Did you know Canada.. we recently started RESPs for our children and RRSPs for ourselves, and I've been trying to understand more about banking and investments in general.
While on the topic I've also been interested in banking practices of other countries, how is everyone
else in the world managing accounts and investments?
Such as the use of an ISA in the UK - ISAs (Individual Savings Accounts) are a very popular way to pay less tax on your savings and investments. Money is contributed from after tax income and not subjected to income tax or capital gains tax within a holding or upon withdrawal. Cash and a broad range of investments can be held and there is no restriction on when or how much money can be withdrawn. Funds can not be used as security for a loan. It is not a pension product but can be a useful complement to a pension for retirement income, particularly when it is desirable to draw down capital at a faster rate than permitted in a pension.
This is similar to Canada's Tax-Free Savings Account. The Tax-Free Savings Account (TFSA) is an account that provides tax benefits for saving in Canada. Contributions to a TFSA are not deductible for income tax purposes. Investment income, including capital gains and dividends, earned in a TFSA is not taxed, even when withdrawn.
One mechanism in the design of the TFSA is the carry-over aspect. Any unused space under the $5,000 cap can be carried forward to subsequent years, without any upward limit. The TFSA also allows income splitting to an extent, because a higher-earning spouse can contribute to the TFSA of a lower-earning spouse.
A TFSA differs from a RRSP in that there is a tax deduction for contributions to a RRSP, and withdrawals of contributions and investment income are all taxable. In contrast, there is no tax deduction for contributions to TFSA, and there is no tax on withdrawals of investment income or contributions from the account.
How do you feel about the investment options available in Canada compared to those in other countries?