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Retirement Savings:  Demystifying RRSPs

Retirement Savings: Demystifying RRSPs

RRSP block letters are placed on top of Canadian hundred dollar bills.

Retirement savings are essential for all Canadians to live comfortably after they retire. And the earlier you start saving, the better. For newcomers, understanding retirement savings options can be confusing. So in this article, I’ll demystify the Registered Retirements Savings Plan (RRSP). With a clear understanding, you can start saving as soon as possible to achieve your dreams and goals in Canada!

What is a Registered Retirement Savings Plan?

An RRSP is a tax-deferred retirement savings plan. This plan encourages you to save in your earning years so that you can have income in your retirement years.

The term “tax-deferred” means that when you open an RRSP and contribute to it, you can claim a deduction from your income. And any income earned in the RRSP remains tax-free unless you make a withdrawal from your RRSP. In other words, you defer or delay taxes until the time you make any withdrawal. Therefore, you can defer income taxes until later when you may be subject to lower taxes as your income goes down.

During the years when you earn a high income, you are subject to higher tax rates. So, contributing to an RRSP will help you lower your tax liability. 


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Am I Eligible to Open an RRSP?

You are eligible to open an RRSP if you satisfy these conditions and you:

  • Have “earned income” from the previous tax year
  • Reported the earned income to the Canada Revenue Agency (CRA) on your tax return
  • Have not yet turned 71 years of age.

Can I Open More than One RRSP?


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You can open multiple RRSP accounts. However, it will be easier to manage one RRSP account rather than tracking several accounts.

How Do I Set Up My RRSP? Do I Need to go to My Bank?

You can set up an RRSP through a:

  • Bank
  • Credit union, or
  • Trust or insurance company.
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How Much Can I Contribute to My RRSP in the Current Year?

Computing the maximum RRSP contribution for the current year involves four steps.

STEP ONE:

Calculate 18% of the income you earned in the previous tax year. Add the following income to determine your earned income:

  • Your employment income. Calculate this as taxable benefits minus union or professional dues.
  • Net amount of rental income from renting real property. No other property income will be considered in computing earned income.
  • Net amount of self-employment income.
  • Research grants received or royalties received from your own invention or published work.
  • Spousal support payments (alimony/maintenance) received due to a court order.
  • Canada Pension Plan or provincial disability pension plan income received.
  • Supplementary employment insurance benefits that the employer pays to you. A good example is the top-up payments (i.e. the difference between your salary and the amount that is paid by employment insurance) that your employer may pay during maternity or parental leave. Do not count any employment insurance benefits that you received from Employment and Social Development Canada (ESDC).

Less: Spousal support payments made.

No other income or capital gains will be considered as earned income for an RRSP. 

Now multiply your earned income by 18%.

STEP TWO:

Visit www.canada.ca to find out the contribution limit for the current year.

In 2024, the website shows that the annual RRSP contribution limit is $30,780 (for tax year 2023).

STEP THREE:

Compare 18% of your earned income for the previous tax year as computed in step one and the annual contribution limit determined in step two.

Take the lesser of these two amounts.

STEP FOUR:

To the lesser amount that you determined in step three, add unused RRSP contribution room from the previous years that were carried forward to the current year.

Now, subtract the:

  • Previous year’s pension adjustment (PA)
  • Current year’s past service pension adjustment (PSPA). 

Now, you have arrived at your maximum RRSP contribution for the current year. The maximum RRSP contribution is also known as:

  • Contribution room
  • RRSP deduction limit, or
  • Deduction room.

What Does Pension Adjustment (PA) Mean?

If you participate in a registered pension plan or a deferred profit-sharing plan, you earn pension benefits. This is the amount of PA.

What is Past Service Pension Adjustment (PSPA)?

In simple terms, PSPA is the amount of extra pension credits you get when either there is:

  • An upgrade in your pension benefits or
  • A pension buyback.

In a pension buyback, you pay a fixed amount to purchase years of missed pensionable service to enhance your retirement pension. For example, you can miss pensionable service years when in your earning years you: 

  • Took a leave of absence or time off your work or
  • Deferred the decision to join your employer’s pension plan.

Thereby losing the opportunity to accumulate years of service in the pension plan.

The amounts of PA and PSPA go on to reduce your maximum RRSP contribution amount for the current year. 

How Do I Calculate the Maximum Registered Retirement Savings Plan Contribution?

Let’s say you want to determine your maximum RRSP contribution for 2023 and you earned:

  • $90,000 in employment income and
  • $1,000 in taxable capital gains in the previous tax year (i.e. 2022).
  • At the beginning of 2023, you have unused RRSP contribution room from previous years that total $7,000.
  • As a member of a registered pension plan, your pension adjustment for 2023 amounts to $3,000.

To compute the maximum RRSP contribution follow these four steps:

STEP ONE:

Compute 18% of your earned income. In your instance, earned income will be $90,000. Taxable capital gains are disregarded while computing earned income. Thus, 18% of your earned income = 0.18 x 90,000 = $16,200.

STEP TWO:

On www.canada.ca, you find the RRSP dollar limit for 2023 is $30,780.

STEP THREE:

Take the lesser of the above two amounts. The lesser amount = $16,200.

STEP FOUR:

To $16,200, add the unused RRSP contribution of $7,000 and subtract your pension adjustment amount of $3,000.

So, your maximum RRSP contribution = $16,200 + $7,000 – $3,000 = $20,200.

Can I Make Excess Contributions?

Let’s take the above example. Since we worked out that your maximum RRSP contribution is $20,200, this is the maximum that you can contribute in the current year (in this case, 2023).

You contribute an excess amount of up to 2,000 without any penalty. But, any amount beyond $2,000 will be subject to a penalty of 1% of the excess beyond $2,000 for each month (or part of the month) that this excess contribution exists. For example, if your maximum RRSP contribution is $20,200, you may contribute:

$20,200 + $2,000 (excess amount not subject to penalty)

However, if you contribute, say, $23,200, there will be a penalty as computed below.

Split the amount of $23,200 as shown:

1. $20,200. This will not attract any penalty.
2. An excess amount of $2,000 which escapes any penalty.
3. An excess amount of $1,000 (which is beyond the excess amount mentioned in 2 above). This excess of $1,000 will attract a penalty of 1% for every month (or part of the month) that it remains in the RRSP.

Thus, you will pay $10 (i.e. 1% of $1,000) as a penalty for each month or part of the month that this amount remains in the RRSP. 

If you make an excess contribution, make sure to withdraw it immediately to reduce the penalty as much as you can. Besides, you are not allowed to deduct from income any excess contribution. It, therefore, helps to avoid making excess contributions in the first place.

Is There a Deadline to Make Registered Retirement Savings Plan Contributions?

Yes, the deadline to make an annual RRSP contribution is typically at the end of February or early March for the preceding tax year. For the 2023 tax year, the deadline to make an RRSP contribution is Thursday, February 29, 2024. Most banks send deadline reminders so that you take advantage of this tax-saving benefit.

Are RRSP Deposits Insured?

If your financial institution goes out of business, the Canada Deposit Insurance Corporation (CDIC) insures up to $100,000 in deposits in seven categories.

The CDIC covers insurance up to $100,000 for the RRSP deposit category. Additional information on this is available at www.cdic.ca

What about Withdrawals from the RRSP?

You can withdraw RRSP funds at any time. But any funds that you withdraw will be added as taxable income for the year that you withdraw funds. In other words, you will not get a tax break when you withdraw funds.

Can I Withdraw RRSP Funds to Buy a House or Pay for Education?

Two plans allow you to withdraw RRSP funds without being subject to taxes or interest:

1. Home Buyers’ Plan (HBP)


2. Lifelong Learning Plan (LLP)

However, both of these plans require you to pay back the amount that you withdraw. You must pay back the funds that you withdraw each year so that the amount that you withdraw for the HBP is paid within 15 years for the HBP and 10 years for the LLP.

When you withdraw RRSP funds for either program you will lose the tax-deferred income that you could have made on the amount that would have remained within your RRSP. Moreover, if you’re unable to pay back the annual dues, they get added to that year’s income and you’ll need to pay taxes on that amount.

What Happens When My RRSP Matures?

Retirement savings demystifying RRSPS

While you can withdraw from or register the RRSP at any time, you must deregister it by the end of the calendar year in which you turn 71. At that point, you have three options:

1. Transfer your RRSP proceeds to a registered retirement income fund (RRIF). Click here to learn more about RRIFs.


2. Withdraw the RRSP proceeds and pay taxes on the same in the year that you receive the proceeds.


3. Use the RRSP proceeds to purchase eligible annuities.

Can I Name a Beneficiary?

A beneficiary is a person your RRSP funds will go to if you die before your RRSP matures. You can name anyone of your choice as a beneficiary of your RRSP. However, from the tax deferral standpoint, it is better to name the following:

  • Your spouse or common-law partner
  • A child or a grandchild who is under 18 and is financially dependent on you at the time of your death
  • A child or a grandchild who is mentally or physically informal and is financially dependent on you at the time of death. Age is irrelevant in this case.

What is a Spousal RRSP? How Does it Work?

Let’s say you make more money than your spouse (or common-law partner) does. And you know that the maximum RRSP contribution limit is restricted by your earned income.

If your spouse makes less money than you do, then the amount they can contribute to their personal RRSP will be lower. However, you’re able to make greater contributions to your own RRSP.

Now if you expect that your spouse’s earnings will continue to be lower than your earnings in the future, it makes sense to contribute more to a spousal RRSP. As well, if you withdraw funds from a spousal RRSP you will pay a lower tax rate on those funds.

Your contribution to the spousal RRSP will be limited by your personal limit. But because you make the contribution, you get to claim this as a deduction.

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In summary, an RRSP can be a great way to save for your retirement in Canada. When you understand the financial benefits of an RRSP you can begin to save sooner and benefit from an early start.

Cost-Saving Ideas: 22 Practical Tips for Newcomers

Cost-Saving Ideas: 22 Practical Tips for Newcomers

A shopper is comparing shopping prices on their mobile phone to look for cost saving ideas

Cost-saving ideas can be especially helpful for newcomers because saving money in Canada can be quite a challenge. The financial choices you make within your first year can impact how you live in Canada for the next few years. This is why it’s important to make good decisions now, so you can benefit in the years to come.

Home Cost-Saving Ideas

1. Look for furnished or basement apartments for rent

Furnished homes can be very helpful because they save a lot of time, money, and effort. You also won’t have to worry about how you are going to move the furniture if you are planning to move somewhere else in the future.


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It is very likely that you will move somewhere else and it is a good idea to find a home on rent that is just enough to meet your needs. Anything after that will cost you more money than you need to pay.


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Our Rentals for Newcomers site is a great place to search for housing in Canada. With this practical and easy-to-navigate site, you can find the average cost of rentals right across Canada and search for housing according to your price range.

2. Live close to amenities

Living close to amenities is a great comfort and it is also an excellent cost-saving idea. If you usually check your expenses at the end of the month, you probably noticed that gas takes up a big chunk of the expenses. 

Living near schools, grocery stores, and places you would visit often means that you would usually walk there, saving you a lot of gas.

3. Live close to your workplace if possible

You should also try to find a home that is near to your workplace because driving 20 km to your job and then driving 20 km back home can take a lot of time, and cost you more for gas. 

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Furniture Cost-Saving Ideas

4. Search for local organizations that provide basic furniture at minimal or no cost

No matter which province or territory you live in, there will be local organizations that help newcomers by providing them with basic furniture at a low cost or sometimes even no cost. One organization that does this is the Furniture Bank though you will have to pay a small fee to get the furniture delivered to your house.


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5. Buy used furniture from Kijiji or Facebook Marketplace

Kijiji and Facebook Marketplace are online sites where people can buy and sell items locally. Here is how they work: you go to the website to search for the item want to buy and contact the seller. Then if you are satisfied with the item, you can set up a time to meet and check out the item.

Some people are even willing to deliver for free or for a small cost. A lot of the people selling furniture on Kijiji or Facebook Marketplace are people that are moving or trying to clear out everything from their house, so the furniture is usually in very good condition.

6. Buy new furniture from Ikea

If you don’t want to buy used furniture, there are also some good options to buy new furniture. Ikea is the world’s biggest furniture retailer and for good reason. Not only is Ikea furniture affordable, but it is also of very good quality. What you may not like about it is that you have to assemble the furniture yourself at home. 

 Cost-Saving Ideas for Clothing

7. Buy clothes in the clearance season

Another great cost-saving idea is buying out of season. You can buy brand new clothes for up to 80% off from clearance sales! Clothing stores put out-of-season clothes (and other items) on sale with huge discounts. You could save a lot of money just by buying clothes you will need in the future but don’t need right now. An example is buying snowshoes after the snow melts, and buying shorts when it starts to snow.

8. Buy from stores like Winners and Marshalls

If you missed the clearance season or you just need clothes immediately, it might be worth visiting stores like Winners or Marshalls. These stores sell branded clothes for a lot lower prices than what they would normally sell for. They also have a wide variety of clothes, ranging from activewear to jewelry.

9. Buy used clothes

Buying used clothes is another way to save money. You can find cheap used clothes that are in really good condition. The owner usually sells the clothes because they have been out of use so you will get them at a good price.

Transportation Cost-Saving Ideas

10. Walk or cycle as much as you can

The best way to go from one place to another is to walk or cycle. Not only does it save you money but it is also a very good way to keep yourself physically and mentally healthy. I am not saying you should walk or cycle 20 km, but if it is as little as 2-3 km, cycling there would be the best option. If your destination is only a kilometre away, then you should consider walking as well.

11. Use public transport

If you often have to go farther than you can walk or cycle, you might want to consider using public transport. There are many reasons to choose public transport over the car. You need to pay for car insurance, maintenance, and gas. Not to mention the cost of buying the car itself. Having a public transport pass costs around $150 a month. That is a very good price compared to owning a car.

12. Buy a used car

If public transport or cycling does not work for you or it isn’t convenient, you need a car. But where should you buy it from and how much should you pay? If you only need a small car to run your daily errands, you can usually find a used car for under $5000, depending on where you live. 

One thing to keep in mind before buying the car is its fuel economy. This means how much gas it consumes per 100 km. If it is anywhere from 8 l/ 100 km and below, the fuel economy is pretty good, saving you a lot of money. Some good websites to buy used cars are Autotrader and Kijiji Autos

Grocery Cost-Saving Ideas

13. Sign up for your grocery store’s weekly flyers

Almost every grocery store in Canada offers weekly flyers that give discounts on certain items. Some of these grocery stores will require you to sign up for their weekly flyers to access the discounts but most will not.

Save.ca is a website where you can access almost all flyers from stores all over Canada. In my first year, I used save.ca regularly and it saved me a lot of money.

14. Shop at NOFRILLS / Walmart / Dollarama

Now that I have told you how you can save money in your grocery store, I have some suggestions on where you can get your groceries. Walmart is a chain of grocery stores that has everything from clothes to food to utensils. If there is a Walmart location near your home, it’s a great store to get almost anything at a good price.

If your local Walmart is too far, then you should look for NOFRILLS. NOFRILLS is a Canadian chain of grocery stores owned by Loblaws that offers a wide variety of foods. Unlike most grocery stores, NOFRILLS is limited to only food and not things like stationery or clothes. However, it is less expensive than most other big grocery stores so, it is a good idea to know where your local NOFRILLS is located.

Dollarama is another good store but it doesn’t fall under the category of grocery stores. Yes, it does have some food like candy and canned foods, but it is better known for selling inexpensive items (all of its items are under $4). You can find things like stationery, canned foods, working tools, and kitchen utensils all at good prices.

Food Cost-Saving Ideas

15. Cook and pack your lunch

It might be tempting to stop by a restaurant and pick up a burger but it may not be a good choice, both financially and healthwise. The better cost-saving idea would be to cook your food. If you have a burger craving, you can get the ingredients and cook the burger yourself. It will cost you a lot less as compared to the ones in restaurants.

16. Save money when eating in restaurants

If you do want to go to restaurants once in a while, you should be on the lookout for coupons. Coupons can give you lots of good deals but they are only eligible for a certain period of time. 

This is why it is a good idea to sign up for websites like Honey. Honey is a chrome extension (on laptops/ Chromebooks) and app (on mobile) that finds and applies coupon codes so you can save money on different things you order online. 

If you go to the restaurant in person, then you won’t be able to use Honey as it only works when you order food online. Honey will also save you on other products you purchase online like electronics, as it usually works on most things you will order online.

17. Use the Food Bank (if needed)

Food Bank is a non-profit, national charity that helps Canadians by distributing food to those who need it. If you are a newcomer and are having difficulty finding a job, Food Bank is a very good option to get by your first year. Here is how the Food Bank works: People donate food or money to the Food Bank. The Food Bank then buys food and gives it out to the people that need it.

Other Cost-Saving Tips

18. Divide your paycheck

Another really good cost-saving idea is to divide your paycheck. There is no specific template because every family spends their money differently but no matter what your pay is, dividing your paycheck will save you a lot of money. To divide your paycheck, make a budget for things like food and entertainment, and then plug in fixed amounts like your rent and insurance. 

Once you have accounted for all your monthly expenses, make sure you don’t go over your budget and the rest of the money should go into your savings account. This is one of the most foolproof cost-saving ideas and almost every successful family does this. 

You will be surprised by how much money you save just by organizing where and how you will spend it because it prevents you from spending too much.

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19.  Shop Black Friday and Boxing Day Sales

Black Friday (the last Friday of November) and Boxing Day (December 26) are the two best times of the year to buy anything because there are huge sales everywhere. Black Friday marks the start of the holiday shopping season. Boxing Day sales are often the best time to buy things like electronics and furniture. Retailers offer deep discounts because they want to get rid of existing inventory.

20. Shop in thrift stores

You might be surprised how much money you could save by shopping in thrift stores rather than some fancy branded stores. When I say shop in thrift stores, I mainly mean for things like clothes. 

You can find used clothes in thrift stores for up to 95% off their original price! A lot of people are concerned about the quality of the products they buy but this usually isn’t a problem because the thrift store sorts out all the good stuff and throws away the bad stuff before they stock the shelves. 

Most people donate things to thrift stores because they don’t need them, not because they’re broken. That’s why you see so many clothes, as clothes get outgrown easily.

21. Search for free or low-cost items from Kijiji and Facebook Marketplace

As I mentioned earlier, Kijiji and Facebook Marketplace are websites where you can buy and sell items locally. The reason I am mentioning them again is to tell you how useful they are and how you can even get free items from them. 

Here in Mississauga where I live, I find Kijiji to be somewhat cheaper but that might differ depending on where in Canada you live. There is always a question about the quality of the item. You can always set up a time to meet with the seller (usually at their house) and check out the item. If you are satisfied, you can make the purchase. If not, don’t feel pressured to buy it and move on. I have got a lot of things from Kijiji and they are still going well for me. 

22. Look for garage sales and moving-out sales

There are always people that are moving and they often have garage sales or moving-out sales (whatever they want to call it).  Because they won’t take everything with them, they sell items for a very low price. This leaves room for negotiation to further reduce the price.

The best way to find garage sales is to look for ads online. Some good websites to find garage sales are Gsalr and Kijiji. Another good way to find garage sales is to look for signs. I often take a walk around the neighbourhood and spot garage sale signs which are not listed online.

These cost-saving ideas can go a long way to help your budget and shape your financial future in Canada. 

Savings in Canada: Helping Newcomers Invest

Savings in Canada: Helping Newcomers Invest

Retirement savings in Canada

Investment planning allows Canadians to invest and plan their taxes wisely. This article will help newcomers understand how registered saving account options can be beneficial for investment planning and building savings in Canada.

The Canadian government offers a variety of investment planning options such as registered saving account options. However,  many newcomers to Canada either do not know about registered savings options or do not understand these savings options.


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Eventually, they lose the opportunity to optimize their taxes and create retirement savings in Canada.


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Making investments wisely will help you as a newcomer to manage your money better. Over the long term, newcomers will be better placed financially as they start reaping the benefits of making informed decisions.

Investment Planning with Registered Accounts

What are registered accounts? As a new immigrant, you may often hear about registered plans or accounts in the context of investment and tax planning.

Registered accounts, simply put, are those accounts that the Canadian government has specifically given tax-deferred status. Non-registered accounts do not enjoy this status.


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There are three registered accounts that you can use to invest and plan for your taxes. These accounts are:

1.  Registered Retirement Savings Plan (RRSP)

2.  Tax-Free Savings Account (TFSA), and

3.  Registered Education Savings Plan (RESP).

How the Three Registered Accounts Compare: 13 Important Questions to Consider

Below is a comparison of the three options: Registered Retirement Savings Plan (RRSP); Tax-Free Savings Account (TFSA); and the Registered Education Savings Plan (RESP). When you understand the key differences you can start investment and tax planning at the earliest opportunity.

1. What is the Purpose of the Registered Account?

RRSP: To help you save so that you have income during your retirement years.

TFSA: To help you save so that you can meet short- and long-term needs, including your retirement.

RESP: To help you save for your child’s post-secondary education.

2. Who Can Open the Registered Account?

RRSP: To open an RRSP, you must:

A. Earned income in the previous year

B. Reported this income to the Canada Revenue Agency

C. Not have turned 71.

TFSA: To open a TFSA, you must:

A. Be 18 years or older

B. Possess a valid Social Insurance Number (SIN).

RESP: A parent, grandparent, or any other family member or friend, or even a child care agency can open an RESP for a child.

Spouses or common-law partners may choose to open an RESP jointly.

3. Is There a Contribution Limit?

RRSP: The annual contribution is limited to the lower of the following two amounts:

A. RRSP dollar limit for the year as provided on www.canada.ca

B. 18% of prior year’s earned income plus prior years’ unused contribution room minus any pension adjustment.

TFSA: The annual contribution is limited to the sum of:

A. The annual TFSA dollar limit provide on www.canada.ca

B. Any unused contribution room of prior years, and

C. Any withdrawals from the TFSA in the previous year.

RESP: While there is no annual limit, your contribution to the RESP is subject to a lifetime limit of $50,000 per beneficiary.

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4. Can You Carry Forward the Unused Contribution Room?

RRSP: Yes, until the end of the year in which you turn 71

TFSA: Yes

RESP: Yes

5. Is There a Minimum Age Required to Contribute?

RRSP: No minimum age

TFSA: Must be at least 18 years old

RESP: No minimum age

6. What Age Can You Contribute Until?

RRSP: Until you reach 71 (or your spouse reaches 71 if it is a spousal RRSP)

TFSA: There is no age limit to make contributions

RESP: There is no age limit to make contributions

7. Are Contributions Deductible for Tax Purposes?

RRSP: Yes

TFSA: No

RESP: No

8. What are the Implications of Excess Contributions?

RRSP: Excess contributions of up to $2,000 can escape the penalty. Contributions above this amount will attract penalty tax at 1% per month (or a part of the month) until the excess contribution is withdrawn.

Any income earned from the excess contribution could potentially be subject to a 100% penalty.

TFSA: Excess contributions will attract penalty tax at the rate of 1% per month (or a part of the month) until withdrawn.

Any income earned from the excess contribution could potentially be subject to a 100% penalty.

RESP: Contributions in excess of $50,000 will attract penalty tax at the rate of 1% per month (or a part of the month) until withdrawn.

9. Are Withdrawals from the Registered Account Subject to Taxes

RRSP: Withdrawals are taxable

TFSA: Withdrawals are not subject to taxes

RESP: Any return/refund of original contributions are not subject to taxes

10. Are Withdrawals Added Back to the Available Contribution Room?

RRSP: No

TFSA: No

RESP: No

11. Can You Claim a Deduction of Interest Expense on Funds Borrowed to Invest in this Account?

RRSP: No

TFSA: No

RESP: No

12. Can Assets from this Registered Account be Assigned as Collateral for a Loan?

RRSP: No

TFSA: Yes

RESP: No

13. Can U.S. Dividend Paying Stocks be Held in this Registered Account?

RRSP: Yes, and under the Canada-US tax treaty, US dividends paid to an RRSP will be exempt from withholding taxes.

TFSA: Yes, but U.S. dividends paid to a TFSA will attract withholding taxes.

RESP: Yes, but U.S. dividends paid to an RESP will attract withholding taxes.

Understanding the different registered savings options provides a good starting point for newcomers to build savings in Canada. With this information, newcomers can navigate the complexities of investment and tax planning in Canada.

An immigrant’s guide to saving

An immigrant’s guide to saving

Woman Placing Coins into Her Change PurseYou had to show proof of substantial savings in order to immigrate to Canada, so you already know how to save. Don’t stop now! Saving now that you’re in Canada is even more important.

Of course, it may take some time to find a good job, so you will be dipping into those hard-earned savings to get by for a while, but the minute you start earning income again, remember to pay yourself a little first! Put a little bit away for your family and future, either in a simple savings account or through other forms of investment.


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