Building family wealth with registered plans

For most high-income earners, maximizing RRSP contributions is the number one way to save for retirement. RRSPs often make sense for business owners, and family members working in the business. 

Taxes are deferred on any income and growth while funds are held within the plan and you’ll only pay tax when the funds are withdrawn. Spousal or common-law partner RRSPs are also useful in certain circumstances.

When transferring RRSP assets to a RRIF by age 71, keep in mind that you can use a younger spouse or common-law partner’s age on which to base the minimum annual RRIF withdrawals. Also, to enjoy the longest possible tax deferral, you could arrange to have your annual minimum amount paid to you in December each year.

Canadian residents start accruing contribution room once they turn 18 and unused room is carried forward indefinitely to future years. This creates an excellent opportunity for intergenerational, tax-free wealth transfer by gifting funds to family members to make their own TFSA contributions if they don’t have enough money to do so themselves. 

Although contributions made to a TFSA are not tax deductible, no tax is payable on income and growth or on withdrawals, as long as the TFSA rules are followed. TFSAs are also a good financial choice for business owners. 

An RESP allows you to save for your child or grandchild’s future post-secondary education. Canada Education Savings Grants, which are provided by the Government of Canada, might also be paid into an RESP.

Tax is deferred on investment income and growth earned within an RESP. When RESP earnings, growth and grants are paid out for post-secondary education purposes, they are included in the income of the beneficiary, who may pay little or no tax.

RDSPs are designed to help to build long-term savings for individuals with disabilities. There’s no tax on earnings or growth while in the plan. Canada Disability Savings Grants and Bonds might also be paid into the plan by the Canadian government. 

When disability assistance payments are made to the beneficiary, original contributions are not taxed, but earnings, growth and government grants are included in income of the beneficiary.

The FHSA gives prospective first-time home buyers the ability to save up to $40,000 on a tax-free basis towards the purchase of a first home in Canada. Like an RRSP, contributions to an FHSA will be tax-deductible and withdrawals to purchase a first home, including withdrawals of any investment income or growth earned in the account, will be non-taxable, just like TFSAs.

If you have children or grandchildren who are not yet homeowners, consider making gifts to each of them to fund their own FHSAs.

Read the full report: Building family wealth with registered plans (PDF, 405 KB) Opens in a new window.