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Registered Retirement Savings Plan (RRSP)

A Registered Retirement Savings Plan or RRSP is a type of Canadian account for holding savings and investment assets. The RRSP's purpose is to promote savings for retirement for Canadian tax payers. An RRSP must comply with a variety of restrictions stipulated in the Canadian Income Tax Act.

Rules determine the maximum RRSP contributions, the timing of the RRSP contributions, the claiming of the RRSP contribution tax credit, and the eligble investments. Eligible investments for RRSP's include: savings accounts, guaranteed investment certificates (GICs), bonds, mortgage loans, mutual funds, income trusts, corporate shares (stocks), foreign currency and labour-sponsored funds.

For the most part, contributions to RRSPs are deductible from taxable income, reducing income tax payable. Taxes are reduced at the highest marginal rate. Increases in the value of the plan assets (whether capital gains, interest income or other) are not subject to income or other taxes in Canada until funds are withdrawn from the RRSP. Disbursements from an RRSP are taxable as income at the time of withdrawal - regardless of the type of profit earned while inside the RRSP.

Tax free savings account (TFSA) - The TFSA allows Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. TFSA savings can be used for any purpose, such as to purchase a new car, renovate a house, start a small business or take a family vacation.

If you are a Canadian resident aged 18 and older, you can save up to $5,000 every year in a TFSA.Your contributions to a TFSA are not deductible for income tax purposes but the investment income, including capital gains, earned in your TFSA is not taxed, even when withdrawn.Your unused TFSA contribution room is carried forward and accumulates for future years.You can withdraw funds available in your TFSA at any time for any purpose — and the full amount of withdrawals can be put back into your TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax. Neither income earned in a TFSA nor withdrawals affect your eligibility for federal income-tested benefits and credits.You can provide funds to your spouse or common-law partner to invest in their TFSA.

TFSA assets can generally be transferred to a spouse or common-law partner upon death.