What is Registered Savings Plan?
A savings plan taken in its most fundamental concept refers to the act of saving money for the future.
This article will talk about the concept of Tax Free Account for Savings or TFSA in Canada and how it can help improve the lives of Canadian citizens. It will also tackle briefly the Registered Retirement Savings Plan and the means by which it can help Canadians to make extra savings.
What is the Tax Free Account for Savings?
The registered savings plan was introduced in Canada to educate the consumers to save money for their future. In relation to this, a tax free account for savings called TFSA was introduced by the federal government. This scheme reduces the amount of taxes that have to be paid by the Canadians on any income obtained from an investment. Through this scheme of registered savings plan, it is envisioned that the people of Canada will be saving up to $5000 in a year and this amount will directly go into the individual’s savings account that is tax free. This saved amount can then be used for any purposes in the future. These contributions are not income tax deductible but the capital gains and any kind of income earned through this account is free from tax. This amount as mentioned earlier can be withdrawn for any necessity in the future and can be now regarded as an account for future savings.
Pls Read: tfsa.gc.ca
How does the TFSA Help Canadian Citizens?
The registered savings plan has been very successful throughout the country and has helped a lot of Canadian citizens. The tax free savings account is basically a new concept. This account can be handled by any Canadian citizen who is 18 years of age or older. This is the basic criterion for eligibility. The Canadian citizens can contribute up to a maximum amount of about $5000 every year. This amount limit however will be increased by $500 every year in the subsequent years. If the contributions made in the account are unused in that particular year itself, then the amount is carried forward for utilization in the future years. Also the amounts deposited in the subsequent years are accrued to the previous amount that was unused. Unlike other saving plan schemes the savings account which is tax free is also income tax deductible. As already mentioned incomes from investments and other capital gains that are earned by the person are not subjected to taxes. Any amount that is withdrawn from the tax free savings account is not charged for the transactions.
What is the Registered Retirement Savings Plan?
Wikipedia says that the Registered Retirement Savings Plan or RRSP is a type of Canadian account for holding savings and investment assets. Introduced in 1957, the RRSP's purpose is to promote savings for retirement by employees. It must comply with a variety of restrictions stipulated in the Canadian Income Tax Act. Rules determine the maximum contributions, the timing of contributions, the claiming of the contribution tax credit, the assets allowed, and the eventual conversion to an RRIF or Registered Retirement Income Fund.
Pls See: wikipedia.org
The amount withdrawn from the tax free savings account can be utilized for any purpose. Under the registered savings plan there is one more important scheme that is included. This is called the registered retirement savings plan. This plan is focused upon contributing, setting up, claiming and transferring deductions for plans for the individuals and their family which may be his or her spouse or partner of common law. The registered retirement savings plan also has a new scheme called the home buyer’s plan wherein the funds or the amount withdrawn from the account can be used to build an authorized home. There is also another plan called the life-long learning plan. In the plan, the funds or the amount withdrawn can be used for retraining or continuing education.
The Success of the Registered Savings Plan
By and large, the registered savings plan has been a successful venture and has assisted and guided a lot of Canadians to plan and save for their future. The Canadian Government has made it a point to implement measures to ensure that these are implemented properly and monitored. In fact, the Tax-Free Savings Account (TFSA) has become a flexible, registered general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. It is a perfect complement for existing registered savings plans like the Registered Retirement Savings Plans (RRSP).