If you are seeking ways to save in the most tax-efficient manner available, TFSAs and RRSPs can provide significant tax savings. To help you understand the differences, we compare:
-
TFSA versus RRSP – Differences in deposits
-
TFSA versus RRSP – Differences in withdrawals
1) TFSA versus RRSP – Difference in deposits
There are several areas to focus on when comparing differences in deposits for 2021:
● Contribution Room
● Carry Forward
● Contribution and Tax Deductibility
● Tax Treatment of Growth
How much contribution room do I have?
If you have never contributed to a TFSA before, you can contribute up to $75,500 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:
For RRSPs, the deduction limit is always 18% of your previous year’s pre-tax earnings to a maximum of $27,830. For example, if you earned $60,000 in 2020 then your deduction limit for 2021 would be $10,800 (18% x $60,000). If you earned $200,000, your deduction limit would be capped at the maximum of $27,830.
How much contribution room can I carry forward?
If you choose not to contribute to your TFSA at all one year or do not contribute the maximum amount in a year, you can indefinitely carry forward your unused contribution room. The only restrictions on this are that you must be a Canadian resident, older than 18, and have a valid social insurance number. If you make a withdrawal, then the amount you withdrew is added on top of your annual contribution room for the next calendar year.
For an RRSP, you can carry forward your unused contribution room until the age of 71. When you turn 71, you must convert your RRSP into an RRIF. If you make a withdrawal from your RRSP, you do not open up any additional contribution room.
Contributions and Tax Deductibility
Your TFSA contributions are not tax-deductible and are made with after-tax dollars.
Your RRSP contributions are tax-deductible and made with pre-tax dollars.
Tax Treatment of Growth
One of the reasons it’s essential to make both RRSP and TFSA contributions is that any growth in them is treated differently.
A TFSA is more suitable for short-term objectives like saving for a house down payment or a vacation – because all of the growth in it is tax-free. When you make a withdrawal from your TFSA, you won’t have to pay income tax on the amount withdrawn.
The growth in an RRSP is tax-deferred. This means you won’t pay any taxes on your RRSP gains until age 71, at which time, you convert RRSP into a RRIF and begin withdrawing money. RRSPs are better suited for long-term objectives, like retirement. Since you will have a lower income in retirement than when you are working, you will be in a lower tax bracket and, thus, not pay as much tax on your RRIF income.
TFSA versus RRSP – Differences in withdrawals
There are several areas to focus on when comparing differences in withdrawal for 2021:
-
Conversion Requirements
-
Tax Treatment
-
Government Benefits
-
Contribution Room
Conversion Requirements
For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA.
For an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st of 2021.
Tax Treatment of withdrawals
One of the most attractive things about a TFSA is that all your withdrawals are tax-free! This is why they are recommended for short-term goals; you don’t have to worry about taxes when you take money out to pay for a house or a dream vacation.
With an RRSP, if you make a withdrawal, it will be taxed as income except in two cases:
-
The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.
-
The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.
How will my government benefits be impacted?
If you are making a withdrawal from your TFSA or RRSP, it’s essential to know how that will affect any benefits you receive from the government.
Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.
RRSP withdrawals are considered taxable income and can affect the following:
-
Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.
-
Government benefits including Old Age Security, Guaranteed Income Supplement and Employment Insurance.
How will a withdrawal impact my contribution room?
If you make a withdrawal from your TFSA, then the amount you withdrew will be added on top of your annual contribution room for the next calendar year. If you make a withdrawal from your RRSP, you do not open up any additional contribution room.
The Takeaway
RRSPs and TFSAs can both be great savings vehicles. However, there are significant differences between them which can affect your finances. If you need help navigating these differences, please do not hesitate to contact us. We’re here to help.
We’ve put together a financial calendar for 2021. It contains all the dates you need to know to make the most of your government benefits and investment options. Whether you want to bookmark this or print it out and post it somewhere prominent, you’ll have everything you need to know in one place!
We’ve provided information on:
-
The dates when the government distributes payments for the Canada Child Benefit, the Canada Pension Plan (CPP) and Old Age Security (OAS).
-
When GST/HST credit payments are issued – usually on the fifth day of January, April, July and October.
-
All the dates the Bank of Canada makes an interest rate announcement. A change in this interest rate (up or down) can impact a bank’s prime interest rates. This can then affect anything from the interest rate charged on your mortgage and line of credit to how much the Canadian dollar is worth against other currencies.
-
When you can start contributing to your Tax Free Savings Account (TFSA) for 2021, the contribution limit for 2021 is $6,000.
-
March 1st is the last day for your 2020 Registered Retirement Savings Plan (RRSP).
-
December 31st , 2021 is the last day for 2021 charitable contributions.
-
December 31st is the deadlines for various investment savings vehicle contributions, including your Registered Disability Savings Plan (RDSP) and Registered Education Savings Plan (RESP), as well as your RRSP if you turned 71 in 2021.
-
Tax filing deadlines for personal income tax, terminal tax returns for someone who died in 2020, self-employed individuals
Knowing all of this information here can help you keep on top of your finances if you’re expecting any government benefits. It can also make sure you don’t miss any critical tax or investment deadlines!
Tax packages will be available starting February 2021 – reach out to your accountant to get started on your taxes!
If you have any questions on how we can help with your 2021 finances, please contact us.
Now that we are reaching the end of the tax year, it’s an excellent time to review your finances. We’ve listed below some of the critical areas to consider and provide you with useful guidelines.
We have divided our tax planning tips into five sections:
-
Tax Deadlines
-
Individual tax issues
-
Family tax issues
-
Managing your investments
-
Retirement planning
Tax Deadlines for 2020 Savings
December 31, 2020:
-
If you reached the age of 71 in 2020, you can’t contribute to your RRSP after this date
-
Use up your TFSA contribution room
-
Contribute to an RESP to get the Canadian Education Savings Grant (CESG) and the income-tested Canada Learning Bond (if eligible).
-
Contribute to an RDSP to get the Canada Disability Savings Grant (CDSG) and the income-tested Canada Disability Savings Bond (if eligible).
-
Medical expenses
-
Investment counsel fees, interest and other expenses relating to investments
-
Some payments for child and spousal support
-
Fees for union and professional memberships
-
Student loan interest payments
-
Deductible legal fees
-
Charitable gifts
-
Political contributions
January 30, 2021
-
Interest on intra-family loans
-
The interest you must pay on employer loans to reduce your taxable benefit
March 1, 2021
-
Contributions to provincial labour-sponsored venture capital corporations
-
RRSP Repayment under Home Buyers Plan or Lifelong Learning Plan
-
Deductible contributions to a personal or spousal RRSP
Individual Tax Issues
To help Canadians deal with financial hardships due to job loss because of COVID-19, the Canadian government introduced several benefit programs. If you received any of these benefits, you should be aware of the tax ramifications.
The Canada Emergency Response Benefit (CERB) was the first benefit program issued by the government and ran until September 26, 2020. If you received the CERB at all during 2020, the government will issue you at T4A, showing how much money you received from the CERB program. You must then declare that as income when filing your 2020 income tax return. Since no tax was taken off at the source, be sure to put aside money to pay for potential income taxes on your CERB income.
As of September 27, 2020, the government offered three replacement benefit programs:
-
Canada Recovery Benefit (CRB)
This is for people impacted by COVID-19 who work but are not eligible for EI (e.g. self-employed). -
Canada Recovery Sickness Benefit (CRSB)
This is for people who are employed cannot work due to COVID-19 and do not have access to paid sick leave. -
Canada Recovery Caregiving Benefit (CRCB)
This is for people who must miss work to care for a family member who has COVID-19.
For all three of these programs, the government will be withholding 10% in taxes upfront, but you may end up owing extra tax, depending on the rest of your income for 2020, so it’s important to set extra money aside for taxes.
Also, there is a unique condition for the CRB only. If you make over $38,000 in 2020 (excluding the CRB), you will have to pay back the CRB at a rate of 50 cents for each dollar of CRB you earned above the threshold.
If you paid interest on an eligible student loan in 2020, you can claim a non-refundable tax credit in the amount of interest you paid by December 31. In addition, you should be aware that student loan payments were frozen for six months – from March 30 to September 30. No interest accrued on student loans during that period.
Family Tax Issues
-
Check your eligibility for the Canada Child Benefit
(CCB)
To receive the Canada Child Benefit in 2021/22, you need to file your tax returns for 2020 as the benefit is calculated using your family income from the previous year. Eligibility for the CCB depends on set criteria such as your family’s income, how many children you have, and how old they are. You may qualify for a full or partial amount, depending on whether you have full custody or shared custody. -
Consider family income splitting
The CRA offers a prescribed low-interest rate on family loans. Therefore, it makes sense to consider setting up an income splitting loan arrangement with your family members. If you do this, you can potentially lock in a family loan at a low-interest rate of 1% and then invest the borrowed money into a higher return investment while benefitting from your family member’s lower tax status. Don’t forget to adhere to the Tax on Split Income rules.
Managing Your Investments
-
Use up your TFSA contribution room
If you can, it’s worth contributing the full $6,000 to your TFSA for 2020. You can also contribute more (up to $69,500) if you are 29 or older and haven’t made any previous TFSA contributions.
-
Contribute to a Registered Education Savings Plan (RESP)
The Registered Education Savings Plan (RESP) is a savings plan for parents and others to save for a child’s education. The Canada Education Savings Grant (CESG) will match up to 20% of your contributions up to a maximum of $2,500.That means the CESG can add a maximum of $500 to an RESP each year. The grant room accumulates until your child turns 17. Therefore, any unused CESG amounts for the current year are automatically carried forward for possible use in the future years.
The income-tested Canada Learning Bond (CLB) is paid directly to a child’s RESP by the Canadian government to low-income families. No personal contributions are required to receive the CLB.
-
Contribute to a Registered Disability Savings Plan (RDSP)
The Registered Disability Savings Plan (RDSP) is a savings plan for parents and others to save for the financial security of a person who is eligible for the Disability Tax Credit (DTC). The government will pay a matching Canada Disability Savings Grant (CDSG) up to 300% – depending on the beneficiary’s adjusted family net income and amount contributed.Also, low-income Canadians with disabilities may be eligible for a Canada Disability Savings Bond (CDSB). If you qualify, it will be paid directly to your RDSP.
The government will pay matching grants or bonds into the RSDP up to and including the end of the year the recipient turns 49. Be aware that there is a 10-year carry-forward of CDSG and CDSB entitlements.
-
Donate securities to charity
Donating by year-end will provide you with tax savings. If you donate eligible securities or mutual funds, capital gains tax does not apply, and you can receive a tax receipt for their full market value. Also, the charity gets the full value of the securities.
-
Think about selling any investments with unrealized capital losses
It might be worth doing this before year-end to apply the loss against any net capital gains achieved during the last three years. The last trading date for 2020 for Canadian and US publicly traded stocks will be Tuesday December 29th in order to record the gain or loss in the 2020 taxation year.Conversely, if you have investments with unrealized capital gains that cannot be offset with capital losses, it may be worth selling them after 2020 to be taxed on the income the following year.
-
Consider the timing of purchasing of certain non-registered investments
Suppose you are considering purchasing an interest-bearing investment like a guaranteed investment certificate (GIC) with a maturity date of one year or more. In that case, you may consider delaying the purchase to the following year, so you don’t have to pay tax on accrued interest until 2021. You should also consider this with mutual funds that make taxable distributions before the end of 2020, consider delaying this until early 2021. Don’t pay taxes earlier than necessary.
-
Check if you have investments in a corporation
The new passive investment income rules apply to tax years from 2018 onwards. They state that the small business deduction is reduced for companies with between $50,000 and $150,000 of investment income. Therefore, the small business deduction has entirely stopped for corporations that earn a passive investment income of more than $150,000.Note – At a provincial level, both Ontario and New Brunswick do not follow the federal rules to limit access to the small business deduction.
Retirement Planning
-
Make the most of your RRSP
The deadline for making contributions to your RRSP for the year 2020 is March 1, 2021. The deduction limit for 2020 is limited to 18% of the income you earned in 2020, to a maximum of $27,230. This maximum amount is impacted by the following:
-
Any pension adjustment
-
Any previous unused RRSP contribution room
-
Any pension adjustment reversal.
Remember that deducting your RRSP contribution reduces your after-tax cost of making said contribution.
-
Check when your RRSP is due to end
If you reach the age of 71 during 2020, you must wind up your RRSP this year. You must make your final contribution to it by December 31, 2020.
-
Convert to RRIF before year-end
If you turned 65 during 2020 or are already older than 65, you’re entitled to a pension credit that can fully or partly offset the tax on the first $2,000 of eligible income annually. Consider setting up an RRIF before year-end to pay out $2,000 annually if you don’t have any other eligible pension income.
If you have any questions about your taxes for 2020, contact us – we can help you!
in 2020 Only / Blog / Charitable Gifting / Coronavirus / Coronavirus - Associates / Coronavirus - Practice Owners / Coronavirus - Retired / Coronavirus - Retiring / Coronavirus - Students / Disability / disability insurance / Family / financial advice / financial planning / Health Benefits / Pension Plan / RDSP / Registered Education Savings Plan / RRSP / Tax / Tax Free Savings Account
0 comments
Retirement planning can be challenging, we’ve outlined what we feel are 6 steps to retirement success.
-
Have a written plan which merges life priorities with financial resources.
-
Consolidate your income-producing assets with one advisor.
-
Layer different sources of income in the most efficient manner.
-
Structure income in order to preserve valuable tax credits and government benefits.
-
Create efficient cash flow by investing your income-producing assets wisely.
-
Implement efficient solutions for health-cost risks and wealth transfer strategies.
Talk to us about a complimentary comprehensive review of your retirement plan.
in Blog / Business Owners / Family / investment / retirees / RRSP / Tax Free Savings Account
0 comments
If you are seeking ways to save in the most tax-efficient manner available, TFSAs and RRSPs can both be effective options for you to achieve your savings goals more quickly. However, each plan does have distinct differences and advantages / disadvantages. We’ve separated our comparisons into 2 different infographics: deposits and withdrawals.
In the Deposit phase, we look at:
-
Contribution Room
-
Carry Forward
-
Contribution
-
Tax Deductibility
-
Tax Treatment of Growth
Contribution Room
TFSA : $6,000 for 2020. If you never opened a TFSA, you can contribute up to $69,500 today.
-
$5,000 for each year from 2009 to 2012;
-
$5,500 for each of 2013 and 2014;
-
$10,000 for 2015;
-
$5,500 for each of 2016, 2017 and 2019
-
$6,000 for each of 2019 and 2020
RRSP : 18% of your 2020 pre-tax earned income or $27,230. So for example if you earned $60,000, then your deduction limit would be $10,800 (18% x $60,000). If you earned $200,000, then your deduction limit would be capped at the max limit of $27,230.
Carry Forward
TFSA : You can carry forward your unused contribution room indefinitely, as long as your a Canadian resident, older than age 18 with a valid social insurance number. Withdrawals will usually result in new contribution room.
RRSP : You can carry forward your unused contribution room until the age of 71 when you have to convert your RRSP to a RRIF. Any withdrawals made from your RRSP will not result in new contribution room.
Contribution
TFSA : You are contributing to your TFSA with After-tax dollars.
RRSP : You are contributing to your RRSP with Pre-tax dollars.
Tax Deductibility
TFSA : Contributions are not tax deductible.
RRSP : Contributions are tax deductible.
Tax Treatment of Growth
TFSA : The growth inside a TFSA is tax free therefore it’s a great savings vehicle for immediate objectives such as a down payment for a home.
RRSP : The growth inside an RRSP is tax deferred, which means at withdrawal, you will need to pay tax, therefore it’s a good choice for long term goals such as retirement.
In the Withdrawals phase, we look at:
-
Conversion
-
Tax Treatment
-
Government Benefits
-
Contribution Room
Conversion
TFSA : With a TFSA, there’s no conversion.
RRSP : You must convert your RRSP to a Registered Retirement Income Fund by December 31st of the year you turn 71.
Tax Treatment
TFSA : You can make tax-free withdrawals.
RRSP : Your withdrawals are taxed as income except for withdrawals under the Home Buyers Plan, which you can withdraw up to $35,000 providing you pay within 15 years or Lifelong Learning Plan, which you can withdraw up to $20,000 ($10,000 per year) providing that the money is paid back within 10 years.
Government Benefits
TFSA : Your withdrawals doesn’t affect eligibility for income tested government benefit because TFSA withdrawals aren’t included as taxable income.
RRSP : RRSP withdrawals are treated as taxable income therefore withdrawals may affect income tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit and the Age Credit. Withdrawals may also affect government benefits you receive including Old Age Security, Guaranteed Income Supplement and Employment Insurance benefits.
Contribution Room
TFSA : You can carry forward your unused contribution room indefinitely, as long as your a Canadian resident, older than age 18 with a valid social insurance number. Withdrawals will usually result in new contribution room to the following year’s contribution.
RRSP : Contribution room is based on your previous year’s earned income. You can carry forward your unused contribution room until the age of 71 when you have to convert your RRSP to a RRIF. Any withdrawals made from your RRSP will not result in new contribution room.
An additional different to note is that:
-
You are able to specify your spouse as your beneficiary with both your TFSA and your RRSP, however there is a key difference with how your savings are treated upon your spouse’s death. With an RRSP, there will be taxes payable upon the monies left in the plan by your children who inherit it, whereas with a TFSA, tax is only paid on the increase in the value of the plan since the date of death in the year that it is inherited by your children. What’s more, no tax is payable if the value that they receive is less than the value of the TFSA at the time of death.
In summary, your unique financial needs will provide information on what makes the most sense for you.
Contact us and we can help.
in 2020 Only / Blog / Family / individuals / investment / retirees / RRSP / Tax / Tax Free Savings Account
0 comments
2020 Financial Calendar
Financial Calendar for 2020 – All the dates you need to know to maximize your benefits!
in Blog / Business Owners / corporate / individuals / investment / RRSP / Tax / Tax Free Savings Account
0 comments
Now that we are nearing year end, it’s a good time to review your finances. With the federal election over and no major tax personal tax changes for this year, 2019 is a good year to make sure you are effectively tax planning. Below, we have listed some of the key areas to consider and provided you with some useful guidelines to make sure that you cover all of the essentials. We have divided our tax planning tips into 4 sections:
-
Tax deadlines
-
Family tax issues
-
Managing your investments
-
Retirement planning
Tax Deadlines for 2019 Savings
December 31, 2019:
-
If you reached the age of 71 in 2019, contributions to your RRSP
-
Use up your TFSA contribution room
-
Contribute to RESP to get the Canadian education savings grant and the income-tested Canada learning bond.
-
Contribute to RDSP to get the Canada disability savings grant and the income-tested Canada disability savings bond.
-
Medical expenses
-
Investment counsel fees, interest and other expenses relating to investments
-
Some payments for child and spousal support
-
Fees for union and professional memberships
-
Student loan interest payments
-
Deductible legal fees
-
Charitable gifts
-
Political contributions
January 30, 2020:
-
Interest on intra-family loans
-
Interest you must pay on employer loans, to reduce your taxable benefit
February 29, 2020:
-
Contributions to provincial labour-sponsored venture capital corporations
-
Deductible contributions to a personal or spousal RRSP
-
RRSP Repayment under Home Buyers Plan or Lifelong Learning Plan
Family Tax Issues
Check your eligibility to the Canada Child Benefit
In order to receive the Canada Child Benefit in 2020/21, you need to file your tax returns for 2019 because the benefit is calculated using the family income from the previous year. Eligibility depends on set criteria such as your family’s income and the number and age of your children and you may qualify for full or partial amount.
Consider family income splitting
The CRA offers a low interest rate on loans and it therefore makes sense to consider setting up an income splitting loan arrangements with members of your family, whereby you can potentially lock in the family loan at a low interest rate of 2% and subsequently invest the borrowed monies into a higher return investment and benefit from the lower tax status of your family member. Don’t forget to adhere to the Tax on Split Income rules.
Contribute to Registered Education Savings Plan (RESP)
The Registered Education Savings Plan (RESP) is a savings plan for parents and others to save for a child’s education. The Canada education savings grant (CESG) will match up to 20% of contributions up to $2,500. That means the CESG can add a maximum of $500 to an RESP each year. Grant room accumulates until the child turns 17, therefore unused basic CESG amounts for the current year are carried forward for possible use in the future years. The income-tested Canada learning bond (CLB) is paid directly to the RESP by the Canadian government to low-income families. There are no personal contributions required to receive the CLB.
Contribute to Registered Disability Savings Plan (RDSP)
The Registered Disability Savings Plan (RDSP) is a savings plan for parents and others to save for the financial security of a person who is eligible for the disability tax credit (DTC). The Canada disability savings grant will pay matching grants of 300%, 200% or 100% depending on the beneficiary’s adjusted family net income and amount contributed. The income-tested Canada disability savings bond is paid directly to the RDSP by the Canadian government to low- income Canadians with disabilities. Before December 31 of the year you turn 49 years old, you can carry forward up to 10 years of unused grant and bond entitlements to future years, as long as you met the eligibility requirements during the carry forward years.
Managing Your Investments
Use up your TFSA contribution room
If you are able, it’s worth contributing the full $6,000 to your TFSA for 2019. You can also contribute more (up to $63,500) if you are 28 or older and haven’t made any previous TFSA contributions.
Contribute to Registered Education Savings Plan (RESP)
The Registered Education Savings Plan (RESP) is a savings plan for parents and others to save for a child’s education. The Canada education savings grant (CESG) will match up to 20% of contributions up to $2,500. That means the CESG can add a maximum of $500 to an RESP each year. Grant room accumulates until the child turns 17, therefore unused basic CESG amounts for the current year are carried forward for possible use in the future years. The income-tested Canada learning bond (CLB) is paid directly to the RESP by the Canadian government to low-income families. There are no personal contributions required to receive the CLB.
Contribute to Registered Disability Savings Plan (RDSP)
The Registered Disability Savings Plan (RDSP) is a savings plan for parents and others save for the financial security of a person who is eligible for the disability tax credit (DTC). The Canada disability savings grant will pay matching grants of 300%, 200% or 100% depending on the beneficiary’s adjusted family net income and amount contributed. The income-tested Canada disability savings bond is paid directly to the RDSP by the Canadian government to low- income Canadians with disabilities. Before December 31 of the year you turn 49 years old, you can carry forward up to 10 years of unused grant and bond entitlements to future years, as long as you met the eligibility requirements during the carry forward years.
Donate securities to charity
Make a donation by year end will provide you tax savings. If you donate eligible securities or mutual funds, capital gains tax does not apply, and you can receive a tax receipt for their full market value. Also, the charity gets the full value of the securities.
Think about selling any investments with unrealized capital losses
It might be worth doing this before year-end in order to apply the loss against any net capital gains achieved during the last three years. Any late trades should ideally be completed on or prior to December 24, 2019 and subsequently confirmed with your broker.
Conversely, if you have investments with unrealized capital gains which are not able to be offset with capital losses, it may be worth selling them after 2019 in order to be taxed on the income the following year.
Consider the timing of purchasing of certain non-registered investments
If you are considering purchasing an interest-bearing investment like a guaranteed investment certificate (GIC) with a maturity date of one year or more, you may consider delaying the purchase to the following year, so you don’t have to pay tax on accrued interest until 2021. You should also consider this with mutual funds that make taxable distributions before the end of 2019, consider delaying this until early 2020. Don’t pay taxes earlier than necessary.
Check if you have investments in a corporation
The new passive investment income rules apply to tax years from 2018. They state that the small business deduction is reduced for companies which are affected with between $50,000 and $150,000 of investment income, therefore the small business deduction has been stopped completely for corporations which earn passive investment income of more than $150,000. At a provincial level, Ontario and New Brunswick have indicated that they are not following the federal rules to limit access to the small business deduction.
Retirement Planning
Make the most of your RRSP
The deadline for making contributions to your RRSP for the year 2019 is February 29, 2020. There are three things that affect how much you may contribution towards your RRSP, as follows:
-
18% of your previous year’s earned income
-
Up to a maximum of $26,500 for 2019 and $27,230 for 2020
-
Your pension adjustment
Remember that deducting your RRSP contribution reduces your after-tax cost of making said contribution.
Check when your RRSP is due to end
You should wind-up your RRSP if you reached the age of 71 during 2019 and your final contributions should be made by December 31, 2019.
Convert to RRIF before year end
If you’re 65 or older in the year, you’re entitled to a pension credit that can fully or partly offset the tax on the first $2,000 of eligible income annually. Consider setting up a RRIF before year-end to pay out $2,000 annually if you don’t have any other eligible pension income.
Contact us if you have any questions, we can help.
in 2019 Only / Blog / Estate Planning / Family / individuals / investment / retirees / RRSP / Tax / Tax Free Savings Account
0 comments
As a business owner, one of your challenges is learning how to balance between reinvesting into the business and setting money aside for personal savings. Since there are no longer employer-sponsored pension plans and the knowledge that retirement will come eventually, it’s important to have a retirement plan in place.
We’ve put together an infographic checklist that can help you get started on this. We know this can be a difficult conversation so we’re here to help and provide guidance to help you achieve your retirement dreams.
Income Needs
-
Determine how much income you will need in retirement.
-
Make sure you account for inflation in your calculations.
Debts
-
You should try to pay off your debts as soon as you can; preferably before you retire.
Insurance
-
As you age, your insurance needs change. Review your insurance needs, in particular your medical and dental insurance because a lot of plans do not provide health plans to retirees.
-
Review your life insurance coverage because you may not necessarily need as much life insurance as when you had dependents and a mortgage, but you may still need to review your estate and final expense needs.
-
Prepare for the unexpected such as a critical illness or a need for long-term care.
Government Benefits
-
Check what benefits are available for you upon retirement.
-
Canada Pension Plan- decide when would be the ideal time to apply and receive CPP payments. Business owners are in a unique position to control how much can be contributed to CPP by deciding to pay salary or dividends. (Dividends don’t trigger CPP contributions.)
-
Old Age Security- check pension amounts and see if there’s a possibility of clawback.
-
Guaranteed Income Supplement- if your income is low enough, you could apply for GIS.
Income
-
Are you a candidate for an individual pension plan (IPP)? IPPs can provide higher contributions than typically permitted to an RRSP and the ability to create a lifelong pension.
-
Check if your business is a candidate for a group RRSP or company pension plan. This is a great way for you to build retirement savings and provide benefits for your employees and business too.
-
Make sure you are saving on a regular basis towards retirement- in an RRSP, TFSA, or non-registered. Since you can control how you get paid, salary or dividends, dividends are not considered eligible income to create RRSP room, therefore you should make sure you have the optimal mix of both to achieve your financial goals.
-
Ensure your investment mix makes sense for your situation.
-
Don’t forget to check if there are any other income sources. (ex. rental income, side hustle income, etc.)
Assets
-
The sale of your business can be part of your retirement nest egg. Therefore, you should make sure you know the valuation of your business and your plan to sell the business to your family, employees, partners or a third party. You should also know when you decide to sell your business too.
-
Are you planning to use the sale of your home or other assets to fund your retirement?
-
Will you be receiving an inheritance?
One other consideration that’s not included in the checklist is divorce. This can be an uncomfortable question, however divorce amongst adults ages 50 and over is on the rise and this can be financially devastating for both parties.
Next steps…
Contact us about helping you get your retirement planning in order so your retirement dreams can be achieved.