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Personal income sources

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In Canada, there are three kinds of personal retirement savings plans: registered, tax-free savings accounts (TFSAs) and non-registered.

While registered pension plans have a specific retirement income objective, most Canadians require a combination of personal savings to supplement their retirement income.

A registered retirement savings plan (RRSP) is a tax-deferred savings vehicle that has been registered with the Canada Revenue Agency (CRA). It also exists in the form of an employer-sponsored group RRSP.

You can contribute up to 18 per cent of your prior year’s earned income to the plan, up to a certain maximum ($27,230 in 2020); less any pension adjustment (PA) you receive for that calendar year. And all income generated inside an RRSP grows on a tax-deferred basis until it’s withdrawn from the plan.

You may also have a locked-in retirement account (LIRA). This is similar to an RRSP, but is set up mainly for lump sum transfers from registered pension plans, usually when you change jobs.

TFSAs are flexible savings plans that allow you to earn investment income tax-free and pay no tax when you need to use your money. Are you planning to pick up a new hobby, or do some travelling? TFSAs allow you to supplement your RRSP for such activities.

Non-registered savings is a “catch-all” phrase for all other forms of savings and investments. For most people, the most significant of these non-registered assets is the family home. But it can also include savings in bank accounts, stocks, bonds, accumulation annuities, real estate, collectibles (such as art), and even some life insurance policies.

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Next lesson: What are RRIFs?