TFSA and RRSP new Contribution Amounts

TFSA and RRSP new Contribution Amounts

Tax Free Savings Accounts

You’ve heard about the TFSA but what is it?

Well, first of all it’s not just a savings account. Think of a tax-free savings account (TFSA) as a basket. You can put a number of financial instruments in that Self Directed basket – guaranteed investment certificates, stocks, bonds, mutual funds, and yes, actual savings accounts.

The key is that all gains that you make from the investments in that basket are tax-free. The Canadian government introduced TFSAs in 2009 as a way to encourage people to save money for retirement. Since you paid tax on the money you put into your TFSA, you won’t have to pay anything when you take money out.  The contribution amount for 2018 is $5,500 for a total lifetime maximum contribution limit of $57,500.

 

Registered Retirement Savings Account

A refresher on RRSPs:

A Registered Retirement Savings Plan or RRSP is an account that  allows a person to shelter money from income taxes.

Like a TFSA a Self Directed RRSP can be compared to a big basket and numerous investments can be made: savings accounts, guaranteed investment certificates (GICs), stocks, bonds, mutual funds and more.

The maximum amount one can contribute to an RRSP changes each year.  A deduction limit is generally calculated as 18% of a person’s earned income from the previous tax year, minus any “pension adjustment”, up to a specified maximum. For 2018 the maximum contribution is $26,230.