Retirement First! Then Education Funds…
You are debt free! Now what? Saving for your children’s education fund should come second to saving for your retirement. Your child’s degree will not pay for you to be able to live comfortably in your retirement. You should also not assume that your children will be able to help you financially in your retirement. Even if they could help you – will they? If you save for retirement first, you will be able to move to the next stage of saving for your child’s education as well. Let’s consider (4) retirement savings options:
1. Registered Retirement Savings Plans (tax-deferred accounts) RRSPs
2. Tax-Free Savings Account (TFSA)
3. Non-registered savings and investments (See Part II)
4. Basic savings accounts (See Part II)
RRSP contributions are tax deductible. For example, if you contribute $2,000 to your RRSP in 2015(before March 1), it can be deducted from taxable income when filing your income tax return for 2014. Secondly, the money you contribute to your RRSPs grows and compounds over time.
Tax-Free Savings Account (TFSA)
At the present time, a tax-free savings account allows a yearly maximum contribution of $5,500 and allows savings to grow tax-free. However, you need to research before making contributions and withdrawing cash from this account. Be mindful of maximums because Canada Revenue Agency charges a penalty if you exceed your maximum or otherwise withdraw from the account.
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