The New Year is a time to reset for many. While fitness, career and travel goals are on minds, there’s another reset that is on it’s way. That’s your registered account contribution room.
These accounts are beneficial when saving for big goals like retirement and education. Because they each offer either tax-free or tax-sheltered growth. With the cost of living increasing and incomes lagging behind, Canadians are wise to take these advantages wherever possible.
As Canadians, we have access to several different registered accounts to help us pay less tax while we grow our wealth. Such as the Registered Retirement Savings Plan (RRSP), Tax Free Savings Account (TFSA), Registered Education Savings Plan (RESP) and the brand new First Home Savings Account (FHSA).
Here’s a quick breakdown of how those resets occur:
Reset Breakdown
TFSA—each January all eligible Canadians will grow their contribution room by $7,000. This makes the total room $95,000 for those who were born prior to 1991. Any money withdrawn in a previous year can now be recontributed with this reset.
RESP—these accounts can receive up to $2,500 of contributions each year. If you have not reached this maximum in past years, you still can. You can do this by contributing two years worth, up to $5,000, in any given year.
FHSA—these brand new accounts have only been available since late last year. Once opened, you can add $8,000 per calendar year to a maximum of $40,000 in contritions over 15 years .
RRSP—while these contributions limits do reset each year, this won’t happen until you have received your Notice of Assessment, this is typically in the spring. However, each person’s limit is based on their income the previous year(s) and you can begin contributing in January for 2024.
In addition to the accounts mentioned above, the Registered Disability Savings Plan (RDSP) for those who qualify for the Disability Tax Credit (DTC) is also resetting for new grants and bonds. RDSP accounts are tested on family income (2023). $106,717 and below can receive $3 in grants for every $1 contributed up to $500 of contributions and $2 in grants for every $1 contributed up to $1,000 of contributions. For family incomes above the threshold, the match is $1 for every $1 up to $1,000. These contributions grow tax deferred and are taxed in the hands of the beneficiary. Contributions can be made up to age 49.
Planning ahead and sticking to your strategy are the best ways to accomplish your long-term savings goals! Try to save 10% of your gross income each month and increase it 2% per year until you reach 20%.
