These registered plans are designed to help you save with specific goals in mind, such as the retirement lifestyle you would like to enjoy

Your off-farm investments can be directed to either registered deferred income plans or to a non-registered portfolio. This article focuses on registered plans, all of which are subject to limitations set by the Income Tax Act.

The best investments for you depend on your unique situation. Many taxpayers are apt to find a Registered Retirement Savings Plan (RRSP) the most attractive deferred income plan due to the deductibility of their contributions. Registered Education Savings Plans (RESP) also are attractive investment options for taxpayers with younger children because of the government bonuses and tax-free payout to students.

Most mid-to high-income earners probably should consider a new Tax-Free Savings Account (TFSA) as a strategic supplement to their RRSP, but not as a replacement. Finally, for low-income earners and families the TFSA could be their best way to set up a rainy-day fund.

Supplementing your investments with a Tax-Free Savings Account

The new Tax-Free Savings Account (TFSA) was passed into law in June 2008, and financial institutions are getting prepared to set up TFSAs starting January 1, 2009 for Canadians 18 or over. As with your RRSP, you can hold a variety of investments in your TFSA, ranging from guaranteed interest-bearing investments to bonds and equities.

The TFSA has several unique key features that make it different from other registered investments. While you cannot deduct your contributions like you can with your RRSP, the beauty of the TFSA is that any withdrawals will not be taxed regardless of how much income has been generated within the account. Your earnings (including capital gains) grow tax-free within the account and your withdrawals also are tax-free. If you wish to withdraw some or all of the funds to make a purchase, such as a home or a vacation, or invest in your business, you can do so with no tax consequences. You also can replace the funds at a later date without affecting your annual $5,000 contribution limit.

Payouts are not considered to be income and they do not affect your eligibility for federal income-tested benefits and credits such as the Guaranteed Income Supplement, Canada Child Tax Benefit, and GST credits.

You and your spouse can each deposit up to $5,000 per year in your separate TFSAs. Any shortfall in a year can be carried over indefinitely. You also can make deposits on behalf of your spouse without any income attribution.

Saving for a comfortable retirement

If you currently work off-farm or if you have in the past, you may be participating in employer-sponsored retirement plans such as a Registered Pension Plan (RPP) or Deferred Profit Sharing Plan (DPSP). All RPPs and DPSPs must be registered with the Canada Revenue Agency and comply with the terms of the Income Tax Act. The payments within them accumulate tax-sheltered, in trust for the benefit of employees, and are not taxable until paid out to the employee.

There are two types of RPP: a defined benefit pension plan and a defined contribution (money purchase) plan. Employee contributions to an RPP are tax deductible.

In a defined benefit pension plan either the employer only or the employer and its employees must make monetary contributions towards providing employees with a retirement income. For a defined benefit RPP, the amount of pension an employee receives is set in advance according to a

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