The Bi-weekly challenge is (currently) a column about saving and making money. I will be randomly picking topics but I’m always open to input if you have any.
Hopefully you read the last column of the Biweekly Challenge; if not, this will all make a lot more sense if you do. Investing money can seem simple and in theory, you should be able to make money from it. However, it’s a lot easier said than done.
After deciding what kind of an investor you want to be (again see the previous issue), you need to make choices as to how you’re going to manage your portfolio. What is a portfolio? Your portfolio is all of your investments. It is a summary of what money you have and what kind of method and option you are using. In short it is all the money you are investing or saving. This column will focus on the options provided by the Canadian government to benefit its taxpayer.
Your options are often selected based on your goals. For example, you wouldn’t put money into your RRSP if you were saving up for the next school term – a regular savings account would be a better option. For each option there will be a brief description, then a list of limits, benefits and drawbacks.
Now that we’ve thrown RRSPs out there, what are they? RRSP stands for Registered Retirement Savings Plan. These are intended for long term life savings and, like the name suggests, retirement. You can, however pull money out before you retire to buy a house or go back to school. The government has special programs for these, and more details can be found here: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/menu-eng.html. Limit – the contribution room of a RRSP is limited by your income. Benefits – Your contributions are tax deductible and any growth is not taxed until you withdraw it. Drawbacks – The money that gets pulled out is taxed.
TFSA stands for Tax-Free Savings Account. This is also intended for long term life savings, but it is a bit different from the RRSP. It is intended for us younguns who do not see the benefit of contributing to an RRSP until we make the big bucks and can really benefit from the tax breaks. You can find more details at http://www.tfsa.gc.ca/index.html. Limit – $5000 a year since 2009 or since you turned 18. Benefits – All growth is tax free. Drawbacks – You are limited yearly based on your contribution room. If you withdraw money you cannot re-contribute that money in the same year.
RESP stands for Registered Education Savings Plan. In general, this is for when you decide to have kids and want them to go to school and become brilliant little munchkins. Or in some cases, if the kid in question doesn’t enroll in an applicable form of education, you get all the money and growth back. However, the Canadian grant money goes back to the government. The grants only apply to children below the age of 17. The child doesn’t have to be yours and, with some more research, you can actually be both the contributor and the beneficiary of a RESP. Adults can have RESPs, but they must be closed after 26 years. More details can be found here http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/hw-eng.html. Limit – the max amount is based on the kid, $50 000 per kid. Benefits and Drawbacks – Your money grows on a tax deferred basis. The base capital that is pulled out is tax free, the growth is taxed.
So there you have it! A short and sweet (trust me there’s a lot more information out there) article about government-aided investment options. The best thing for you to do now is use these tidbits of information to do a bit more research and decide which of these is best for you.
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