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After reading the book "Money: Master The Game" by Tony Robbins, he mentions that many Americans use a TIAA-CREF account for tax sheltered savings.

Besides a registered TFSA (Tax Free Savings Plan), is there an equivalent in Canada?

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  • TIAA-CREF is a company. It manages various types of retirement and other tax deferred accounts. What specific type are you asking about? – littleadv Feb 8 '15 at 6:19
  • This would be a retirement account with a time horizon of over 20 years. – eniacAvenger Feb 8 '15 at 6:24
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    Well, that would be either IRA (Canadian equivalent is RRSP) or 529 plans (Canadian equivalent would be RESP). I don't think the US has something similar to TFSA. Other types of plans TIAA-CREF manages are pensions, annuities, 401(k) etc. – littleadv Feb 8 '15 at 6:26
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    The problem is that these types of accounts have a cap of about $6000 per year, which I have used up. Looks like I'll have to open an unregistered (taxable) account. – eniacAvenger Feb 8 '15 at 6:30
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The primary tax-sheltered investing vehicles in Canada include:

  • The RRSP. You can contribute up to 18% of your prior year's earned income, up to a limit ($24,930 in 2015, plus past unused contribution allowance) and receive an income tax deduction for your contributions. In an RRSP, investments grow on a tax-deferred basis. No tax is due until you begin withdrawals. When you withdraw funds, the withdrawn amount will be taxed at marginal income tax rates in effect at that time.

    The RRSP is similar to the U.S. "traditional" IRA, being an individual account with pre-tax contributions, tax-deferred growth, and ordinary tax rates applied to withdrawals. Yet, RRSPs have contribution limits higher than IRAs; higher, even, than U.S. 401(k) employee contribution limits. But, the RRSP is dissimilar to the IRA and 401(k) since an individual's annual contribution allowance isn't use-it-or-lose-it—unused allowance accumulates.

  • The TFSA. Once you turn 18, you can put in up to $5,500 each year, irrespective of earned income. Like the RRSP, contribution room accumulates. If you were 18 in 2009 (when TFSAs were introduced) you'd be able to contribute $36,500 if you'd never contributed to one before. Unlike the RRSP, contributions to a TFSA are made on an after-tax basis and you pay no tax when you withdraw money.

    The post-tax nature of the TFSA and completely tax-free withdrawals makes them comparable to Roth-type accounts in the U.S.; i.e. while you won't get a tax deduction for contributing, you won't pay tax on earnings when withdrawn. Yet, unlike U.S. Roth-type accounts, you are not required to use the TFSA strictly for retirement savings—there is no penalty for pre-retirement withdrawal of TFSA funds.

  • There are also employer-sponsored defined benefit (DB) and defined contribution (DC) retirement pension plans. Generally, employees who participate in these kinds of plans have their annual RRSP contribution limits reduced. I won't comment on these kinds of plans other than to say they exist and if your employer has one, check it out—many employees lose out on free money by not participating.

  • The under-appreciated RESP. Typically used for education savings. A lifetime $50,000 contribution limit per beneficiary, and you can put that all in at once if you're not concerned about maximizing grants (see below). No tax deduction for contributions, but investments grow on a tax-deferred basis. Original contributions can be withdrawn tax-free. Qualified educational withdrawals of earnings are taxed as regular income in the hands of the beneficiary.

    An RESP beneficiary is typically a child, and in a child's case the Canadian federal government provides matching grant money (called CESG) of 20% on the first $2500 contributed each year, up to age 18, to a lifetime maximum of $7200 per beneficiary. Grant money is subject to additional conditions for withdrawal.

    While RESPs are typically used to save for a child's future education, there's nothing stopping an adult from opening an RESP for himself. If you've never had one, you can deposit $50,000 of after-tax money to grow on a tax-deferred basis for up to 36 years ... as far as I understand.

    An adult RESP will not qualify for CESG. Moreover, if you use the RESP strictly as a tax shelter and don't make qualified educational withdrawals when the time comes, your original contributions still come out free of tax but you'll pay ordinary income tax plus 20% additional tax on the earnings portion. That's the "catch"*.

    *However, if at that time you have accumulated sufficient RRSP contribution room, you may move up to $50,000 of your RESP earnings into your RRSP without any tax consequences (i.e. also avoiding the 20% additional tax) at time of transfer.

Perhaps there's something above you haven't considered. Still, be sure to do your own due diligence and to consult a qualified, experienced, and conflict-free financial advisor for advice particular to your own situation.

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