Exploring investment and savings options in Canada

05/23/2024   |   Dentistry, Dentistry, Financial Planning

Exploring investment and savings options in Canada

Registered Retirement Savings Plans (RRSP)

Navigating financial planning for ALL Canadians can be daunting. It can potentially be a bigger challenge for newcomers or those returning after studying abroad. As we explore various Saving options in Canada we explain the Registered Retirement Savings Plan, its eligibility criteria and why it is one of the most important accounts to use to prepare for retirement.

Am I eligible for an RRSP?

CitizenPermanent ResidentNon-residentStudent Visa
RRSP (Registered Retirement Savings Plan)Yes – up to 18% of your earned income in the previous year (not including dividends).Yes – up to 18% of your earned income in the previous year (not including dividends)No. Must be a Canadian resident for tax purposes to contribute to RRSP.Yes* – if you are considered a resident (permanent or temporary) and have earned income previously while in Canada.

Registered Retirement Savings Plans (RRSPs) are pivotal for retirement savings in Canada. Contributions are tax-deductible, and investment growth is tax-sheltered until withdrawal, making them advantageous, especially given the typical higher tax brackets during working years.

RRSPs offer some flexibility aside from retirement savings. They can serve as savings vehicles for first home purchases (Home Buyer’s Plan) or education (Lifelong Learning Plan). The recent federal budget proposed increasing the home buyer’s plan withdrawal limit from $35,000 to $60,000.

Eligibility for RRSPs requires residency (permanent or temporary) for tax purposes, prior earned income in Canada, and income taxes filed in Canada in past years.

Common Questions:

  1. Contribution Limits: In 2024, the RRSP contribution limit is 18% of the previous year’s reported income, up to $31,560, with additional room from previous years.
  2. Investment Options: RRSPs offer a range of investment choices including stocks, bonds, mutual funds, ETFs, and more.
  3. Checking Contribution Limit: Your online CRA account or the most recent notice of assessment from CRA is the best place to verify your RRSP contribution limit.

Common Pitfalls to Avoid:

  1. Early Withdrawals: Withdrawals are taxable as income, so it’s advisable to avoid tapping into your RRSP until retirement to minimize tax implications.
  2. Delaying Savings: Starting retirement savings early allows compounding growth to work in your favour, reducing the need for larger contributions later.
  3. Risk-Averse Behaviour: A disciplined approach in a diversified portfolio with higher equity exposure, especially until five years before retirement, can maximize growth potential. Although, short term volatility can cause some stress, being heavily weighted in fixed income or cash can lead to lower returns and less money available for retirement.

In our next article we will dive into how to use Tax Free Savings Accounts in your investment portfolio.