
