One of the most common investment questions Canadians ask themselves today is, “Which is better, TFSA or RRSP”?
Here’s the good news – it doesn’t have to be an either or choice. Why not do both? Below are the features of both plans to help you understand the differences.
Tax-Free Savings Account (TFSA)
Any Canadian resident age 18 or over may open a TFSA. Contribution is not based on earned income. There is no maximum age for contribution.
- For 2019 and 2020, the maximum contribution is $6,000.
- There is carry forward room for each year in which the maximum contribution was not made. For those who have not yet contributed to a TFSA, the cumulative total contribution room for 2019 is $63,500. This will increase in 2020 to $69,500.
- The deposit is not tax-deductible, but the funds accumulate with no income tax payable on growth.
- Withdrawals may be made at any time on an income tax-free basis. Withdrawals create additional deposit room commencing in the year after withdrawal.
As we age and our thoughts turn to estate planning, Segregated Funds may present a valuable planning opportunity. As we progress through the stages of life our investment focus changes from growth to income to preservation. Usually, the expected rates of return reduce as we age, primarily because we have less time to make up for a loss and feel the need to be more conservative in our approach. Anyone who has retired shortly before or after a major market correction (or crash!) understands the impact volatility can have on their enjoyment of a comfortable retirement.
In addition, none of us want to leave an estate for our heirs which could be a fraction of what was intended or be a catalyst for family discord. Fortunately, you do not have to forego the opportunity of growth in order to preserve the capital that you wish to leave to your family. Segregated Funds not only protect your estate against market fluctuations, they also provide the comfort of knowing the inheritances you wish to leave will be received by those for whom they were intended.
What are Segregated Funds?
Segregated funds are similar to mutual funds and represent market- based, equity, bond or fixed income investments. They differ from mutual funds in that as they are offered by life insurance companies, they have special benefits that mutual funds do not. These special benefits include: Read more
Investing in today’s environment is not for the faint of heart. However, fortunately for Canadians, Segregated Fund products offered by many life insurance companies provide a safety net for nervous investors.
Fund products present some interesting opportunities for people looking to get more security in their investment portfolios without sacrificing their potential for growth.
100% Maturity and Death Benefit Guarantee
At a time when most companies are reducing their guarantees to 75%, a few companies still offer 100% guarantees for both maturity value and death benefit. Read more
In December, 2013, BMO Insurance entered the Segregated Fund market place for the first time with their Guaranteed Investment Funds product line. Segregated Funds offer a haven for investors who are concerned about the market risk and volatility of their portfolio. BMO’s GIF product offers up to a 100% maturity and death benefit guarantee as well as incorporating some new and interesting features and options. Read more