As Benjamin Franklin once said, “A place for everything, everything in its place.”
Whether you agree or not that cleanliness is next to godliness, there’s no doubt that cleaning up and organizing your finances to prepare for the future – and its contingencies and unpredictability – can protect you and your loved ones while securing, and growing, your wealth.
As we enter another new year and another spin around the sun, let’s review some basic facts of the available programs that can help you build and protect your wealth moving forward.
Registered Retirement Savings Plans (RRSPs)
When you contribute to your RRSP, your contributions are deducted from your income for the purposes of calculating your personal income taxes. Your invested funds grow sheltered from tax until they are withdrawn.
- The deadline for 2023’s RRSP contributions is February 29th, 2024. (Interesting fact: although the deadline is typically 60 days into a year, 2024 is a leap year, altering the date slightly!)
- Check your Canada Revenue Agency (CRA) account to view your current RRSP contribution room, and ensure you don’t exceed it.
- Your RRSP contribution room for 2023 is based on your 2022 “earned income” (18% of earned income reported up to a maximum of $30,780), plus any additional room that may be remaining from previous years.
- The cut-off for RRSP contributions is age 71, although contributions to the spousal RRSP of a spouse under the age of 72 may be possible.
Home Buyer’s Plan (HBP)
Working in conjunction with RRSPs, the HBP allows you to withdraw up to $35,000 from your RRSP to put towards the purchase of a qualifying home for yourself, or for a disabled relative that meets qualifying criteria.
- The amount withdrawn (up to the $35,000 limit) must be returned to the RRSP within 15 years after the purchase of a home (a minimum of 1/15th per year), or it will be treated as income. Repayments must have commenced by the second year after the home’s purchase.
- The HBP can be combined with the new First Home Savings Account to facilitate additional savings put towards the purchase of a first home.
First Home Savings Account (FHSA)
Introduced in 2023, a FHSA allows users to deposit funds annually and withdraw funds tax-free to build or purchase a qualifying home. Unlike the HBP, the FHSA does not need to be repaid once funds are withdrawn.
- Annual contributions can be made of $8,000 per year, up to a total of $40,000.
- Similar to an RRSP, contributions are deducted from your income for the purposes of calculating your personal income taxes (provided you meet the eligibility criteria) – and this amount does not affect RRSP contribution limits, either.
Tax-Free Savings Account (TFSA)
A TFSA allows investors to set aside funds that can grow, be contributed to on an annual basis, and be withdrawn, tax-free.
- Check your Canada Revenue Agency (CRA) account to view your current TFSA room and ensure you don’t exceed it.
- The 2024 annual contribution limit is $7,000.
- TFSA contribution room accumulates if it is not used. If you are older than 34 and have made no contributions to a TFSA, you may have up to $95,000 in contribution room.
- Funds withdrawn from a TFSA may be placed back in future.
Registered Education Savings Plan (RESP)
An RESP allows you to save for a future student in your family, contributing to a tax-sheltered investment account that can have funds withdrawn to pay for post-secondary education.
- Parents or guardians may contribute up to $2,500 per year and receive a 20% matching grant from the Government of Canada, up to a total lifetime maximum grant of $7,200.
- Unlike an RRSP, contributions to an RESP are not deductible.
- Contributions to an RESP grow tax-free until they are withdrawn by the post-secondary student.
- RESPs withdrawals are taxed in the hands of the child, likely resulting in little to no taxes being paid.
Getting everything into the right financial buckets can be complicated. Speak to a CPFG advisor so we can help you figure out what options are best for you, your family, and your goals for the future.
Start your year with a clean slate of financial planning, and watch as the days turn into years, and your wealth grows.