3 Types of Retirement Plan Accounts
It’s not a secret how important it is to invest for your retirement. Of course, it is much easier to decide to invest for your retirement than it is to actually do it. This is not an easy task but the good news is that The Rothenberg Group professional financial planners can help you find the right plan to help you succeed in this process.
If you are employed full-time, there are several employee retirement plans already available to you. All that you need to do is plug in the numbers. Let’s take a look at a few:
The Registered Retirement Savings Plan
The RRSP is a very specific type of financial account, which exists in Canada, designed for investment assets and to hold savings. These plans first started to come into use in the late 1950s and were at first intended to help promote long term savings for retirement for both employees and those who are self-employed.
Keep in mind that in Canada any plan, like this one, must comply with a handful of restrictions as set forth by the Canadian Income Tax Act, which can approve RRSP assets such as:
- corporate shares
- foreign currency
- guaranteed investment certificates
- income trusts
- labor-sponsored trusts
- mortgage loans
- mutual funds
- savings accounts
According to the stipulations of the Canadian Income Tax Act, the maximum contribution allowed for each type of investment and the timing of these contributions varies. The types of assets you are allowed to contribute and the overall conversion of these assets in the future (should you choose to move them over to a Registered Retirement Income Fund, RRIF, when you reach the age of 71) can change from person to person, as well.
The Tax Free Savings Account
The TFSA is another special type of account with which you can get the tax benefits set aside specifically for long term savings. Essentially, you would want to set up an account like this if you have some form of investment income. This could include capital gains or dividends, among others, all which can avoid taxation, even upon withdrawal from the account. Since these deposits are not traditionally taxed, however, they cannot be included as an income tax deduction (like you would an RRSP).
Although TFSA and RRSP are different, they are still similar because they do not have to be a cash savings account. Now, both of these account types can contain cash—among many investment earnings classifications (i.e., mutual funds, guaranteed investment certificates (GIC), mutual bonds, stocks—but the TFSA can hold any other RRSP-eligible investment, too.
In addition, though, the TFSA and the RRSP can be similar, in that they may both have contribution limits. These limits can change annually according to the Consumer Price Index.