when it comes to saving for retirement in Canada two of the most powerful tools that you have at your disposal are rsps and tfsas but understanding how they work and more importantly how to use them effectively can make a huge difference in your financial future now is the perfect time to review how these accounts work understand their tax advantages and ensure that you're on track too many people get to retirement and then they realize that they've missed out on thousands of dollars of tax savings simply because they didn't fully understand how to use the rsps and their tfsas let's make sure that this isn't your story as a Canadian maximizing your RSP and tfsa contributions isn't just smart it can have a huge impact on your financial future in this video I'll break down how these accounts function the key tax benefits they offer and strategies to maximize your contributions we're also going to discuss when it makes sense to convert your RSP into a riff and finally we're going to cover smart estate planning strategies to ensure that your RS p and tfsa are passed on efficiently this is episode two of our 12p part series second act and over the year I'm going to walk you through how to create a financial retirement plan that fits your needs throughout the series we're going to explore everything from setting clear financial goals to navigating the emotional transition of leaving your Workforce and help you feel confident and prepared for every stage of retirement I would like to take a moment and say thank you to harvest ETFs who has partnered with us for the entire series I'll be talking a little bit more about them later in this video today we'll cover six key ways to maximize your retirement [Music] savings an rrsp is one of the most powerful tax savings tools available to Canadians every dollar you contribute reduces your taxable income that means that you will get an immediate tax break our RSP Investments grow tax deferred with taxes paid upon withdrawal ideally at a lower rate in retirement the key question is does deferring taxes work for you if you are in a high tax bracket now you expect to be a lower bracket in retirement maximizing RSP contributions makes a lot of sense let's look at how an RSP works you can contribute to your R RSP until age 71 as long as you have earned income and it's subject to a maximum there is an exception to the age 71 rule we're going to talk about that in just a minute here now contributions to your rsps do have a limit it's 18% of your previous year's income for example if your 2023 income was $80,000 your RSP contribution limit for 202 4 is 14,400 that's 18% of that $80,000 now depending on your marginal tax rate contributing this amount could reduce your taxable income to $65,625 income bracket now than in previous years allowing you to capitalize on a larger tax deduction you can check on your C my account for your personal limit I will put a link in the description of this video now the deadline for contributions is the first 60 days of the new year if that falls on a weekend or a holiday it's extended to the next business day if you're married or in a common law relationship and one spouse has a significantly larger RSP balance in the other that can create a higher taxation problem on withdrawals when you do get to retirement now a solution for this is the spousal rrsp in this type of plan the higher income spouse contributes to a spousal RSP in the lower income spouse's name but the higher income earner actually gets the tax deduction but the Investments belong to the lower income spouse now the goal here is that in retirement both spouses withdraw similar amounts and that can keep each in a lower tax bracket if you do use the strategy you need to be aware that you have to wait two full calendar years before you take the money back out of the spous RSP otherwise that income is going to be attributed back to the contributor let's look at an example here Tom earns $150,000 a year and has a $600,000 RSP Susan earns $50,000 a year and has a $100,000 RSP now without any planning Tom's future riff withdrawals that could push him into a higher tax bracket while Susan will remain in a lower bracket so the strategy here is that Tom contributes $220,000 a year to espousal rrsp in Susan's name now over time their R RS PS will equalize that will allow them to withdraw income evenly in retirement and that will reduce their overall tax burden a best practice here is that if one spouse earns significantly more than the other consider contributing to a spousal RSP to keep the future taxable income balanced between both spouses there is a way that you can continue to your RSP past age 71 if you have a younger spouse you can continue contributing to a spousal RSP until they turn 71 so this will allow you to defer taxation beyond your own age 71 deadline now that's best for high income retirees with younger spouses who want to extend tax deferred savings David if you're watching you owe me [Music] one our rsps are all about tax deferral but the tax-free savings account is all about taxfree growth contributions are not deductible but withdrawals including the growth is completely tax-free now unlike an rrsp money inside your tfsa that can be withdrawn at any time without tax consequences this makes it ideal for both long-term retirement planning and short-term financial goals now the tfsa was introduced back in 2009 as a very powerful tool for Canadians to grow their savings taxfree for 2025 the annual tfsa contribution limit is $77,000 and since that limit is indexed to inflation it will increase over time if you were at least 18 years old back in 2009 your lifetime contribution room is now $102,000 like an RSP the unused room carries forward so you can catch up later now the minimum age to open a tfsa varies by province as some provinces considered the legal age and majority to be 19 instead of 18 the biggest benefit those completely tax-free withdrawals those make the tfsa an incredibly flexible savings tool for both short-term goals and for long-term wealth building you can withdraw money for any purpose buying a car taking a vacation covering an emergency expense without worrying about any tax consequences Plus the withdrawn amount is added back to your contribution room the next year that allows you to recontr in the [Music] future at the end of the year in which you turn 71 this tax deferral party you've been enjoying is over you have to wind up your rrsp now Canadians do have a few choices when they arrive at this pivotal moment the first most common option is to convert your RSP to a riff or a register retirement income fund now this option allows you to continue deferring taxes while setting up a structured withdrawal plan once your rrsp is converted into a riff you must start taking out minimum annual withdrawals these start at 5.28% and then gradually increase each year from age of 95 and up the withdrawal rate is 20% now all Rift withdrawals are taxable so planning is a key this option is best for retires who want flexibility in managing their withdrawals this also works for those looking to split their riff income with a spouse if your age 65 or over now episode three in this series is all about generating tax-free income in retirement so check that out when you have the chance another option for winding up your RSP at71 is to use the funds to purchase an annuity from a life insurance company and this provides guaranteed income for life or for a set period reduces the risk of outliving your savings now there are several types of annuities to choose from for example there's a life annuity this pays you a fixed income for life it ensures that you never run out of money there's a term certain annuity this will provide income until a specific age for example 90 after which the payments will stop there's joint annuities this will continue payments to a surviving spouse after you're passing now these are just a few examples here there are more varieties of annuities available annuities offer predictable worry-free income but they do come with some tradeoffs once your RSP funds are converted into an annuity you no longer have access to the capital also if it's not index for inflation annuity pay will lose purchasing power over time lastly income received from an annuity from an RSP is fully taxable this option is best suited for retirees who want stable guaranteed income and are concerned about possibly outliving their savings now while it is possible to withdraw 100% of your rsps in a single year this option is rarely advisable that's due to the heavy tax consequences if you do that the entire amount withdrawn is added to your taxable income that could push you up into the highest tax bracket now in some some provinces this could result in a tax bill of 50% or more on your rrsp balance and this approach is typically only suitable in very specific circumstances for example a retiree with very little other income this allows them to withdraw the funds while staying in a lower tax bracket or in the case of serious health concerns where someone may not live long enough to benefit from a riff or from an annuity and they want full access to their savings now the best news here you don't have to choose just one option splitting the RSP between a riff and an annuity can offer a balanced approach to managing your retirement income let's look now at some practical real world scenarios showing how Canadians could decide between riffs annuities Lum sums or a combination strategy when winding up their RSP at age 71 meet Carol 71 and Brian age 70 they're both retired teachers have $1.2 million in rrsps to balance the security and flexibility they split their funds $600,000 in a rift for adjustable withdrawals that's $31,800 a year starting and $600,000 in an annuity for guaranteed lifetime income $38,000 a year now this hybrid approach it ensures that they have predictable income from the annuity while keeping the rift funds liquid for unexpected costs that's a smart mix of stability and control now David 71 and Susan 65 they are also retired David has a $600,000 rrsp and he converts it into a riff but instead of of using his own age he elects to base the withdrawals on Susan's age 65 that lowers the required minimum withdrawal and it keeps more savings tax deferred he also splits his riff withdrawals with Susan that further reduces their combined tax bill so this simple adjustment here it helps maximize the tax efficiency and preserve retirement savings now Margaret she's age 71 she's a retired nurse and she prioritizes stability over Market risk so she splits her $800,000 RSP $500,000 into a life annuity $30,000 a year guaranteed income and $300,000 into a riff for emergency liquidity so this strategy ensures some predictable income for Life while keeping some assets flexible the downside here annuities do lock in those funds so she must plan very carefully now case four or worst case four this is George he's 71 and he makes a very costly mistake he withdraws his entire $400,000 RSP in one year thinking it would be better if he reinvested it in another account now this pushed his taxable income over $400,000 triggered a 46% tax bill the taxes owed in his case $180,000 that left only $220,000 after tax now a smarter move here will conversion to a riff and gradual withdrawals to avoid excessive taxation to help you navigate what's best for you I have put together a summary of all the key takeaways from these RSP conversion options you can download that from our website just click the link in the description or scan the QR code on your screen deciding between an RSP and a tfsa depends largely on your current income versus your expected income in the future now if you are in a high tax bracket today prioritizing an rrsp makes sense because your contributions today will reduce your taxable income now you can withdraw the funds later possibly when you're in a lower tax bracket now on the other hand if your income is lower today but is expected to rise then a tfsa may be a better choice you won't benefit As Much from the RSP tax deductions now but you'll appreciate the taxfree withdrawals down the road when your income and your tax bracket is higher but what if your income is unpredictable for self- employed individuals Freelancers gig workers who experience income fluctuations balancing contributions between both accounts can provide greater flexibility that will allow you to adjust your strategy as your financial situation changes I I want you to meet Sarah she is a 35-year-old freelance consultant whose income varies between $50,000 and $120,000 per year depending on the contracts now some years she earns a lot would benefit from an RSP contribution to reduce her taxable income other years her income is lower and she values the flexibility of a tax-free savings account and the withdrawals she can get from there now here's what Sarah does in her higher earning years 100,000 plus she prioritizes our RSP contributions she contributes to an RSP to lower her taxable income that reduces her tax bill she leaves her tfsa Investments untouched to keep them growing taxfree now in her lowincome years let's say $50,000 in those cases she uses a tfsa for flexibility if she needs the funds she can withdraw from her tfsa taxfree of course instead of tapping into her RSP savings which then would be taxable now since her tax bracket is lower she contributes less to her RSP carries the forward contribution room for future High income years for Sarah by balancing the RSP and the tfsa contributions over time she builds both taxable and tax-free retirement savings and that gives her a lot of flexibility for drawing income out later for you it comes down to what works best for you and your family a key retirement goal is generating reliable income from your rrsp or your riff now I want to say thank you to harvest ETS for partnering with us in 2025 to bring you this very valuable series I'm going to share with you how Harvest might be able to help you your goals now you might want to consider income ETFs to achieve the following objectives provide monthly payouts offering a steady income stream diversifying across sectors and asset classes that reduces your risk and enhanced income ETFs can even generate tax-free income inside an RSP and that maximizes efficiency now a fund I want to highlight is the Harvest Healthcare leaders income ETF the ticker is hhl and this fund has a 10-year track record of providing consistent distri distributions and it's the largest active Healthcare ETF in Canada it holds a diversified equally weighted portfolio of 20 large cap Global healthc care companies selected for their potential to provide attractive monthly income and the potential for long-term growth now to enhance the monthly distribution yield the fund uses an active covered call strategy you can maximize your retirement savings with the compounding effect of tax advantages of your RSP paired with the Innovative covered call strategy of harvest ETS this combination generates consistent monthly income while providing opportunities for capital appreciation ensuring that your Investments grow efficiently and work harder to secure a comfortable retirement another idea is to combine hhl with hbig that's the Harvest balanced income and growth ETF or HL the Harvest equal weight Global utilities income ETF now the key benefits here you get steady cash flow to cover living expenses you have the potential for growth alongside that income that helps combat inflation and it simplifies the portfolio management reducing the need for constant oversight Harvest has some great retirement related articles on their website I will put a link in the description of this video not all ETFs are created equal assess fees risks and alignment with your retirement [Music] goals your retirement accounts don't just support you they can also shape your family's financial future in episode 10 of this series I'm going to be diving deep into the estate planning strategies that are specifically designed for Canadian retirees but even now you might be wondering what happens if you forget to name a beneficiary on your accounts let's break that down if no qualifying beneficiary such as a spouse a common law partner a dependent child is named on the RSP or the Riff the entire remaining balance is added to income on the deceased final tax return and this can result in a substantial tax bill especially if the account holds a large balance however if a spouse or eligible child is named as a direct beneficiary the funds can roll over taxfree into their RSP or riff and that will avoid any immediate taxation now the tfsa itself is not taxable if someone dies without naming a beneficiary but any investment growth after the account holder's date of death becomes taxable if the funds are paid to the estate instead of a named beneficiary however if a spouse or a common law partner is named as a successor holder they inherit the tfsa taxfree without it affecting their own contribution room now another thing you have to be concerned about are probate fees and if an rrsp or a riff or a taxfree savings account is paid to the estate instead of directly to a beneficiary it may be subject to probate fees depending on the province now this process can delay the transfer of funds it can increase legal and administrative costs thirdly here estate distribution risks funds left to an estate are at risk of being claimed by creditors they could become entangled in legal disputes if the estate is contested now naming a direct beneficiary ensures that the funds bypass the estate avoiding these risks and ensuring smoother transfer of the assets our last case study of the day is about poor John John was 78 years old he had $500,000 in his RSP but he didn't name a beneficiary now when he passed away his entire RSP balance was added to his taxable income that created a major tax burden for his estate the full 500,000 that pushed his estate into the highest tax bracket that was 33% Federal 133% provincial in Ontario 46% total tax so his estate owed $230,000 in taxes that left only $270,000 for his spouse now if only John had named his spous as the beneficiary the RSP could have been transferred taxfree he would have avoided this massive tax bill the lesson here is in most cases you want to name your spouse as the direct beneficiary on your rsps or your riffs that will ensure a tax-free rollover if you are leaving your funds to children or other heirs you have to be aware that the estate must pay the taxes first and that will reduce the amount that they receive now in the case where you name them directly as a beneficiary they will get the full amount but if the estate itself can't pay the taxes the CRA can come after the children and have them pay for it as you can see maximizing your RSP and your tfsa isn't just about hitting those deadlines it's about creating a strategy that supports your personal retirement dreams review your contribution room consider how riffs might fit into your future plan for your key retirement risks and explore income generating Investments that work for you thank you once again to harvest ETF for supporting this series subscribe now so you don't miss our next video we're going to dive deeper into how you can generate tax efficient income in retirement minimize your taxes and keep your retirement income flowing smoothly thanks again for watching we'll see you in episode 3 [Music]