The Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) have different features but are excellent retirement accounts. Canadians shouldn’t pit one against the other; instead, they should consider how they can help attain financial goals.
Unfortunately, not all RRSP and TFSA users have maximized their limits. But it is helpful to know the utilization of each and see the level of contributions in 2024 despite the financial challenges.
Source: Getty Images
Average balances
The 2024 figure is not yet available, although according to the Bank of Montreal’s Annual Investment Survey results released in January, TFSA usage declined in 2023. The mean or average TFSA account balance last year was $41,510. BMO also surveyed RRSP users; the February report showed fallen values, too.
In 2023, the average RRSP account holdings were $113,070, or 27.9% lower than in 2022. About 63% of respondents said headwinds like high interest rates and inflation affected their ability to save for retirement. Still, BMO believes the trend will change or return to normal when economic conditions improve.
The TFSA contribution limit for 2024 is $7,000 (indexed to inflation), while the RRSP contribution limit for tax year 2024 is $31,560 (contribution deadline is March 1, 2025).
TFSA stock
Tax-free money growth is the salient feature of the TFSA. If you’re investing for passive income and faster compounding of your TFSA balance, a dividend grower like Fortis (TSX:FTS) should be your anchor stock. The utility stock is a dividend king (TSX’s second) owing to 50 consecutive years of dividend increases.
At $59.90 per share, the dividend offer is 3.9%. The $29.7 billion electric and gas utility company said its annual dividend growth guidance for 2028 is from 4% to 6%. Management is executing its $4.8 billion capital plan this year, part of the new $25 billion five-year capital plan.
In the first half of 2024, net earnings increased 7.5% year-over-year to $790 million. David Hutchens, President and CEO of Fortis, said, “Our regulated utility businesses continued to deliver on their financial and operational plans in the first half of 2024.”
Fortis expects its long-term rate base growth to drive earnings and support dividend growth. The midyear rate base should be $49.4 billion in 2028. Beyond the five-year capital plan, the company will pursue additional opportunities to expand and extend growth.
RRSP anchor
Canadian Natural Resources (TSX:CNQ) is an ideal anchor in an RRSP. The large-cap stock is a dividend aristocrat with a 24-year dividend growth streak. At $50.49 per share, you can partake in the 4.1% dividend yield. The $107.4 billion senior crude oil and natural gas producer operates in North America, the North Sea (U.K. portion), and offshore Africa.
In Q2 2024, revenue and net earnings increased 12.8% and 14.7% to $17.3 billion and $1.7 billion, respectively, compared to Q2 2023. Because of the company’s dedication to shareholder returns, the Board approved a $0.525 dividend increase during the quarter.
Helpful tips
Canadians can open an RRSP and TFSA and contribute to both. An RRSP is advantageous for high-income earners because it offers significant tax savings. TFSA users in the lower income bracket benefit more from tax-free withdrawals.
