The pandemic has been challenging for everyone, and many of us are worried about the effect of COVID-19 on our savings and retirement plans. (TD) advisors can help you move forward no matter where you are on your financial journey,
According to a recent TD survey, one in three (35 per cent) 91原创s say the pandemic has impacted their savings and retirement plans and one quarter (25 per cent) of those affected have needed to cut back on contributions or stop them altogether. In some cases, the聽pandemic has also left some 91原创s with additional聽savings because of changes in spending.
Regardless of whether you're planning for long-term retirement or a shorter-term goal, your savings plan can include a TFSA, RRSP or both. Here, Jared Jarman, Associate Vice President, Specialized Advice Acquisition at TD, shares key information and differences between the two.
Tax-Free Savings Account
When to use it:聽A TFSA is designed to help you save for both long-term and short-term goals 鈥� this includes big ticket items like a new home, vehicle, travel, a wedding or your retirement. A key benefit is that your savings grow tax-free within the account.
Contributions:聽Unlike an RRSP, TFSA contributions are not tax deductible. The amount of money you鈥檙e allowed to contribute is based on an annual limit set by the federal government; in 2021 it鈥檚 $6,000.
However, unused contribution room accumulates from year to year. If you withdraw money one year and want to put it back in the same year, you'll need to make sure you have contribution room left for that year, otherwise you'll have to wait for the following year. Any contributions made over your allotted contribution limit are subject to a 1 per cent per month penalty. You can confirm your total contribution limit with the Canada Revenue Agency.
Withdrawals:聽Withdrawals are generally tax free, and the amount withdrawn is re-added to your contribution room at the start of the following year.
Registered Retirement Savings Plan
When to use it:聽An RRSP is designed to help you save for retirement. Contributions are deposited pre-tax, which means you only pay tax when you withdraw your funds. Contributions are tax-deductible.
颁辞苍迟谤颈产耻迟颈辞苍蝉:听The amount of money you鈥檙e allowed to contribute is based on your earned income. The 2021 limit is up to 18 per cent of your annual earned income to a maximum of $27,830 ($27,230 for the 2020 tax year), subject to any pension adjustments plus any unused contribution room from past years.
奥颈迟丑诲谤补飞补濒蝉:听Since RRSPs are designed for long-term saving, withdrawals are subject to tax. However, there are exceptions. For example, under the RSP Home Buyers' Plan, first-time buyers can withdraw up to $35,000 (or $70,000 for a couple) to finance a down payment, subject to eligibility and conditions. The withdrawal is tax-free but must be paid back over a period of 15 years, beginning in the second year following the year of withdrawal.
How do I decide?
There is no one-size-fits-all approach, and many people can benefit from holding both types of accounts.
If you're interested in learning more,聽speak with a who can help you assess your options through our website, via phone or at any of our branches聽in Victoria and across 91原创 Island, including our new virtual appointment option.
