After pension contributions, union dues, and all other deductions, you owe it to yourself to capitalize on every tax-saving strategy possible—regardless of where you are on the pay grid.
Funds contributed to a TFSA are after-tax, unlike an RRSP which involves tax-deferred money. For this reason, the investment income produced within a TFSA accumulates tax-free, making it a smart investment vehicle to save for future goals at any age.
What makes the TFSA a perfect way to save early in your career is the fact that you don’t need to be at the top of the pay grid in order to afford making contributions.
For example, when you divide the $5,500 annual contribution limit into 52 weeks, that equals just under $106 a week—or better yet, $15 a day.
Tip: Consider setting up pre-authorized TFSA contributions that automatically get deducted from your bank account. With the ability to select the contribution amount you’re comfortable with and the frequency (weekly, bi-weekly, monthly), you won’t even miss that $15 a day.
Since you’re paying into a pension plan, putting money into an RRSP probably isn’t a priority. However, instead of viewing it purely as a retirement savings vehicle, think of an RRSP as a powerful tax-planning tool that you can leverage as you start earning more.
This will become especially beneficial as you approach the top end of the pay grid, considering that:
Keep in mind that the benefit you earn through your pension plan is linked to RRSP contribution room.
The greater the value of your pension benefit, the less room you will have to contribute to an RRSP.
However, a spousal RRSP can potentially be another tax-planning tool you leverage when you’re at the top of the pay grid and RRSP contribution room is limited. The one caveat would be if your spouse/partner were also an education member—making this option redundant (since both of you are paying into a defined benefit pension plan).
Did you know?
Using your RRSP and your spouse’s ‘spousal RRSP’ for the Home Buyer’s Plan doubles the $25,000 maximum withdrawal. That’s up to $50,000 in combined RRSP funds you can put towards a down payment.
While the contributions you make to RESPs are not tax deductible, the major advantages it provides as a top investment choice for post-secondary savings for your children are:
Tip: Make your RESP contributions by the December 31st deadline each year in order to take advantage of the full 20% CESG amount annually. While you can catch up on previous years’ contributions, the maximum CESG that can be received annually per child when you’re playing ‘catch-up’ on RESP contributions is $1,000.
It comprises of the following:
Did you know?
Only 7% of Canadians planned on taking advantage of child-care-related tax credits and deductions (according to a survey conducted by tax filing software TurboTax)—meaning 93% of parents could be missing out on thousands of dollars in tax credits.
In summary, you can maximize your income by leveraging the following tax-saving strategies:
Whether you’re ready to set up a TFSA, RRSP, and/or RESP—or simply want to know how to make your hard-earned money work even harder, we’d be happy to discuss your options with you. For over 40 years we’ve been providing financial advice exclusively to education members, which means we have a unique understanding of everything from pay grids to pension plans. It’s the kind of insight that puts us in the perfect position to help you maximize every dollar so you can achieve your financial goals.
For more information on the list of tax credits and benefits mentioned above, be sure to visit the CRA website.
The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy.