You’ve invested in your business, but have you invested in your retirement?

Registered Retirement Savings Plan (RRSP)

What is an RRSP? It’s a registered savings plan that allows you to accumulate funds for retirement. RRSPs are held inside a plan registered with the government. Funds contributed to an RRSP are deductible from your taxable income, within certain limits. All registered investments grow tax-deferred. Funds may be invested in various investment products.

RRSPs have an annual contribution limit Opens in a new window.. Each year you can contribute up to 18% of your prior year’s qualifying earnings. For the 2022 tax year, the limit is $29,210, minus any applicable pension adjustment, unused RRSP contribution limit from prior years, and pension adjustment reversal.

If you’re unsure what your contribution limit is, you can check by:

• Reviewing your latest Notice of Assessment (NOA). It shows your deduction limit based on the information you sent to the Canada Revenue Agency (CRA) with your tax return.
• Signing on or registering for an online account with the CRA Opens in a new window.

An RRSP lets you invest more of your income and save on taxes in two ways:

Tax savings now: RRSP contributions reduce your taxable income, which may result in a tax refund. You can put the refund back into your RRSP if you have contribution room, or use it to pay down debt.

Tax-sheltered growth: Investing in an RRSP has a much bigger impact on your savings than investing outside of one. This is because both the amount you contribute to your RRSP and the income it earns are sheltered from tax as long as the money stays in the plan. But remember, when you withdraw RRSP assets, they’re taxed at the marginal tax rate you’re paying at that time. The marginal tax rate is the amount of additional tax paid for every additional dollar earned as income.

Tax Free Savings Account (TFSA)

What is a TFSA? It’s a registered savings vehicle that helps you grow your money faster because you don’t pay taxes on the interest or investment income you earn.

You can have multiple TFSAs at various financial institutions, but it doesn’t increase your contribution room. Contribution room is calculated per person, not per account.

It’s your responsibility to keep track of your TFSA contribution room so you don’t overcontribute. Like your RRSP limit, you can check your TFSA contribution room by reviewing your NOA, or you can sign in or register for an online account with the CRA Opens in a new window.. The CRA tracks your TFSA contributions and updates your contribution room at the beginning of every calendar year.

Every year, the government updates the TFSA dollar limit Opens in a new window.. For example, in 2022, the limit is $6,000. Remember that this limit is not the same as your maximum contribution room.

If you can’t contribute up to the limit in any given year, that’s not a problem because you can carry the remaining room forward. This means if you’ve never had a TFSA, were at least 18 in 2009, and have been a Canadian resident since then, you can contribute up to $81,500 in 2022 because of the unused contribution room you’ve carried forward.

In addition, with a TFSA you can withdraw your money for any reason, at any time, tax-free. Plus, you can add the withdrawal amount back into your TFSA the next calendar year or in later years.

Non-registered investments

To save beyond the amount you can invest in your RRSP or TFSA, consider non-registered investments. Options include:

• GICs, which are available through your CIBC advisor
• Bonds, mutual funds, exchange-traded funds (EFTs) and stocks, which are available through CIBC Investor’s Edge

Income earned from non-registered investments is taxable in the year it is earned.

A CIBC advisor can help you determine how much you’ll need. It’s a matter of establishing the total income you’ll require in retirement, estimating your annual expenses, and considering other circumstances. A general rule is that you’ll need 70 to 80 percent of your current salary to maintain a similar lifestyle once you retire. For example, if you made $100,000 each year, you should plan to have $70,000 to $80,000 in retirement income.

An important part of planning for retirement is thinking about what you can do now to make sure you achieve your personal and financial goals. Consider these tips to ensure you’re doing all you can today, for a better retirement tomorrow.

• Decide when you want to retire and the lifestyle you want to have.
• Talk to a CIBC advisor about creating a retirement plan for you and a succession plan for your business.
• Use all your RRSP contribution room. Don’t wait until the March 1, 2023 deadline to make your 2022 RRSP contributions. Consider whether setting up automatic monthly contributions is right for you.
• Have an idea about the approximate rate of return on your total investment portfolio. The estimated rate of return on your portfolio depends on the risk you are willing to take and how much money you need to save over time to reach your retirement income goal.
• The cost of goods and services increases over time. Factor in the impact of inflation.
• Consider a spousal RRSP to split income and possibly save taxes in retirement.

Start putting your retirement savings to work. Now is the time to talk to a CIBC business advisor and have a conversation about how much you need to save for retirement.

Check out these resources to further your retirement education:

• Wondering if RRSPs are the right move? Take a look at Jamie Golombek’s article RRSPs: A smart choice for business owners (PDF, 255 KB) Opens in a new window.
• Want to learn more about TFSAs? Check out Jamie Golombek’s article TFSAs for business owners… a smart choice (PDF, 335 KB) Opens in a new window.
• Interested in marginal tax rates? Read Jamie Golombek’s article It’s 2022: Do you know what your tax rate is? (PDF, 210 KB) Opens in a new window.
• Interested in how your business can help you save for retirement? Learn more in Joseph Campagna’s article How your business can help you and your employees save for retirement