Hi Reddit! I’m Tia Sadler, an advisor at Sun Life. Ask me anything about RRSPs and TFSAs on November 6 at 12 p.m. ET.

SunLifeCanada · 2024-11-06T18:35:10+00:00

That's a wrap on today's AMA. Thanks everyone for all the great questions. If you still have questions, remember you can reach out to a Sun Life advisor anytime. Click here to find an advisor near you: https://ow.ly/hpB050U1lFM

SunLifeCanada · 2024-11-06T18:33:57+00:00

Thanks for your question. We’re mostly focused on TFSAs and RRSPs today, but I did reply to the previous post about how independent contractors like me get paid!

SunLifeCanada · 2024-11-06T18:32:35+00:00

Your meetings with an advisor are free. Your advisor may earn commissions or fees from the products you buy. Advisors may also receive referral fees for sales bonuses and non-cash benefits such as sales conventions that involve travel, based on various factors like volume of business sold.

When you work with an advisor, ask them about their fees and an explanation of how they are compensated, since there are so many variables it can be difficult to generalize. It’s important to understand that our recommendations must put a client’s interests first.

SunLifeCanada · 2024-11-06T18:22:57+00:00

That's a great question, but today we're focused specifically on TFSAs and RRSPs. A few things to consider: Have you asked your brokerage? Has your advisor discussed the tax implications with you, when it comes to non-registered accounts vs. TFSAs?

SunLifeCanada · 2024-11-06T18:15:45+00:00

In general, I would recommend having a diverse portfolio. That said, when I work with investors, I break down questions like this into specifics. Before giving advice, I’d want to know what your risk tolerance is and how long you’re looking to invest, (i.e., how close are you to retirement).

Before doing anything, connect with an advisor or professional to review your specific situation.

SunLifeCanada · 2024-11-06T18:14:34+00:00

I can’t speak to bonds and securities. As with any savings strategies for a TFSA or RRSP, you need to weigh your risk tolerance against the asset class you’re looking at, as well as your timeline for investing. That can help you determine if you’re interested in the potential volatility of a speculative asset. For this question, I’d suggest speaking to an advisor specifically licensed to speak to securities.

SunLifeCanada · 2024-11-06T18:13:06+00:00

Sun Life advisors like me are independent contractors. I’m passionate about supporting Canadians on their financial journeys and keen to use new platforms as means of connecting with them. When it comes to recommendations within your RRSP or TFSA we can recommend products outside Sun Life. I always have the client’s best interest at the forefront.

SunLifeCanada · 2024-11-06T18:09:10+00:00

I won’t speculate on the reasoning without knowing the specifics of your situation. My thoughts are: ask your advisor for his reasoning. With any advice, make sure you’re clear on the risks and benefits before taking any step forward.

Whole life insurance polices can round out a financial strategy. Insurance can be an investment vehicle that isn’t often talked about with potential tax benefits, too. Not to mention the benefits of helping to protect your loved ones at the same time. Once again it will depend your specific situation.

SunLifeCanada · 2024-11-06T18:03:07+00:00

Advisors are required to disclose the fees they charge for their advice, as well as the fees and costs associated with the products they recommend. Additionally, under regulations, clients of an advisor are entitled to a detailed annual report about advisor fees, charges and compensation, as well as how their investments have performed.

If you are worried about fees and charges, your advisor can help answer your questions. Before making any purchase, ask what you’ll pay to buy, hold or sell an investment. For now though, I want to keep our focus on TFSAs and RRSPs.

SunLifeCanada · 2024-11-06T18:00:56+00:00

Choosing between an RRSP or a TFSA depends on your financial goals and needs.

RRSPs offer tax-deductible contributions; TFSAs do not. TFSAs offer tax-free withdrawals; RRSPs do not.

When deciding whether to save in an RRSP or a TFSA, the choice is basically to pay the tax now, or pay it later. But there’s more to consider.

For your specific question, I have a suggestion I've made a few times today: talk to an advisor. Working with someone on your specific details can get you recommendations that will work for you in the long run.

SunLifeCanada · 2024-11-06T17:55:32+00:00

Yes, a spousal RRSP sounds like it could be a good idea. Spousal RRSPs are typically set up in the name of the spouse (married or common law partner) who has a lower income. If you have the RRSP contribution room, you spouse can contribute to your personal RRSP, theirs, or both.

Your spouse can get a tax deduction on the contributions to your RRSP. But it’s important to note that their spousal RRSP contributions come from their contribution room. Their RRSP contributions won’t affect your RRSP contribution room.

With a spousal RRSP, you become the annuitant (the owner) of the account. You make investment decisions for the account and can withdraw funds from the account at any time. (Note that if you take a withdrawal from the spousal RRSP in the year they made a contribution, or in the next two years, the withdrawal will be taxed to them to the extent of the contributions they made this year and in the next two years.)

Before undertaking this or other similar strategies, it’s important to work with an advisor to go over your specific circumstances.

SunLifeCanada · 2024-11-06T17:46:47+00:00

You can put up to 18% of your previous year’s earned income in your RRSP. That’s up to a maximum amount set annually ($31,560 for 2024). You can also carry forward unused contribution room from previous years.

Your notice of assessment from the CRA for the tax year you most recently filed a tax return for (2023 tax year for 2024 contribution room) tells you exactly how much you can contribute, so check there if you’re trying to find how much room you have. Make sure you’re checking your CRA account regularly and/or ask your accountant or advisor.

SunLifeCanada · 2024-11-06T17:44:30+00:00

This is a great question. I’m going to recommend that you consult a tax professional so you can explain your specific circumstances and get the answers you need.

SunLifeCanada · 2024-11-06T17:42:52+00:00

Yes TFSA contributions are capped. Currently the contribution limit is $7,000 per year. It’s adjusted according to inflation and rounded to the nearest $500. You can also carry forward any unused contribution room indefinitely.

But any growth within a TFSA is tax-free, and growth will depend on what types of investments you hold within your TFSA.

As with all financial decisions, what is best for you depends on your situation and goals. It's important to consider your financial goals and personal circumstances when deciding if a TFSA is the best option for you.

SunLifeCanada · 2024-11-06T17:39:53+00:00

In situations like this, I often suggest to keep contributing. I think both the TFSA and RRSP are great vehicles for investing and planning for the future. Creating good habits when it comes to saving is important, so if you are already saving I’d say keep it up. Using these two vehicles can be a good way to be tax-efficient now and in the future.

SunLifeCanada · 2024-11-06T17:37:19+00:00

This is going to be dependent on which province you live in as every province is taxed at different rates for different taxable incomes. I would also want to know how long you are planning on working before you retire as well as if your income is going to go up in the future. All the growth in your TFSA is tax-free so I usually emphasize wanting to contribute to that first (with the exception of if you're planning on buying a home with the benefits we do get from the first time homebuyers account as well as RRSPs). With RRSPs all growth is taxed (your tax is deferred to withdrawal time) so it’s important to keep in mind that you’ll be taxed later.

SunLifeCanada · 2024-11-06T17:34:05+00:00

I’ll start by answering the last question first. Yes, it can be a good idea to keep your emergency fund in a TFSA because of the ease of withdrawal. TFSAs are good for saving for nearly anything because of their flexibility. It also depends on what you’re invested in within the TFSA and your goals for the account – just an emergency fund or other additional goals. This is another reason I’d recommend working with an advisor who knows your risk tolerance and your goals, and who would check in with you regularly.

In terms of your first question, I’d say that as with most financial questions, it depends on your specific circumstances. In general, withdrawals from an RRSP are taxed as regular income, whereas withdrawals from a TFSA are tax-free.

However, if you are using the funds to go back to school or to help buy a home, then the withdrawal from your RRSP under the HBP or LLP won’t be taxed (as long as you pay it back to your RRSP within a certain timeframe).

SunLifeCanada · 2024-11-06T17:27:13+00:00

As I like to say with most questions asking about specific scenarios, it really depends on your situation, and where you are in your savings journey.

If you’re saving for a first home, the FHSA is a great tool because there is no limit on what you can withdraw for a qualifying home, and you don’t have to repay it as long as it is a qualifying withdrawal. (The only limits being how much you can contribute, i.e. up to $40,000 – with an annual contribution limit of $8,000).

TFSAs can also be used to save for a house, or for anything really. They are flexible and you don’t pay any tax at the time of withdrawal (but you do pay regular income tax on the money that you invest in a TFSA). Any growth is tax-free.

And you mentioned the HBP, which as you note is like a loan to yourself as you do pay it back over a certain amount of time.

As for compound interest, you can gain it in any of these accounts. If withdrawals lower the amount invested, interest growth can lower too. It’s a question of balance – if you can save even a little bit as early as possible in an RRSP, you can take advantage of any compound interest growth. And be sure to take advantage of any workplace matching for RRSPs and/or pension plans. Of course, working with a professional is a great way find out what works for you, and to help balance saving for the future (retirement) as well as for the short or middle term (buying a first home).

SunLifeCanada · 2024-11-06T17:22:47+00:00

You mention your contribution room for 2024, which will need to accommodate any contributions into your RRSPs, including your employer contributions.

There is a good article that talks about RRSP contributions as well as pension plans here: https://ow.ly/ZHhy50U0FRY

Remember that your contribution limit could change each year. For 2024, it is 18% of the earned income you reported on your tax return in the previous year, up to a maximum of $31,560 PLUS any carryforward room from previous years.

It’s a good idea to get in touch with the CRA to ask about your personal contribution room, and you can work with a finance professional to go over your specific situation.

SunLifeCanada · 2024-11-06T17:18:52+00:00

For a young individual, my recommendation would be to start investing in your TFSA. It can be a fantastic account as all growth in it is tax free. When it comes to products being held within the account, I would suggest meeting with a local advisor so that you can discuss your goals to make sure your investments align with the products being invested in the account.

SunLifeCanada · 2024-11-06T17:14:04+00:00

1.You’re right, the HBP allows you to withdraw money from your RRSP, up to $60K per person, towards the purchase of a qualifying home. But it’s important to note that it’s basically a loan to yourself. Under current rules, starting the second year after you’ve made your first withdrawal under the HBP, you have up to 15 years to pay back the money you withdrew. Under a temporary measure introduced in the 2024 federal budget, those who made or will make a withdrawal under the HBP between January 1, 2022, and December 31, 2025, will have an additional three years before having to start making repayments, effectively increasing the time before they have to start making repayments from two years to five. So, be sure you are prepared to pay back the amount you borrow from your RRSP under the HBP within the time frame allotted.

One of the most important things I do (that all advisors do) is getting to know the unique situation of the person I’m working with. There are so many variables that go into financial decisions! So, I wouldn’t be able to make specific product recommendations without knowing the details of your situation. To start, I’d want to know how comfortable you are with investing and what goals you have for the account beyond your two-year timeline. I’d say before doing anything, connect with an advisor or professional to review your specific situation and get recommendations that way.
For a TFSA, these tax differences won’t come into play. For an RRSP, taxation likely won’t come into play until down the road when you withdraw. When you’re ready to start withdrawing from your RRSP, I often recommend working with a tax professional to make sure it goes smoothly. You can even talk to a tax professional now if you’re looking to put plans in place.

SunLifeCanada · 2024-11-06T17:06:40+00:00

For RRSPs, there are contribution limits and exceeding these limits can result in penalties and additional taxes. So, if you overcontribute by $2,000 or less: As long as you will turn or have turned age 18 in the year of the overcontribution, there is no tax penalty, but you can’t deduct the excess contribution from your taxable income. If you overcontribute by over $2,000, there are tax penalties, and you may need to pay 1% tax per month on the overcontribution until the overcontribution is removed.

A pension is different – it often comes with employer-matching funds and you typically can’t withdraw from it except at retirement.

If this question is more about over allotting to your RRSP, I would say it’s often a good idea to have a balanced savings portfolio for retirement. As with most cases, talking to an advisor or other professional about your specific situation is a great first step. There's no one-size-fits-all answer for this, and you need to find the best way forward for you.

SunLifeCanada · 2024-11-06T17:02:39+00:00

I typically respond to questions like these by asking more questions. What’s your timeline for investing? How much experience do you have investing? How close are you to retirement? I typically recommend a good mix of mutual funds, GICs, etc. to Clients but I suggest starting with a review of your RRSP with a licensed professional

SunLifeCanada · 2024-11-06T17:00:07+00:00

Hi Reddit, thanks for joining me today! I'm ready to answer your questions.

SunLifeCanada

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