Finding retirement plans can be a challenge for the self-employed, but there are a number of options available for anyone who wants to prepare for the future.
Canadian Pension Plan
Virtually everyone over the age of 18 is required to take part in the Canadian Pension Plan. Residents of Quebec have an almost identical program termed the Quebec Pension Plan. As an employee, your employer will pay half the required contribution. The self-employed must contribute the entire amount. This is the most common retirement savings plan in the country.
RRSP, RRIF and TFSAs
Canada's Registered Retirement Savings Plan is an individual retirement account that can be set up to help reduce the tax burden on people saving for later years. It is probably the best retirement plan for self-employed people to put aside money; however, there are tax implications to be aware of. For example, there are penalties for early withdrawal and sometimes international tax liabilities can come into play. The RRSP is a valuable tool for young people looking to save up for buying their first home, as up to $25,000 can be used as a down payment with no penalty under the Home Buyers Plan.
A similar investment tool is called the Registered Retirement Income Fund. It's essentially a plan used by individuals and financial institutions that is registered with the Canada Revenue Agency. A person can own more than one, and RRIFs can be completely managed by the institution or self-managed.
Tax-Free Savings Accounts (TFSA) are a good choice for some as well. While the rate of return is usually low, they are a vehicle for putting aside extra cash. They can be used for saving for retirement and for big purchases. TFSAs are also a good place to store money as an emergency fund.
Where to look
Making the wrong choices could be costly down the road. A little research can mean a big difference when it comes to how much money you will have when it's time to retire. Unless you are an experienced investor and willing to take risks, it's a good idea to consult a financial advisor.
