There are many ways to save
Saving money can be difficult. But with a little help, families can address all their priorities: retirement, the kids’ education, family vacations and an emergency fund.
Servus Credit Union financial adviser Kelsey Bennett says it’s important for families to make sure they’re making their money count, and knowing how to save helps. Here are a few tools to help your dollars grow:
RRSPs: The registered retirement savings plan (RRSP) is the best way for many families to save for retirement. Contributions grow in a tax-sheltered environment until withdrawn. At the same time, they are deductible against income, resulting in a tax refund come spring. That refund money can be re-contributed or used for other priorities. Ideally, you want to contribute now while at a high tax rate, have it grow over time with the taxes deferred, and then withdraw the funds at retirement when you are at a lower tax rate. Some even use strategies such as RRSP loans to boost their savings. You can find plenty of RRSP resources online at Servus.ca to help, including an RRSP loan calculator to optimize your contributions.
RESP: Not only do contributions grow tax sheltered inside a registered education savings plan (RESP) until withdrawn, but they also attract the Canada Education Savings Grant, a 20 per cent federal topup of contributions up to $2,500 a year per child. That’s up to $500 in grant money from the government each year with a lifetime maximum of $7,200 per child. Moreover, low-income families are eligible for the Canada Learning Bond worth up to another $2,000 from the federal government. While the money is taxable when withdrawn, it’s taxed in the hands of the student whose income is presumably low enough that taxes are negligible or non-existent.
TFSA: The tax free savings account is the Swiss Army knife of savings tools. Contributions grow taxfree and can be withdrawn without paying taxes as well, making it a flexible vehicle for saving for both short- and long-term goals. The maximum annual contribution is $5,500 with the lifetime maximum of $52,000 for individuals who were at least 18 years old in 2009, the first year you could contribute to the TFSA.
TFSAs are an excellent long-term savings tool, providing tax-free income for retirees that will not affect income-tested benefits like Old Age Security. Yet, because money can be withdrawn tax-free, and contribution room for those withdrawals is restored the following year, it’s flexible enough to be used for emergency needs at any time.