Dear Client, Digital Newsletters and Library Tile Menu
Your Clients’ Financial Masterclass Consider that you have a Financial Masterclass as a marketing tool! Banks and Life Insurers use monthly Content Marketing e-Newsletters. Many are preferring this cost-effective method which emails directly to your clients. If you have a website with us, this e-Newsletter is read right inside your website. We have affordably priced the e-Newsletter to say thank you for your business. Contact Catherine at 519-745-5595 for more info.
Website Face-Lifts We have upgraded your website to our newer contemporary version. I hope you like the new look.
New Library Tile-Menu We have moved from the side menu to a contemporary visual tile layout for the article and audio library.
The market bounced back nicely, though we may have a ways to go. It is my hope that you each will prosper, taking courage as we innovate with digital marketing.
Dear Client, Digital Newsletters and Library Tile Menu
Your Clients’ Financial Masterclass Consider that you have a Financial Masterclass as a marketing tool! Banks and Life Insurers use monthly Content Marketing e-Newsletters. Many are preferring this cost-effective method which emails directly to your clients. If you have a website with us, this e-Newsletter is read right inside your website. We have affordably priced the e-Newsletter to say thank you for your business. Contact Catherine at 519-745-5595 for more info.
Website Face-Lifts We have upgraded your website to our newer contemporary version. I hope you like the new look.
New Library Tile-Menu We have moved from the side menu to a contemporary visual tile layout for the article and audio library.
The market bounced back nicely, though we may have a ways to go. It is my hope that you each will prosper, taking courage as we innovate with digital marketing.
Diversification advantage Mutual funds offer the investor the benefit of maximum diversification, with minimal exposure to any one stock. You pool your investment with the combined capital of other investors, which allows everyone to invest in many companies, not just focus on two or three larger stocks.
Fund managers usually diversify among at least 20 companies, investing no more than 10% of the fund’s total dollars into any one security.
Other advantages of mutual funds
• You can buy additional units of a mutual fund at any time.
• An automatic purchase plan called dollar-cost averaging (DCA) lets you invest equal amounts at regularly scheduled intervals. You buy more fund units when the prices are lower, fewer when prices are higher, thus averaging out the price of the units purchased.
• Mutual funds can be registered in RRSPs or RRIFs.
• Dividends, where applicable, are easily reinvested.
• Some fund companies allow transfers between their funds without charge.
• You can borrow against mutual fund assets (unless the contract is registered).
**What are some of the differences between a Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP)?
The tax benefits of the Tax-Free Savings Account (TFSA)
The TFSA is a registered savings account that makes it easy for Canadian taxpayers to earn investment income, as the account title states, tax-free. A TFSA allows you to save money while deferring investment income on the after-tax monies invested.
Contributions to the account are not tax-deductible, and any withdrawals of the contributions and earnings from the account are not taxable. Canadian residents age 18 or older can now contribute annually to a TFSA.
TFSA Contribution Limits
2009 to 2012 $5,000
2013 and 2014: $5,500
2015: $10,000
2016 to 2018: $5,500
2019 to 2022: $6,000
2023: $6,500
2024: $7,000
Contributions are not deductible from your taxable income.
Add any unused contributions of your annual limit, cumulative back to 2009.
The tax benefits of the Registered Retirement Savings Plan (RRSP)
RRSP contributions are tax-deductible while RRSP withdrawals are added to income and taxed at regular rates. Your RRSP is primarily intended for retirement savings.
RRSP Contribution Limits
18% of the income you earned the previous year, up to an annual maximum of $26,500 in 2019, $27,230 in 2020, $27,830 in 2021, $29,210 in 2022, $30,780 in 2023, and $31,560 in 2024.
Contributions are deductible from your taxable income.
If you contribute to an employer-sponsored plan, it will reduce your contribution room.
Add any unused contributions of your annual limit cumulative back to 1991.
Reducing taxes on savings can encourage even greater levels of financial security as you invest. Because there is no tax paid on the investment income in or on withdrawals from a TFSA—Canadians now have a greater incentive to add the TFSA strategy to save for any need or for retirement.
Savings help to increase the funds available for investment when you combine your RRSP and your TFSA strategies during retirement.
RRSP and TFSA differences while you invest
TFSA contributions are not tax-deductible, but the contributions and the investment earnings are exempt from tax upon withdrawal. The TFSA offers the benefit of allowing after-tax investments to accrue without taxation. Tax assistance provided by a TFSA complements that provided through RRSPs.
Unlike an RRSP the money you put into your TFSA cannot be deducted from your income on your tax return. Canadian residents, age 18 and older, can contribute annually to a TFSA.
Similar to the RRSP, after you file your tax return each year, the government will determine your remaining available TFSA contribution limit for the coming year. Any unused contribution room gets carried over to the following year. Click here for the updated TFSA contribution details.
You can have more than one TFSA insofar as you don’t exceed your contribution limit.
Those who expect to be taxed at a lower marginal tax rate in retirement may be better to contribute to an RRSP before a TFSA.
There is no TFSA spousal plan. Individuals can provide funds to their spouse or common-law partner to invest in their TFSA, up to the spouse’s or common-law partner’s available room, and the income earned on the contributed amount is generally not attributed back to the spouse or partner who provided the funds.
The TFSA may also be a good investment if you are a member of a pension plan and have minimal if any, room to invest in your RRSP due to a high pension adjustment (PA) factor. More generous plans have a higher PA, leaving less room for personal RRSP contributions. You can supplement your retirement savings through the TFSA.
RRSP and TFSA differences while drawing Retirement Income
Unlike an RRSP, which must be converted to a retirement income vehicle at age 71, a TFSA does not have any minimum withdrawal requirement.
Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
For retirees with low income, every dollar withdrawn from an RRSP or RRIF will reduce the Guaranteed Income Supplement (GIS).
Money taken out of your tax-free Savings Account is taken out tax-free.
You get your contribution room back in the following year. The full amount of withdrawals can be put back into the TFSA in future years.
Careful when you re-contribute to a TFSA: Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
You don’t have to pay any tax on money that you take out of your tax-free Savings Account as you do with an RRSP, so you’re not penalized for short- or long-term saving. This makes the TFSA useful for investors who trade stocks or equity funds frequently.
Cautionary Note: Frequent buying and selling in a TFSA for the purpose of profit-taking may alert CRA to unusual tax strategies, which has been suggested lately as a caution.
Summary Considerations
Most Canadians will spend their employed lives in a higher average tax bracket than they’ll have in retirement. Thus, an RRSP may be the best way for the majority of Canadians to build a retirement nest egg.
If the tax rate at the time of withdrawal is expected to be higher than at the time of contribution, your best choice may be the TFSA.
The TFSA can improve savings incentives for low- to modest-income individuals because either the income earned in a TFSA nor the future withdrawals from it affect eligibility for federal income-tested benefits and credits, such as the Canada Child Tax Benefit, the GST credit, the Age Credit, Old Age Security and Guaranteed Income Supplement benefits.
Consider consulting your advisor before deciding whether to place money in an RRSP or a TFSA or to find out the combination of contributions that is best for your situation.
The following link to a CRA table outline the contribution limits for the annual money purchase (MP), defined benefit (DB), registered retirement savings plan (RRSP), deferred profit-sharing plan (DPSP) and the tax-free savings account (TFSA) limits, as well as the year’s maximum pensionable earnings (YMPE) CRA Registered Plan Limits
Employee Retirement Plans incorporate the following:
• Analysis of available investment vehicles and associated yields
• Investment tracking and reinvestment alternatives
• Individual financial and investment consulting
• Establishment and management of individual registered and non-registered retirement savings plans such as self-directed RRSPs, group RRSPs, & RESPs with the following investment alternatives: investment funds, segregated funds, and labour-sponsored funds.
Group Retirement Options
When your employees retire or are approaching retirement, they will need help through this period of change. Professionals are available to educate your employees about all available retirement income vehicles. We offer the expertise and services to ease the transition to retirement for your retirees:
• Retirement consulting
• Retirement income projections
• Establishment of retirement income vehicles such as RRSPs, RRIFs, LIRAs, LIFs, annuities
Individual Group Investment Products
Whether you are making investment contributions to save for future expenses or retirement, the Group Investment Program allows you to take control of your personal portfolio and achieve your financial goals with peace of mind.
• Lower investment management fees
• No front- or back-end sales charges
• No deferred sales charges
• No minimum investment
• Self-directed RRSPs
• No annual administration fees
• Consolidated statements
Here are some essential strategies that will help you achieve financial independence. It is important to get solid advice to design a plan that incorporates planning values such as those noted herein.
Separate your savings from your investments. Before you begin to invest for a long-term financial goal, you’ll need to save for an emergency fund – up to six months’ worth of your salary. Then you are prepared for an unexpected expense such as an engine job on the car, a leaky roof or loss of employment. Otherwise, you may need to tap into your investments intended for retirement or other purposes.
Budget based on your income, not on your desire. Plan to spend less than you earn and don’t take on debt that your future income cannot service. Budgeting is based on your income, not on your past spending habits. Total your monthly expenses such as housing, utilities, food, clothing, child-care, transportation and debt repayment. This sum should not exceed 75% of your after-tax income.
Invest by paying yourself first. You will only beat the habit of procrastination if you focus on paying yourself first. A rule of thumb: save 10% to 20% of every paycheck. You can achieve such investing by purchasing units in a potentially promising investment fund systematically, using an automatic payment program.
Use beneficial debt to build equity. Minimize and pay off consumer debts – monies borrowed to purchase cars, clothing, vacations, stereos and other gadgets that devalue over time. Acceptable debt can help you achieve an education or mortgage a home.
Differentiate your risks. Inflation risk will compete with long-term investment risk. Equity investment funds or the stocks of many companies are not guaranteed, meaning there is a risk. Yet equities have a much better chance to outpace the adverse risk of inflation—or as some have humorously termed shrinkflation—when compared to a savings account over time. Inflation is the single most significant long-term risk. At 4% over 20 years, inflation will cut the value of today’s purchasing power by half.
Determine to diversify. A properly diversified portfolio will hold several types of funds, including a mix of equity funds. Equity funds should differ in terms of what sector of the economy they invest in, such as agriculture, technology, mining, or finance. Though each fund would hold many stocks, make sure they diversify among the various sectors. One sector may gain while another may lose some value, balancing over time. Equity funds can also diversify by country (such as holding domestic, US and global funds); investment style (such as growth funds or value funds); or company size (such as small, mid, or large-cap). Consider adding bond funds to the mix to diversify even more.
Optimize your portfolio. If you can optimize your portfolio, you may minimize the risks to help your return on investment. To truly optimize, one needs in-depth knowledge only obtainable from a professional whose job is to study funds as a speciality. To diversify in a balanced manner, one needs to weigh many factors concerning economic sectors, managers’ styles, company size, and foreign economic conditions.
A Registered Education Savings Plan (RESP) is a savings plan registered with the government that can help you save for your child’s post-secondary education.
Money invested in an RESP grows tax-deferred. The government helps contribute to your savings with education grants.
Later in life, as your child enrols at a qualifying post-secondary institution, you can withdraw the funds for educational purposes. The payments made from these funds are called Educational Assistance Payments (EAPs).
Invested income and government grants received when withdrawn from the RESP are taxable. You do not pay tax on the contributions you made using your own money. Then these amounts are taxed in the tax return of the student – usually with little or no tax payable as students generally will be in the lowest tax bracket.
How do RESPs help my money accumulate?
Starting to use an RESP for your child early, while they are young, gives you more time for your contributed funds to grow.
The Canada Education Savings Grant (CESG) will match 20% of annual contributions, up to $500 per year
These contributions can continue until you reach the lifetime limit of $7,200 per child
Investing your Canada Child Benefit can assist you while saving enough to qualify for the maximum CESG amount
Federal Government-funded education grants
The Government of Canada supports saving for a child’s education by offering grants to a child’s RESP – offering you additional funds to accumulate educational savings.
The Canada Education Savings Grant (CESG)
The basic Canada Education Savings Grant (CESG) increases your year by year contribution by 20%, up to $500 per beneficiary each year to a lifetime limit of $7,200 per beneficiary. Additional CESG grants may be available, depending on your income.
Please talk to us for more information about the RESP and the CESG grant as it applies to your province.
How parents help shape the financial future of their children
In Canada, the government allows a welcome tax break when you save for your child’s education. As parents, we need to consider the effect that education will have on the future income and lifestyle of our children.
The Internet is bringing many changes quickly: Amazon is replacing many of our once-renowned retailers. Google sweepingly controls business success: who gets to view your website and consequently buy your services is based on paying for Google AdWords. The world has moved into one of the most profound eras of change in human history. Our children, for the most part, are just not prepared for this new reality. The gap to accessing a secure income, or obtaining a job with a substantial retirement pension is widening.
Parents who can see the chaos, the economic uncertainty, the stress and the complexity in the world, know intuitively that the new wave of robotics and artificial intelligence (AI) call for an educational revolution. Our children must be able to get a post-secondary education while aiming for higher accreditation in a career known to provide substantial income that keeps up with inflation. Serious financial planning can provide significant funds to go to university or college. The Financial Comfort Zone Study found the following:
“Canadians who establish registered education savings plans (RESPs) for their children are setting their kids up for financial success later in life because there’s a direct correlation between having post-secondary education and wealth”.1
The study revealed the following:
• Among those holding a postgraduate degree (the highest level of education), 23% have investible assets of $500,000 or more, whereas approximately only 11% if the schooling is at the post-secondary level.
• Of those with only a high-school diploma, only 8% have investible assets of $500,000 or more, while 72% have investible assets of $100,000 or less.
Parents can influence the education of their children by fostering the right attitude toward the need for educational training for a financially sustainable future.
“Among parents who gave education a high rating of importance and who had one or more children living at home, 49% indicated they had established an RESP for their children. Similarly, 45% of parents who gave education a medium rating of importance and who had one or more children living at home indicated that they had established an RESP for their children. In contrast, only 15% of parents who gave education a low rating in terms of importance and who had one or more children living at home had established an RESP for their children.” 2
What ways can we plan for our Child’s education? Consider using both the traditional Registered Educational Savings Plan (RESP) and the Tax-Free Savings Account (TFSA) as an educational savings vehicle. A TFSA offers parents another tax-efficient method to provide for education planning.
The Canadian government regulates the Registered Retirement Savings Plan (RRSP) program, allowing it to have unique tax benefits as you save for your retirement. Annual RRSP contributions can reduce the amount of income tax you pay in the year of your contribution. These monies invested annually grow on a tax-deferred basis, and tax is only paid at the time of withdrawal. RRSP Planning is a very integral part of your investment planning.
Have a look at the graph below to see how RRSP money accumulates over time based on a maximum annual investment.
Your investments grow tax-free Your RRSP investments accumulate within the plan tax-free, as do any addition to your contributions, including capital gains, interest, dividends, and any other growth via dividends or distributions paid out on an investment fund. The longer your money stays sheltered from the taxman, the greater the tax-free accumulative earning power of your investment. However, taxation occurs once income is withdrawn from your RRSP.
Planning Together – Spousal RRSPs and Tax
A spousal RRSP allows a couple to place assets in the lower-earning spouse’s registered account. The benefit of this manoeuvre enables the account owner to withdraw more in retirement at a lower tax bracket while retaining spousal RRSP ownership, controlling the choice of the RRSP investment vehicles. The owner also governs when withdrawals are made and pays the income taxes upon withdrawal (if the funds have been in the account for three years).
What happens when the RRSP account holder dies?
For estate planning purposes, upon the decease of the account holder, the RRSP is paid out to the beneficiary designated for that account.
How Much can you contribute to your RRSP?
Your Contribution Limit To find out your allowable RRSP contributions you are allowed to deduct for your income taxes, check Last Year’s Deduction Limit Statement on your latest Notice of Assessment or Notice of Reassessment. Canada Revenue Agency (CRA) establishes guidelines for the minimum and maximum overall yearly amount a person is eligible to contribute to their RRSP. The basic formula used to determine a taxpayer’s eligible contribution is as follows: 18% of earned income minus any Pension Adjustment = the eligible contribution amount.
Who can contribute to an RRSP? All Canadian taxpayers with “earned income” in the previous tax year, or those having unused contributions carried forward from previous years can contribute to their RRSP. A person is eligible to make contributions to their RRSP until December 31 in the year they reach age 71, provided that they have contribution room.
Two methods of contributing to your RRSP You may invest by purchasing a lump sum investment prior to the deadline. The alternative is to invest on a monthly basis using dollar-cost averaging. You can always top up your RRSP contribution (up to the allowable limit), just prior to the deadline year by year.
It pays to plan your RRSP contributions before the end of the year to reduce your taxes that will be due on the current taxable year. To achieve this, assess your income and calculate how you can optimise the use of an RRSP to reduce your taxable income.
You may have Carry-forward Contribution Room
If you have not previously invested up to your maximum RRSP contribution limit, CRA allows you to carry over unused contribution room into future years for an indefinite period. Look on your Notice of Assessment.
What can you deduct on your tax return?
You can claim a deduction for:
contributions you made to your Registered Retirement Savings Plan (RRSP), Pooled Registered Pension Plan (PRPP) or Specified Pension Plan (SPP)
contributions you made to your spouse’s or common-law partner’s RRSP or SPP
your unused RRSP, PRPP or SPP contributions from a previous year
You cannot claim a deduction for:
fees charged to buy and sell within a trusteed RRSP
amounts you pay for administration services for an RRSP
the interest you paid on money you borrowed to contribute to an RRSP, PRPP, or SPP
any capital losses within your RRSP
employer contributions to your PRPP
What is the deadline to contribute to an RRSP, PRPP, or SPP for the purpose of claiming a deduction on your tax return?
The Income Tax Act sets the deadline as “on or before the day that is 60 days after the end of the year”, which is March 1st except in a leap year, when it will be February 29th; or where the deadline falls on a weekend, it may be extended.
Can contributions be made to a deceased individual’s RRSP, PRPP, or SPP?
No one can contribute to a deceased individual’s RRSP, PRPP or SPP after the date of death. But, the deceased individual’s legal representative can make contributions to the surviving spouse’s or common-law partner’s RRSP and SPP. The contribution must be made within the year of death or during the first 60 days after the end of that year. Contributions made to a spouse’s or common-law partner’s RRSP or SPP can be claimed on the deceased individual’s tax return, up to that individual’s RRSP/PRPP deduction limit, for the year of death.
What is not considered an RRSP, PRPP, or SPP contribution?
The following are not considered to be an RRSP, PRPP, or SPP contribution for the purpose of claiming a deduction on your tax return. We can point out the special rules that apply if you:
repay funds that you withdrew under the Home Buyer’s Plan
repay funds that you withdrew under the Lifelong Learning Plan
Note:It is recommended that you get more information on this subject by calling our office or your accountant.
How is your RRSP/PRPP deduction limit determined?
The Canada Revenue Agency generally calculates your RRSP/PRPP deduction limit as follows:
The lesser of:
18% of your earned income in the previous year, and
the annual RRSP limit
Minus:
your pension adjustments (PA)
your past service pension adjustments (PSPA)
Plus:
your pension adjustment reversals (PAR), and
your unused RRSP, PRPP, or SPP contributions at the end of the previous year
Fund managers usually diversify among at least 20 companies, investing no more than 10% of the fund’s total dollars into any one security.
