You hear these terms all the time, especially in January and February, so what do they mean?

RRSP (Registered Retirement Savings Plan)
Why?

Because you won’t be a musician forever. You need something for down the road and a contribution can reduce the amount of income tax you may need to pay. PLUS, you can use up to $35,000 towards the down payment of a property (Home Buyer’s plan-HBP). You can also use up to $20,000 (10K per year) for furthering your or your spouse’s education (Lifelong Learning Plan-LLP). You have 15 years to repay HBP withdrawals and 10 years for LLP plan withdrawals.
For Lifelong Learning Plan, click here.
For Home Buyers Plan, click here. 

How much can you contribute?

18% of your earned income (line 15000 on tax return) up to maximum of $27,830 for 2021.If you don’t maximize your RRSP, it’s carried forward to future years. An easy way to find out your RRSP carryforward amount is to call 1-800-267-6999. You’ll need your SIN and access to your T1General for the previous year. Working a day job with a group RRSP plan? Go for it!

TFSA (Tax Free Savings Account)
Why?

I love the TFSA. It’s the most flexible savings vehicle out there, and any income earned inside a TFSA is (yep) Tax Free when withdrawn. You can even put funds back the calendar year following a withdrawal. It’s also a good place to stash money for income tax time. If you have a non-registered investment account, consider moving holdings to a TFSA, but you should get advice, as you may need to pay capital gains.

How much can you contribute?

Max for 2021 if you’ve never had a TFSA is $75,500. Each year you can add more up to a set limit (currently $6,000). Maximize the TFSA accounts as much as you can, and don’t limit yourself to a low interest account at a bank. You can also hold mutual funds, ETFs and stocks inside a TFSA. TFSA’s can be used for just about anything including transferring funds to RRSP when income increases (but not a good idea to move RRSP to TFSA). At the end of the day, you need to start saving some of your money somewhere. You pay your booking agent, manager, and PR agency, right? What about yourself? If you make $500 on a gig, move at least 10% or $50 to a savings vehicle. What’s better? TFSA or RRSP? It depends which side you are on.

The A side – You have $10,000 to invest now and currently make $50,000 income. In 10 years, you hope to make $100,000 in income and would like to withdraw the money. With a 5% rate of return, you would be ahead of the game by over $2,200 with a TFSA.

The B side – You are touring like crazy now and make $100,000 income. In 10 years, you hope not to tour as much and will probably make $50,000. With the same 5% rate of return you would be ahead with an RRSP by over $2,200

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