Remember the old days, when the only savings choice you had was an RRSP? Welcome to the 21st century, where acronyms abound. You can use your TFSA for short or long-term savings, your RDSP to save for a disabled family member, or an RESP to save for your child or grandchild’s education. And within that RESP, you have to understand CESGs, and the RDSP has both CDSGs and CDSBs. If you are the average Canadian, you don’t actually have the resources to do it all, so how do you figure out where to start?
Since free money is always the best kind, both the RDSP (Registered Disability Savings Plan) and RESP (Registered Education Savings Plan) match some of your contributions. Without question, if you have a disabled dependent the RDSP should be your first priority. Grants (CDSG) are paid based on either family income, if the disabled person is under 19, or the beneficiary’s income if he or she is over 19. These grants are significant and can represent as much as a 300 per cent match. If you are a disabled person, or their parent or grandparent, an RDSP must be your first priority.
More free money comes your way in saving for a child’s education. Grants are available from the federal government when you make contributions up to $2,500 per year. There are additional amounts available for low-income families.
No free money with RRSPs, but you can get back the tax you paid on your contributions, until such time as you draw the funds out. If your income is lower when you draw, there will be a real tax savings. There are many strategic decisions that must be made with RRSPs if you are to obtain the full benefit. Spousal contributions can make a big difference for some people, and in other cases, RRSP contributions don’t make sense. Make sure you work with a qualified advisor to plan your retirement income…. And that doesn’t mean finding a financial institution still open at 5 before midnight on the last day for RRSP contributions.
That leaves the TFSA, which is a good place to accumulate money, or to transfer money if you already have non-registered savings. I personally feel that TFSAs aren’t a good vehicle for your short-term savings … interest rates available are so low that they aren’t worth sheltering.
As always, feel free to drop me an e-mail if this column or any other financial issues trigger a question.
Judy Poole is a financial advisor with Raymond James, and has spent the last 39 years involved in the financial industry. You can reach her at judy.poole@raymondjames.ca. This article is provided as a general source of information and should not be considered personal investment advice. The views expressed are those of the author and not necessarily those of Raymond James Ltd . Securities offered through Raymond James Ltd., Member-Canadian Investor Protection Fund. Financial planning and insurance offered through Raymond James Financial Planning Ltd., not a Member-Canadian Investor Protection Fund.
