It’s never too early to start contributing to a registered retirement savings plan or a tax-free savings account, is what banks tell you every January and February or what they like to refer to as "registered product season."
"It’s historically been called RRSP season but with the introduction in 2009 of another registered product called tax free savings accounts and because Jan. 1 of each year allows a new contribution to your TFSA, we call it registered product season," said Marlene Heise, vice-president of member services at Vanguard Credit Union in Brandon.
"You can contribute any time of the year to an RRSP, but contributions made during the first 60 days of any year may be deducted for the current year or immediately preceeding tax year. So that’s why this 60-day period, to be able to use it towards your income tax in the previous year, a lot of people take advantage of that."
Whether you’re considering contributing to an RRSP, TFSA or both, the first step is making an appointment to speak with your financial services provider.
"It all starts with a conversation," Heise said.
"Usually we’re the ones that are asking the questions just to educate our members, what’s important to them, usually we’ll have a discussion surrounding how they want to invest, whether they’re interested in mutual funds. It really comes down to what their needs are and delivering on what best suits that person."
As for making a choice that will best meet your needs and goals when it comes to saving for your future, dependent on your situation, investing in both an RRSP and TFSA is always an option to be considered.
"Having an RRSP and TFSA is perfect," Heise said. "Both of them are great. They’re both great savings vehicles."
According to information found on the Government of Canada website, tfsa.gc.ca, while an RRSP is generally intended for retirement savings, the tax assistance provided by a TFSA can complement what’s provided through RRSPs. RRSP contributions are tax-deductible and withdrawals are added to income and taxed at your individual tax rate, which is dependent on several things such as the time of year and if your bank has any rate specials.
TFSA contributions are made after tax dollars, so are not tax-deductible, but the contributions and the investment earnings are exempt from tax whenever you choose to withdraw from the account. But unlike RRSPs, which must be converted to a retirement income vehicle at the age of 71, a TFSA doesn’t have a minimum withdrawal limit. Although there is no TFSA spousal plan, individuals are eligible to start contributing to a TFSA if they are a Canadian resident and 18 years of age.
"It’s never too early or too late to start saving," Heise said. "We’d be happy to sit with them and help them reach their financial goals."
The main difference between TFSAs and RRSPs are the different parameters around them, which are dependent on your current financial situation, Heise said.
Since the Vanguard Credit Union currently offers a special rate option and due to the time of year, Heise said they have been experiencing a higher volume of customers recently.
"Our special rate definitely attracts a lot of people," she said.
"People are also looking to add to both their savings accounts at this time."
Although you can contribute to an RRSP or TFSA any time throughout the year, choosing between one or both savings account options is all dependent on your current financial situation and is something that your financial representative can help you figure out.
"It depends where you are, what stage you are in your life and what is the best option to you."