The Upside: TFSAs & RRSPs: Making every dollar count for your future self!

Speaker 1 [00:00:00] Hello everyone and welcome to The Upside, I'm Kyle Sharapeta. We're now firmly into 2026. That means the snow is falling, temperatures have plummeted across the country, and New Year resolutions may be fading. Spring isn't too far off though, but today we're talking about a different type of season, and that's RRSP season. The first 60 days of the year is your time to get contributions in to claim against your prior year's income. Let's zoom out for a moment. Exactly is an RRSP or Registered Retirement Savings Plan? How about a tax-free savings account? What are the basics of both and the benefits of using them? Today we're answering those questions and more with Michelle Monroe, Fidelity's very own Director of Tax and Retirement Research. Michelle spends most of her time travelling the country, presenting to and talking with financial advisors and investors, so we're lucky to have her in our studio here today. Welcome, Michelle. 

Speaker 2 [00:00:53] Great to be here. Thanks for having me, Kyle.

Speaker 1 [00:00:55] Thank you so much for being here with me today and talking all things RSPs and TFSAs. So let's start by defining the basics of both RSPs and TFSAs and really explaining the benefits of those programmes. Let's get into RSPs first.

Speaker 2 [00:01:11] Okay. RRSPs, and we use so many acronyms in this industry. So registered retirement savings plan. Yes. As the name is branded, it's intended for retirement savings. So, okay, how does it work? We make a contribution to our RRSP. We get a tax deduction for that contribution, then inside the RRSP account... We can invest in mutual funds, stocks and bonds, ETFs, et cetera. The earnings from those investments is tax deferred until retirement. Typically when we make a withdrawal from our RSP and then it's taxable.

Speaker 1 [00:01:52] Right, and what about, so there's this link between RSPCs and someone's taxes, what's this tax refund that I've heard about? A tax refund. What do you mean by that? Yeah, yeah.

Speaker 2 [00:02:03] So we make a contribution to our RRSP, we get a deduction that reduces our taxable income, and often that means when we're filing our tax return, we get tax refund as well, which feels pretty good, awfully feels good in April.

Speaker 1 [00:02:19] Very nice. Let's touch on contribution room. Is it correct to say that everybody's situation is unique in terms of their contribution room?

Speaker 2 [00:02:25] Well, taxes, everything's unique. Right.

Speaker 1 [00:02:27] Right, of course. Yeah.

Speaker 2 [00:02:28] Okay, so contribution room, it's based on your earned income, and earned income is a tax term, which essentially means employment income. So it's 18% of your prior year's earned income up to a dollar maximum, which is $33,810 for 2026. And if you've missed a year, for whatever reason, you can get caught up in a later year.

Speaker 1 [00:02:51] Okay, so there is a ceiling, but it's quite generous. It is. And it's unique to the individual.

Speaker 2 [00:02:56] And if you don't know how much your contribution room is, it will say on your notice of reassessment or of assessment when you file your tax return, as well as you can go on to what's called My Account, which is on CRA's website.

Speaker 1 [00:03:08] Yes, that's right, I recall doing that in the past. Now let's pivot from RSPs to TFSAs. What are the basics of the tax-free savings account?

Speaker 2 [00:03:16] Okay, tax-free savings account, there's a lot of similarities and there's some differences. It's a tax advantage account to save and invest. So when you make that contribution to your tax- free savings account TFSA, you don't get a deduction for that. There's no tax deduction for them. But you can invest in the similar investments, mutual funds, ETFs, stocks and bonds, what have you. The earnings on those investments inside the TFSA are tax- Free. Withdrawals from your TFSA are also tax free. In addition, TFSA is more flexible. So if you make a withdrawal, let's say in 2026, you can re-contribute that in a later year, 2027 or later.

Speaker 1 [00:03:59] Okay, I did want to ask you a bit more about withdrawals, but first let's cover who tends to benefit from being involved in the TFSA programme.

Speaker 2 [00:04:07] Anybody who has investable assets that they're looking to save and invest, a tax-free savings account is a great way to start because of its flexibility.

Speaker 1 [00:04:18] Okay, and then contribution limits, are they the same?

Speaker 2 [00:04:20] Oh, contribution limits. Great. Okay. So they're different than an RRSP. RSP is based on earned income. TFSA is based as long as you are 18 years of age or older, you start accumulating TFSA contribution room. So in 2026, that is $7,000. And there's no upper age limit either. So it continues on. If you've missed a year, again, you can catch up in a later year.

Speaker 1 [00:04:47] Okay, so a lot of flexibility with the programme. And then I guess it would be safe to say then that somebody who's say in their late 20s, approaching 30, they've been working for a few years. If they haven't contributed to a TFSA in the past, they probably have a nice contribution room.

Speaker 2 [00:05:00] They have a nice little nest egg there that they could be contributing, absolutely. Absolutely.

Speaker 1 [00:05:04] Good programme to take advantage of.

Speaker 2 [00:05:05] And again, we want to be looking on my account on CRA's website.

Speaker 1 [00:05:09] Perfect. That's a good resource.

Speaker 2 [00:05:10] It is. Excellent. Lots of good information there.

Speaker 1 [00:05:12] Let's just double down on the withdrawal rules. So if you withdraw in one year, 2026 for example, you can then put that money back in in 2027.

Speaker 2 [00:05:23] For a later year, so that there's more flexibility there and that withdrawal could be for anything. Let's say you're saving for a home. You could use that for the down payment of a home and then you could make a re-contribution in the later year.

Speaker 1 [00:05:39] Okay, and speaking of homes, there are other programmes for that, but we should save that for another discussion. Okay, okay. Let's talk a bit about the deadlines. So I mentioned before, there obviously, there is this link between tax time and RRSP time. Right. What are the key deadlines that someone needs to keep in mind in the next few weeks or month from an RRSP perspective.

Speaker 2 [00:05:56] Okay, from that RRSP perspective. Okay, so this is really one of the things I like about the RSP. You have 60 days after year-end, so a little bit of cushion room, to make that RRSP contribution and claim the deduction on the prior year. So 2025 tax year, we have until March 1st, 60 days, after year end, 2026, to that RSP contribution. And then deduct it on your 2025 tax return. But, I looked at the calendar. March 1st is on a Saturday or Sunday. Yes. It's on a Sunday. So we get to March 2nd, the following Monday to make that RSP contribution.

Speaker 1 [00:06:40] So everyone should be circling March 2nd on their calendar, or technically the week before.

Speaker 2 [00:06:45] Why wait until the very last minute if you have time and you have the cash available And as well if you can get you that contribution in sooner It will start accruing that tax-deferred growth and earnings sooner

Speaker 1 [00:07:00] Right, right. Okay, so February's crunch time. Right, February's Crunch Time. February's Crush Time, everybody. Get on those contributions. Let's go back to TFSAs then. Are the TFSA under the same deadlines?

Speaker 2 [00:07:12] They don't have the same, because there's so much more flexible, it's just, if you get your contribution in on December 31st, then it's for December 31. But because you can contribute it later, there's not, we don't meet the same 60 days for the TFSA.

Speaker 1 [00:07:29] And $7,000 for 2026. That's pretty good. It used to be like 5,000 or something like that, right?

Speaker 2 [00:07:33] The TFSA started in 2009, so in 2026 at $7,000. When it started in 2009, it was $5,000, it's gone up, it actually went up to $10,000 one year, and then it went back down. Lots of things going on. But I should note for our audience though, that say they were 18 in 2009 never made a contribution to their TFSA. They would have $109,000 of TFSA contribution room. Pretty significant. That is pretty significant, yeah. And certainly it's easier to do $7,000 or what have you each year as opposed to trying to come up with a six figure number.

Speaker 1 [00:08:16] If my memory serves, 2009 was also the year that the Family Day holiday was launched. If it wasn't, it was around there, if it wasn't that year. So anyways, everybody enjoy your Family Day holiday coming up as well. So we established before the link between RRSP contribution time and taxes. So that will be in April, I believe, are the tax deadlines. Let's talk about those a bit more. Quick look, what are the tax deadlines coming up that people need to think about and any tips for tax preparedness?

Speaker 2 [00:08:43] So we talked about the RSP deadline, March 1st, delayed to March 2nd. Tax returns for individuals are typically due on April 30th, as well as if you're self-employed or married to a self- employed individual, you have until June 15th. So thinking about that. For our viewers as well, what we might want to do is actually do an estimate of our taxes sooner rather than later. And Fidelity.ca does have a tax calculator that you can use this. The reason I'm saying we're doing this is so then you can assess, well, maybe I have a a tax balance owing. Well, at least I can start preparing for that sooner rather then later. Whereas maybe I'm getting a big refund or a refund. Let's get my tax return in a little bit sooner so I can get that tax refund a little sooner. Smart.

Speaker 1 [00:09:38] Smart, I feel like there's enough tax tips out there that you could probably come back and we could do a full show just on tax season. All right.

Speaker 2 [00:09:46] Just get your receipts organised. Look at last year's return. What did you claim? Maybe you have child care expenses. Get those organised. Get your ducks in a row.

Speaker 1 [00:09:55] Okay, okay. Anything specific for 2026 on tax brackets that you'd like to go into? Oh, tax brackets.

Speaker 2 [00:10:00] Oh, tax brackets. Well, there's a nice little tax savings. The lowest tax bracket was reduced by 1%. What that means for a couple is about $750 over the entire year. But I'm a tax accountant, watch the pennies, let the dollars take care of themselves. I could spend that $750 there's many different ways. I'll enjoy it.

Speaker 1 [00:10:23] Now, Michelle, back in December, you did a Reddit AMA with Fidelity Canada, very well received. A thank you to everyone in our community who contributed to that, asked a lot of great questions for Michelle. And I want to highlight a few of them today that were specific to TFSAs and RSPs. There were a lot interesting ones as well that you answered very well on interesting topics. I'm just going to refer to my notes here, something about crypto wallets in the CRA. There is one about cross-border money transfers, a few things on RIFs as well, and that's retirement income fund. For pensioners.

Speaker 2 [00:10:54] Registration Retirement Income Fund, so that's when we mature our RSP and then it becomes a ref and we start to draw it down.

Speaker 1 [00:11:00] Right, okay, maybe another topic that we could dive into more later, but just to get back on track, question here from that red AMA that I wanted to dive into with you. Somebody asked, after a big income boost, would it make sense to withdraw from a TFSA before December 31st of one year to sort of fill up their RSP contribution the following year?

Speaker 2 [00:11:19] Okay, so first of all, we're gonna deconstruct the question. So somebody has something in their TFSA. They've got some investments in there. And their income is rising, okay. So now they're thinking, okay, well, I wanna take advantage of the RSP and get that tax deduction. So the strategy here is, okay well, I have my TFSA, I'm going to make a withdrawal from my TFSI, it's tax free. I can make that contribution to my registered retirement savings plan. Well, now I get that tax deduction, reducing my taxable income. And at the end of the day, I'm still getting that tax deferred growth of those investments. So that's a great strategy.

Speaker 1 [00:12:04] Yeah, very good answer, so it's important to look at the big picture, obviously.

Speaker 2 [00:12:09] Looking at the big picture, also thinking what is the individual's long-term goals, what are they planning? But a really common one is people are saving and investing for their futures, specifically retirement.

Speaker 1 [00:12:21] Right. And probably safe to say at this time, it's always good for someone to talk to a professional so they can really dive into their own individual circumstances.

Speaker 2 [00:12:28] But listen to an episode like this, really, if it gets you excited, you're really educating yourself.

Speaker 1 [00:12:35] Great, one more I want to highlight from the AMA. Somebody asked, if your RRSP and TFSAs are maxed, what is the next best way to save and invest?

Speaker 2 [00:12:44] Okay, well, for this individual, so they've maxed out their RSP, they've maximised their TFSA. What do they do now? Well, it depends again. So, are they eligible to invest in a first home savings account? They'd have to be a first-home buyer. First home buyer, yes. Maybe they have children and they wanna start saving for their registered education savings plan. Maybe they want to be looking at non-registered accounts. Maybe they wanna be paying off credit card debt or other debt. So thinking again, we wanna look at what is the big picture? What is that financial situation? What are their goals? And then how do we do that in a really tax-efficient way?

Speaker 1 [00:13:30] Very good. So again, no universal answer. No one size fits all, very customised to the individual. Yeah. Great. One more from the AMA that I wanted to highlight to you. This one was interesting. Somebody talked about their income dropping and then what should they prioritise? So they asked, yeah, if someone's income has been dramatically reduced, perhaps from taking a break from their job, should they still max out their, and they referenced TFSAs and first home savings account contributions if possible each year.

Speaker 2 [00:13:56] Okay.

Speaker 1 [00:13:57] Thoughts on that?

Speaker 2 [00:13:58] Again, and you know, sometimes you'll see this, I went through it when I had my children and I went on maternity leave and I saw a drop in my income. Other places, sometimes people just take a sabbatical from their jobs and they have a drop in their income and with these two situations I described, well, we know it's going to last a year or so. And so you're planning for that. And again, bringing it back to, and I kind of feel like I'm hounding this. But what are your goals? What are your plans? Where do you wanna stay on track to achieve those goals? And this question talked about, okay, well, it specifically talked about the tax-free savings account, first home savings account. I'm going to draw in the registered retirement savings plan, because their income has dropped, they probably have less to invest. The RRSP, because we would get that tax deduction, maybe we'll hold off on that. The TFSA has a little bit more flexibility. So we could make that, make a contribution there. We're not concerned about getting that tax deduction. The question went into the first home savings account. We'll spend a little bit of time here. First home savings accounts, it's relatively new. It was first introduced in 2023. What it is is you need to be a first home buyer. In most cases, that is exactly what it sounds like. Never bought a home before, your first time. Self-explanatory So you can save in a dedicated account, and again, we make that contribution to the First Home Savings account. When you open the account, you have $8,000 of contribution room. You get a deduction for that First Home Saved account contribution.

Speaker 3 [00:15:40] Very good.

Speaker 2 [00:15:40] Now we're going to invest in mutual funds, ETFs, stocks, bonds, what have you. That growth is tax free. Then we're gonna make a withdrawal some year down the road. That withdrawal for that first home is tax-free. So, it's combining the best of an RSP and the best of a TFSA. Really targeted for those first-time home buyers. We could do a whole other session on that. I think we've got a couple of shows lined up for the rest of the year.

Speaker 1 [00:16:13] Now, what about for that individual, should they consider RSPs as well in there?

Speaker 2 [00:16:18] Maybe consider RSPs. It depends how much they have to continue investing.

Speaker 1 [00:16:22] Right, right, right.

Speaker 2 [00:16:22] You do want to keep, where it's possible, stay on track, keep investing, even through the ups and downs, economic ups and down, because it might be a bit of a sacrifice today, but your future self will definitely benefit from that.

Speaker 1 [00:16:38] Very smart. Now, we're getting close to the end of time today. Anything else that you wanted to add that maybe we didn't cover on the topics of RSPs, TFSAs, tax-related accounts to those?

Speaker 2 [00:16:48] So often when I talk to individual investors, they feel a bit of- You're travelling-

Speaker 1 [00:16:52] You're travelling a lot, as I mentioned in the intro across our great country.

Speaker 2 [00:16:55] It's a bit of analysis paralysis. I want to do it perfectly and I just don't let that be just intentional planning. You want to have an idea of the big goal but just taking those first steps are so crucial and then you can build and tweak from there. And certainly attending a webinar or webcast like this today. If you're thinking, oh, that applies to me, well, I know Fidelity.ca has a plethora of information. Work with a financial advisor. Just continue that snowball effect.

Speaker 1 [00:17:33] Very good, so just jump in and follow your goals.

Speaker 2 [00:17:36] Absolutely.

Speaker 1 [00:17:37] That's great, and Michelle, thank you so much for joining me here today.

Speaker 2 [00:17:40] It's been a pleasure. Thanks for having me, Kyle.

Speaker 1 [00:17:41] Alright, we'll have you back soon.

Speaker 2 [00:17:42] I hope so.

Speaker 1 [00:17:43] And thank you all for watching today as well. So at Fidelity Canada, we're releasing new content daily, so please look up the Upside or Fidelity Connects podcasts for more. With the Up side webcasts, you can learn to be a better investor and hear from some of Canada's best stock pickers and leading financial experts. To not miss a show, head to Fidelity.ca and sign up for the next webcast or the Up side newsletter. And if you want more clarification on how to approach the upcoming tax season, check out the article, Six Things to Prepare for Your 2025 Taxes on Fidelity.ca. Thanks for watching today, and I hope you'll join us again. I'm Kyle Sharapeta.