Tag Archives: RRSPs

5 financial fitness tips to help becoming #RetireReady

Posted By |

By Jenny Diplock

Special to the Financial Independence Hub

As any personal trainer will tell you, a new fitness routine starts with a personalized plan and a target goal. And to improve performance, you need to train: especially in the off-season. Taking a similar approach to your retirement contribution goals can help you feel confident you’re #RetireReady.

In fact, according to a recent survey from TD, 79 per cent of working Canadians agree that reviewing their retirement contribution goals outside of RSP season is a good idea.

But even with these good intentions, the data shows just 40 per cent of working Canadians contribute regularly to their registered Retirement Savings Plans (RSPs) through pre-authorized contributions, 20 per cent don’t contribute to retirement savings at all, and nearly a third of working Canadians feel stressed out during the February RSP season.

When it comes to saving for retirement, contributing to your RSP once a year is like running a marathon without the right training. Because you’re not in the habit of saving, trying to come up with one large contribution amount just before the annual RSP deadline can be harder than contributing smaller and more manageable amounts throughout the year, potentially putting additional pressure on the rest of your finances.

To help improve your retirement readiness year-round: Continue Reading…

Dear Generation X: Here’s how to fix your Finances

Posted By |
The number of financial responsibilities facing Generation X – those ages 37 to 52 today – seems overwhelming. Getting married, having kids, and raising a family can be expensive enough. Now factor in building an emergency fund, paying down the mortgage, setting aside money for retirement, saving for your child’s education, and everything else that comes along with improving your finances. It’s a tall order – I’ve been there! In fact, I’m living it.

But let’s skip the scaremongering and over-generalizations and get to some common sense advice.

How do you balance paying off debt, saving, and investing with the everyday costs of supporting a family? Let’s start by setting up a simple plan for each of these categories to ensure that you are on the right financial path. Here’s how to fix Generation X finances:

Treat consumer debt like a financial sin

You can’t move the needle forward financially if you’re constantly spending more than you earn. But when your mortgage payment, car payment(s), daycare costs, groceries, and gas take up your entire available budget then you have no wiggle room to plan for unexpected costs.

Not only that, when the “I deserve this” moments come up and you want to treat yourself or your family to dinner, a movie night, or a vacation you end up going into debt (just this one time) to make ends meet.

Start with a list of everything you currently spend over a period of three months. Where does all your money go? Find a way to slash expenses so that you’re no longer going into debt just to get through the month.

Make it a rule: No new debt this year

Now it’s time to tackle your current debt, whether that’s in the form of a lingering line of credit or (gasp!) a high-interest credit card. If it’s the latter, put all savings and extra spending on hold and throw every extra dollar at that debt until it’s paid off.
Continue Reading…

How to win at tax-free investing: RRSPs, TFSAs and Dividend Stocks

Posted By |

Tax-free investing can help you save money over both the long and short term if you invest using these tips.

Tax-free investing and using tax shelters are strategies employed by many successful investors.

Tax shelters are legal investment vehicles that let investors pay less tax. While some are risky and should be avoided, like flow-through limited partnerships, others, like RRSPs and TFSAs, are great ways for Canadian investors to cut their tax bills.

Here are the best ways to defer or lower the amount of tax you have to pay on your investments.

Tax-free investing with Registered Retirement Savings Plans (RRSPs)

 

RRSPs are a great way for investors to cut their tax bills and make more money from their retirement investing. RRSPs are a form of tax-deferred savings plan. RRSP contributions are tax deductible, and the investments grow tax-free.

You can put money in RRSP tax shelters each year (up to a limit based on your income) and deduct it from your taxable income. You only pay income tax on your investment, and the income it earns, when you make withdrawals from your RRSP.

In a way, investment gains in RRSP tax shelters give you a double profit. Instead of paying up to 50% of your investment gains in taxes right after you make them, you keep 100% of them working for you until you take money out. That will likely be years later in retirement, when most Canadians enter a lower tax bracket.

If you want to pay less tax on investment income while you’re still working, investing in an RRSP is the way to go.

Tax-free investing with tax-free savings accounts (TFSAs)

A tax-free savings account lets you earn investment income — including interest, dividends and capital gains — tax free. But unlike registered retirement savings plans (RRSPs), contributions to tax free savings accounts are not tax deductible. However, withdrawals from a TFSA are not taxed.

TFSAs can generally hold the same investments as an RRSP. This includes cash, ETFs, mutual funds, publicly traded stocks, GICs and bonds.

Here are three tips you can use to make sure you’re getting the most profit—and tax benefits—from your TFSA:

1.) Keep higher-risk investments out of your TFSA: Holding higher-risk stocks in your TFSA is a poor investment strategy. That’s because high-risk stocks come with a greater risk of loss. If you lose money in a TFSA, you lose both the money and the tax-deduction value of the loss.

2.) Let your current income help you decide between your tax free savings account and RRSPs:RRSPs may be the better choice in years of high income, since RRSP contributions are deductible from your taxable income. In years of low or no income—such as when you’re in school, beginning your career or between jobs—TFSAs may be the better choice.

3.) Consider holding exchange-traded funds in your TFSA: It’s difficult to build a diversified portfolio within your TFSA. Instead, look to exchange-traded funds for TFSA investing.

Tax-free investing strategies can include saving on dividend taxes

Continue Reading…

A Canadian compromise on TFSA contribution room  

Posted By |

By John De Goey

Special to the Financial Independence Hub

Canadians are notoriously nice consensus seekers.  The old joke might be that they tend to never cross the road because they consistently prefer to be in the middle.  If that’s the case, I’d like to propose a “Canadian” solution to the ongoing debate about how much should be allowed to contribute to their TFSAs annually.

You may recall that the limit is currently set at $5,500 and is likely to go up to $6,000 in a year or two (TFSA contributions are indexed to cumulative inflation and go up in $500 increments when thresholds are passed). You may also recall that for one brief year, the limit was set at $10,000 in keeping with a political promise made by a party that is no longer in power in Ottawa.  The debate, it seems has mostly revolved around the benefit of incremental tax relief for those who might not need it.

You may recall that I have argued that there is an unfair cap put on RRSP contributions because the 18% limit that applies to most people essentially penalizes the small percentage of Canadian income earners who make more than about $145,000 a year.  Similarly, some people like CIBC’s Jamie Golombek have pointed out that many Canadians are opposed to using RRSPs because they will end up paying tax down the road when making RRIF withdrawals.  The point made by Golombek* and others including yours truly is that people should be thinking about the concept of ‘tax bracket arbitrage’ when contributing to government plans. If you’re in a higher tax bracket now as compared to in retirement, contributing to your RRSP makes more sense.  If you’re in a lower bracket, the TFSA makes more sense.  If you think you’ll be in the same bracket, it makes no difference.

Continue Reading…

Use your Tax Refund to jumpstart your Savings

Posted By |

By Jordan Lavin, RateHub.ca

Special to the Financial Independence Hub 

It’s tax season, and if you’re like the majority of Canadians you’ll be getting money back from the government.

That’s right. Out of everyone who files a tax return for the 2017 tax year, 58% are getting a refund and the average amount is $1,765.

That’s not a small amount of money. $1,765 is enough for a nice new TV, a beach getaway, or maybe even a deposit on a new car. If you have a big tax refund coming your way, you might already be dreaming of all the ways you can spend it.

But I want you to think of it another way. Your tax refund is a refund. You’ve paid too much money to the government in taxes over the year, and now they’re returning it to you, without interest. If your tax refund is $1,765, that means you paid more than $147 a month too much in taxes over the year.

It’s your money, not free money!

It’s not free money. It’s your money, that you already earned and were forced to save.

You could take your tax refund and splurge on something fun. But since you’ve already saved that money, why not keep it going and use it to earn money that actually is free?

In fact, you can use a tax refund of $1,765 to generate $724 in interest by depositing it in a high interest savings account, TFSA, or RRSP, and allowing it to grow. That’s more “free money” in your pocket.

Need proof?

Today’s best high interest savings account rate is 2.3%. At that rate, a deposit of $1,765 will earn $41.03 in interest in the first year. After 20 years, it will have earned $1,030 in interest. Once tax is taken out, that means the total earnings on your savings would be $2,489 and change.

Wait, taxes?

Yes, money earned in an ordinary high-interest savings account is taxed at your marginal rate. For example, if you make $50,000 per year and live in Ontario, your marginal tax rate is 29.65%. For every $100 in interest your savings account earns, you will owe $29.65 in income tax.

The advantages of TFSAs

Fortunately, there are some ways to reduce the amount the government takes out of your earnings.

Continue Reading…