Types of investment accounts

There are so many different investment types that it can make investing seem overwhelming. Here’s a high level overview of what you need to know. Don’t forget, your Co-operators Financial Advisor is there to understand your financial goals and guide you on a path to financial success.

Registered investments

The Canadian government offers various options to people who want to achieve particular saving goals through registered accounts.

Registered Retirement Savings Plan (RRSP)

RRSP

An RRSP is the government’s way of encouraging you to save for retirement by giving a tax deduction on the money that you save in your RRSP. When you’re ready to retire, your funds can be converted to a steady stream of retirement income.

There are two major benefits to RRSP contributions:

    1. Pay less income tax

Your RRSP contributions are deductible from your taxable income, and that means either a bigger tax refund or a smaller tax bill. While you’ll pay tax when you withdraw the money from your RRSP at retirement, it will likely be at a lower rate because of your lower income.

    2. Tax-sheltered growth

With an RRSP, your savings and interest grow sheltered from tax. You can gain a lot of financial momentum by contributing to your retirement plan early.

If you want to know more, we’ve put together a simple explanation of what RRSPs are all about.

Tax-Free Savings Account (TFSA)

TFSA

A TFSA allows you to save money without incurring any taxes on gains that you may receive through your investments or interest, up to the $5,500 annual contribution limit. Any Canadian aged 18 or over, and has reached the age of majority in their province, can open a TFSA.

Why use a TFSA to save?

  • You pay no tax on interest, income or capital gains earned within your TFSA.
  • Withdrawals from your TFSA are tax free.
  • Your contribution room is restored the year after you make a withdrawal.
  • Income-tested credits and benefits such as the GST credit, Employment Insurance and Old Age Security are not affected by withdrawals from your TFSA.
  • Canadians age 18 or older in 2009, who have not yet contributed, have $52,000 of contribution room in 2017.

The Canada Revenue Agency will advise you each year of your current TFSA contribution room. If you want to know more, we’ve put together a simple explanation of what TFSAs are all about.

Registered Education Savings Plan (RESP)

An RESP allows you to save for your child’s education tax free, and with added funds contributed by the government. There are two types:

    • A family plan for any of your children who are under 21 years of age. Contributions can be made until the beneficiary reaches the age of 31.
    • An individual plan for anyone of any age, including yourself.

Benefits of an RESP

    1. Access government grants

The government will match up to 20% of the funds that you put into your child’s RESP if they are under 17, and there are additional benefit programs based on your income level and province. Contributions to an RESP may qualify for the Canada Education Savings Grant (CESG) until the year your child turns 17. Through the CESG, the federal government will contribute an additional 20% of your annual RESP contribution to a maximum of $500 per child per year. In addition to the CESG, you may also qualify for the Canada Learning Bond or the Alberta Centennial Education Savings Plan Grant.

    2. Tax-deferred investment growth

Contributions made to an RESP can accumulate and grow tax free over the life of the plan. When you withdraw money to pay education-related expenses, only the additional earnings and grant portions of the plan are taxable. Because the child will likely be reporting a low level of income while attending school, the amount of tax they can expect to pay should be minimal.

If you want to know more, we’ve put together a simple explanation of what RESPs are all about.

Registered Retirement Income Fund (RRIF)

Registered Retirement Income Funds (RRIFs) are simply a continuation of your RRSPs. The only difference is that you must withdraw a minimum legislated amount of money each year.

The value of your retirement income fund and how long it will last depends on:
    • The investments you choose
    • How they perform
    • How much you withdraw each year

The latest possible date to convert an RRSP to a retirement income fund is December 31st of the year you turn 71. At The Co-operators, the minimum opening deposit for an income account is $10,000. You’ll enjoy drawing a steady income while continuing to accumulate interest and investment gains while deferring taxes on the invested portion.

Estimate your payments with our RRIF calculator.  

Locked-in retirement income funds can differ by province, plan type, and withdrawal limits. Along with potential estate value in the event of premature death, the flexibility of withdrawal amounts and investment options have made retirement income funds a popular choice.

While RRIFs are by far the most popular, we also offer other options for retirement income funds if you have specific needs that a RRIF can’t fulfill. Ask your Co-operators Financial Advisor for more details.

Life Income Fund (LIF)

A Life Income Fund is similar to a RRIF, except it’s specifically designed for locked-in pension funds. LIFs are only available in certain provinces for those with Locked-In RRSPs, Locked-in Retirement Accounts (LIRAs), Registered Pension Plans (RPPs) and Locked-in Retirement Income Funds (LRIFs).

Annuities

An annuity is an alternative for those who want guaranteed payments for their lifetime. An annuity will pay you a set amount per month based on a plan that we design together. We offer various types of annuities to fit your lifestyle.

 

Non-registered investments

A non-registered plan is an account that holds investments, which are taxable to you on an annual basis. If you're saving for a vacation, a wedding or any other short-term goal, a non-registered plan is an excellent choice. It's also a great way to increase your retirement savings if you’ve reached your RRSP contribution limit.

Although a non-registered plan does not offer the same tax advantages as an RRSP or TFSA, many benefits make a non-registered plan worth considering:

  • Fewer restrictions. Age limits, contribution amounts, and withdrawals are more flexible.
  • Collateral. Unlike funds in an RRSP, funds in a non-registered plan can be used as collateral for obtaining loans.
  • Tax deductible. If you borrow to invest in a non-registered plan, the interest you pay on the borrowed funds is usually tax deductible.