XEQT and Maternity Leave: What to Do With Your Investments

The overview

Parental leave in Canada means EI parental benefits of 55% of insurable earnings for standard leave (up to 40 weeks) or 33% for extended leave (up to 69 weeks). For most families this represents a meaningful income reduction. The right approach to investments during this period depends on your specific financial situation, but the general principles are clear.

The most important thing: do not sell your XEQT. Parental leave is not a financial emergency that requires liquidating long-term investments. It is a planned income reduction that should be anticipated with savings, budgeting, and an understanding of the government benefits available. Your XEQT position is on a 20 or 30-year trajectory. A 12-month income reduction is noise on that timeline.

Should you keep investing during leave?

If you can afford to keep contributing to XEQT during parental leave, you should. If you cannot without creating financial hardship, pausing contributions is completely fine. The right answer depends on your cash flow.

Parental leave often involves higher spending (baby costs, lost income from a partner possibly also taking leave, childcare costs beginning after the leave period) and lower income simultaneously. Maintaining XEQT contributions when cash is tight creates stress and may lead to bad decisions. It is far better to pause contributions for 12 months and resume at full rate than to make panic decisions with existing holdings.

If your household income remains sufficient during leave to cover essential expenses and maintain a modest contribution, continuing is the better long-run choice. The compounding value of an uninterrupted contribution schedule is real over decades. But it should never come at the cost of financial stability or emergency preparedness.

Pausing contributions

Pausing XEQT contributions for a parental leave period is a legitimate and common financial decision. It does not mean you are falling behind. The TFSA room you do not use accumulates and is available when income resumes. The RRSP room you do not use also accumulates. You can catch up when the higher income period returns.

On Wealthsimple, you can pause or reduce automatic contributions at any time from the app. There is no fee or penalty for doing this. When you are ready to resume, you restart the automatic transfer and continue where you left off. The XEQT position you already hold continues to compound while contributions are paused.

TFSA during parental leave

The TFSA is the most flexible account available to Canadians. If you need to access some savings during parental leave, the TFSA is the account to use first. Withdrawals are completely tax-free and do not affect EI benefits, the Canada Child Benefit, or any other income-tested government program.

Withdrawing from a TFSA that holds XEQT means selling some of your investment position. If possible, a better alternative is to hold a cash buffer inside the TFSA (or in a separate HISA) rather than liquidating XEQT. This is why financial planners recommend building the emergency fund alongside your investment contributions rather than putting every dollar into XEQT.

The room from a TFSA withdrawal is returned on January 1 of the following year. If you withdraw $10,000 from your TFSA in October during parental leave, you can re-contribute that $10,000 starting January 1 of the next year, in addition to the new annual room. The TFSA does not permanently penalize you for accessing your own money.

RRSP during parental leave

RRSP withdrawals during parental leave are treated as taxable income. This is generally undesirable because you lose the tax-sheltered space permanently (RRSP room is not restored after a withdrawal, unlike TFSA). Avoid RRSP withdrawals during parental leave unless you have exhausted all other options.

The one exception is the strategic case described in the next section: using a low-income year to make a planned RRSP withdrawal at a lower marginal rate. This requires careful planning and is not appropriate for everyone, but it is a real opportunity worth understanding.

RRSP contributions during parental leave are generally less valuable than in a higher-income year, because the deduction reduces income that is already lower. If you have RRSP contribution room and limited cash, you may be better off waiting to make the RRSP contribution until you return to full income, when the marginal rate on the deduction is higher.

The low-income RRSP opportunity

Parental leave creates a lower-income year, and lower-income years are underappreciated financial planning opportunities. Understanding this may change how you approach the year.

If your income during a parental leave year will be significantly lower than normal, you may be in a lower marginal tax bracket for that year. This has several implications. Capital gains from selling non-registered investments are taxed at a lower rate. RRSP withdrawals are taxed at a lower rate. Some Canadians deliberately use low-income years to realize gains or make withdrawals they would otherwise defer.

The Canada Child Benefit is income-tested and calculated on your prior-year income. The year after a parental leave year, when your income is assessed, may result in higher CCB payments than in subsequent years. Understanding your family's benefit eligibility is worth a conversation with an accountant or using the CRA's benefits calculator.

For a specific estimate of how the low-income year affects your RRSP strategy and marginal rate, use the NOA Decoder tool on this site with your estimated parental leave year income to see the approximate tax implications.

EI and investment income

EI parental benefits are not affected by the value of your investment portfolio or by investment income from a TFSA. However, investment income from non-registered accounts (dividends, capital gains from selling XEQT) is reported on your tax return and counts toward your taxable income for the year. This can affect income-tested benefits and credits.

Inside a TFSA, all income is completely tax-sheltered. Dividends and capital gains from XEQT inside a TFSA do not appear on your tax return and have no effect on any income-tested program. This is one of the strongest arguments for holding XEQT in a TFSA rather than a non-registered account, particularly for investors who may have variable-income years. See our full TFSA vs RRSP guide for the complete analysis.

FHSA during parental leave

If you have an open First Home Savings Account, you can continue contributing during parental leave if cash flow allows. Contributions to an FHSA are tax-deductible in the year made, so a contribution during a lower-income year provides a smaller immediate deduction than in a higher-income year. You may consider deferring FHSA contributions to a higher-income year for a larger tax benefit, though the $8,000 annual limit and $40,000 lifetime limit mean unused room does not accumulate year to year (unused room carries forward but the annual limit still applies). If you have not opened an FHSA yet and are considering a home purchase, opening one now establishes your eligible period even if contributions are modest. See our guide on what an FHSA is and whether you qualify.

Coming back to full income

When parental leave ends and full income resumes, resume your XEQT contributions promptly. The compounding calendar does not pause while you restart, but every month of contributions matters over a long horizon.

The return to full income is also a natural moment to review your overall financial structure. Many parents find that the parental leave period clarifies priorities: an emergency fund matters more than they previously valued it, account structure needs attention, and contribution amounts may need updating to reflect changed family circumstances.

The RRSP deduction room accumulated during the parental leave year (from lower contributions) carries forward. When income is high again, larger RRSP contributions will provide larger deductions. The TFSA room accumulated but unused during leave is also available for catch-up contributions. None of the pause during leave is lost; it just shifts the timing.