Government's taxation plays an important part in how you choose what to invest in and how to hold that investment. This overviews how your savings or investments are taxed and how that influences what you choose to invest in.

Taxation affects growing your savings three ways. It:

  1. Affects how much you're able to contribute to your savings from your working income
  2. Determines how much of your investment earnings will be taxed annually, and
  3. Takes a share of the your investment gains when you sell them.

The taxation procedures for these government-regulated plans are:

  • All contributions to these plans are deductible from working income. This eliminates the income tax that would be due on what you contributed to the plan that year.
  • All earnings or gains from what you invested in within the plan are tax-deferred until you withdraw your plan savings at retirement.
  • All withdrawals will be subject to your income tax rates. Withdrawal before you turn 591/2 will include penalties in addition to the income tax.

So, you should view all your savings as partitioned under the two taxing systems for savings:

  • Normal taxable investments
  • Regulated-savings plans
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