Tag Archives: finance 101

What is an RRSP?

What is an RRSP?

The RRSP, also known as the Registered Retirement Savings Plan, is the primary retirement savings account for Canadians. The main benefit of the RRSP is the ability to defer income tax and grown investments tax free as a way of saving for retirement. In other words, money you put in today is not taxed, it grows tax free, and you only have to pay that tax when you withdraw.

 

RRSP Deposit chart

 

Just like the TFSA, an RRSP is not an investment. It is rather, a type of account that can be used to hold different types of investments. It is not uncommon for people to believe that the RRSP itself is an investment, as they are unaware of what they are invested in within the RRSP. You can hold a variety of different investments inside an RRSP.

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What is a TFSA?

What is a TFSA

 

 

A TFSA, or Tax Free Savings Account, is a type of savings account able to hold a wide variety of investments. The primary benefit of a TFSA account is that any income generated by the assets within the TFSA grow tax free. That is, if you put $100 into the account, and it grew to $200 you wouldn’t have to pay any taxes on this growth.

How a TFSA Works image

One of the most often confused parts of a TFSA, is that it isn’t actually an investment itself. I often hear people talk about how they have invested in a TFSA and are confused when I ask what it is invested in. A TFSA is not simply a savings account where you are paid a small interest rate on the value of money within it. You can however hold a high interest savings investment vehicle inside a TFSA and this is a very common option at the bank and is the reason for the common misconception.

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