Saving money can be hard. But with a little help, families can take care of all their priorities: retirement, the kids’ education, family vacations and an emergency fund.
It’s important for families to make sure they’re making their money count. Knowing how to save helps. Here are a few tools you can use to help your dollars grow:
Registered retirement savings plans (RRSPs)
Putting money in an RRSP is the best way for many families to save for retirement. Your contributions grow in a tax-sheltered environment until you withdraw them. At the same time, you can deduct them against your income, resulting in a tax refund come spring. You can then re-contribute your refund money or use it for other goals. Ideally, you want to contribute while you’re at a high tax rate, have your money grow over time with the taxes deferred and then withdraw it at retirement when you’re at a lower tax rate. Some people even use strategies such as RRSP loans to boost their savings. You can find plenty of RRSP resources online to help you make the most of your contributions.
Registered education savings plans (RESPs)
Contributions to RESPs not only grow tax sheltered until you withdraw them, but they also attract the Canada Education Savings Grant, a 20% federal top-up of contributions up to $2,500 a year per child. That’s up to $500 in grant money from the government each year, to 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 While the money is taxable when withdrawn, it’s taxed in the hands of the student, whose income is likely low enough that taxes are low or non-existent.
Tax-free savings accounts (TFSAs)
The TFSA is the Swiss Army knife of savings tools. Your contributions grow tax-free, and you can withdraw them without paying taxes as well, making the TFSA a flexible way to save for both short- and long-term goals. The maximum annual contribution is $5,500, while the lifetime maximum is $52,000 if you who were at least 18 years old in 2009, the year TFSAs were introduced. 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 Yet, because money can be withdrawn tax-free, and contribution room for those withdrawals is restored the following year, it’s flexible enough to be used for emergency needs at any time.