Registered Savings 101: Roundtable Q&A

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This article was originally published February 2017 and has been updated.

We understand you want RRSP and TFSA straight talk. That’s why we set up a roundtable chat with real financial experts who could give you honest, straightforward advice.

When you’re just starting out on your own it can be tough to think about planning for the distant future. And even when you get into your career, there are still student loans to pay off and saving for things like a vehicle or a down payment on a house. We asked our panellists to bring their questions, and our financial experts helped to make RRSPs, TFSAs and more a bit easier to understand.

Providing advice were financial experts John Burris and Cindy Viner from Valley Credit Union and our panelists were Celeste, Alex, and Spencer.

Here are helpful highlights from the discussion:

Q: What’s the difference between an RRSP and a TFSA?

A: Speaking in broad terms:

An RRSP, short for Registered Retirement Savings Plan, lets you put money away now and defer it to a time when your income is less, like when you retire. The benefit of an RRSP is income tax savings—you can save on taxes while investing in your future.

TFSA, or Tax-Free Savings Account, on the other hand, can be used for more short-term savings because it has more flexibility in terms of when you can withdraw funds. You have the ability to withdraw money at any time without paying any tax penalties. And your money in a TFSA grows tax-free.

Q: How do I know which one is right for me?

A: The best thing to do is have a discussion with a financial expert. That way you can review your financial goals together and decide on which option makes the most sense for you.

Q: What are the contribution limits for TFSAs and RRSPs?

A: The contribution limit for your RRSP is completely based on your income from the previous year. Generally, an amount equal to 18% of your annual income is the amount of your RRSP contribution limit. The Canada Revenue Agency will send you your contribution limit on your yearly notice of assessment so you’ll know exactly how much room you have.

For TFSAs the contribution limit is legislated by the federal government. The amount for 2020 is $6,000.

Q: Is there any way you can take money out of your RRSP before you’re retired?

A: Absolutely. First-time homebuyers can borrow up to $25,000 from an RRSP for a down payment on a house. There is also a Lifelong Learning Plan which allows you a one-time opportunity to borrow up to $20,000 from your RRSP to help pay for you to go back to school.

With both options you do have to pay back the amount borrowed. For first-time homebuyers, you have two years before you have to begin repayments. For Lifelong Learning Plan participants, you don’t have to begin repayment until you’re finished being a full-time student.

The Canada Revenue Agency will let you know how much you owe, and when you need to pay it back by. But if you don’t meet those conditions, you will be taxed on the amount borrowed.

Q: How can I qualify for the first-time homebuyer’s plan?

A: In order to qualify you can’t have owned a home for the last four years. Your financial expert can help you with the paperwork to see if you qualify.

Q: Are there minimum contribution levels for RRSPs or TFSAs?

A: No, there is no minimum amount!

Q: If you start a TFSA do you have to wait a specific amount of time before you can withdraw money from it?

A: No, you can withdraw from your TFSA when you need or want it. The thing to remember is, say for instance you had $5,000 in your TFSA and you withdrew $1,000, the maximum amount you would be able to put back into your TFSA would be $500 for the year. You’d have to wait until the following calendar year to put more back in.

Q: If I plan to use the First Time Homebuyer’s Plan and borrow money from my RRSP, why wouldn’t I just put that money for a down payment in a savings account instead?

A: By putting money into an RRSP, it allows you to both save for your retirement and save for a down payment on a house.

Q: What are some retirement savings tips for somebody in their 20s?

A: Start early! Even a little bit every month can add up to a lot over time. The sooner you can put money into an RRSP, the sooner you can start benefiting from interest and compounding, which will benefit you in the long run.