Should Investors Contribute to a TFSA or an RRSP?

Of course, there are differences between investing in a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP). The main difference is how they are taxed. TFSA contributions are made with after-tax money and the funds can be withdrawn at any time tax-free. RRSPs are focused on retirement, as the name suggests. You get an immediate tax deduction for your RRSP contributions as well as long-term tax-deferred growth, but you are taxed when you withdraw from your RRSP, usually in your retirement years.

In some ways, its less important which savings vehicle you choose, as long as you are making regular contributions. Many people choose to wait until the RRSP deadline before making lump-sum contributions to either plan, and while that’s certainly better than forgetting to contribute, regular contributions on a monthly basis are more efficient.

Most investment experts agree that the RRSP is the best retirement savings strategy for most Canadians. To get the most in immediate tax savings and long-term growth from your RRSP, always make your maximum contribution each year. Your RRSP contribution limit for 2018 is 18% of the earned income you reported on your 2017 tax return, up to a maximum of $26,230. For 2017, the upper limit was $26,010. If you are a member of a Registered Pension Plan or Deferred Profit Sharing Plan, your RRSP contribution limit is reduced by the past year’s contributions to those plans. (How much you can contribute this year can be found on your most recent notice of assessment from the Canada Revenue Agency.)

TFSAs are an excellent way to invest your money and get your cash back at any time and for any purpose. With a TFSA, there is no tax deduction for your contributions, but all TFSA investment earnings are tax-free and will not trigger clawbacks on federal tax credits or benefits programs (such as the Guaranteed Income Supplement, Old Age Security, Age Credit, GST Credit, or Canada Child Benefit). The current annual maximum TFSA contribution is $5,500 plus the full amount of any previous year withdrawals. If you don’t use all your TFSA contribution room right away, it accumulates year after year. Fill it up any time you want if you have extra cash on hand. And your TFSA contributions do not affect your RRSP contribution room.

Regular contributions to an RRSP and a TFSA can be the key to a strong financial future. Your financial advisor can guide you on which vehicle is best for you, depending on your age, financials goals and current financial holdings. It’s all part of your financial plan, something else you should be discussing with your advisor.

This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Dwayne Rettinger is solely responsible for its content. For more information on this topic or any other financial matter, please contact an Investors Group Consultant.

 

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Post-retirement tax planning for the lifestyle you want

Post-retirement tax-planning is vital to maintaining the retirement lifestyle you want for all the years of your retirement. But even if you`re already past the `post`, it`s not too late to implement tax saving strategies that work for you – starting with these income-protecting objectives:

  • Always take full advantage of all the direct tax deductions available to you.
  • Keep your net income and taxable income low enough to avoid such potential pitfalls as the Old Age Security (OAS) clawback or losing out on the age credit and possibly the GST/HST credit.
  • Ensure that your monthly cash flow is not eroded by increases in the cost of living and that your investments will last a lifetime.

In keeping with these objectives, here are some other important post-retirement tax-reduction and income-protection strategies:

  • Plan Registered Retirement Income Fund (RRIF) withdrawals: Withdrawals from investments held in your RRIF are fully taxable – so manage your taxable income by withdrawing only amounts that are required.
  • Reduce taxes through tax efficient asset allocation: Keep fully-taxable, interest- generating investments inside a tax-deferred Registered Retirement Savings Plan (RRSP) or RRIF as long as possible while keeping assets that are more tax-efficient – those that generate capital gains or Canadian dividends – outside your registered plans.
  • Take full advantage of all available tax credits and deductions: Don’t forget the age credit for those aged 65 and older, the pension income credit and medical expense credit.
  • Reduce your taxes by sharing Canada or Québec Pension Plan (CPP/QPP) income with your spouse: When your spouse has a lower CPP/QPP entitlement and is in a lower tax bracket.
  • Contribute to a spousal RRSP: You must convert your RRSP to a RRIF no later than December 31 of the year in which the owner attains age 71.

These and other income-protecting and tax-saving strategies – like investing in a Monthly Income Portfolio (MIP) that can protect your income against inflation and generate stable and reliable income distribution (outside your RRIF or RRSP) and potentially higher long-term growth – will help ensure that you`ll continue to have the income you need for all your retirement years. Talk to your professional advisor about the post-retirement financial strategies that make the best sense for you.

This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities.  Dwayne Rettinger is solely responsible for its content.    For more information on this topic or any other financial matter, please contact an Investors Group Consultant.

 

Checking In On Your Year-End Financial Checklist

As Valentine’s Day fades to Family Day followed by St. Patrick’s Day and then Easter, it’s easy to understand how time can slip through our fingers.

As 2017 came to a close, you may have been one of those individuals who took the opportunity of the year-end to assess your finances and perhaps come up with a financial plan for 2018.

Like any fitness plan initiated with gusto, the question you need to ask now is: is your financial house still in order some six weeks into the new year?

Your year-end financial checklist was a doozy but the numbers tell the real tale. Have you let your spending run away from you a bit? Are you not on top of savings like you had planned just a few short weeks ago? Does tackling that credit card debt still make you want to bury your head in the sand?

We all know the road to headache can be paved with good intentions. More generally, it’s important to regularly check in throughout the year and assess whether the financial goals you established for you and your family still make sense. Is your budget realistic? Have you maxed out your RRSPs? Assess your various insurance policies and make sure your insurance coverage is not an overkill or, on the other side, too little to meet you and your family’s needs.

As an additional note, it’s recommended that you get experienced advice on those obscure areas that lurk in your financial house. For example, you might need to speak with a tax professional to iron out details regarding what receipts to keep and whether you are doing the correct preliminary work to take advantage of potential tax deductions and credits. Moving expenses, child-care costs, tuition fees, medical expenses and charitable donations all provide tax implications you should know about.

Controlling your spending and making sure that you are on track with your financial plan is never easy. Like a weight loss and fitness plan started on January 1st, it’s easy to get distracted by temptation and become discouraged. Don’t let the numbers get you down. Understand the importance of having a sound financial plan and keep in mind that financial advisors are available to guide you in the right financial direction.

This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Dwayne Rettinger of Investors Group Financial Services Inc. is solely responsible for its content. For more information on this topic or any other financial matter, please contact an Investors Group Consultant.

Millennials Deserve Credit for Saving for Retirement Despite Barriers

Every generation faces their own particular financial circumstances and challenges.  And as the millennial generation begins to occupy a majority of the Canadian workforce, it’s worthwhile to study how they are doing financially, the financial goals they prioritize and the unique financial challenges they face.

Millennials have in fact been more challenged than any other recent generation – Gen Xers or Baby Boomers – to accumulate wealth. Their net wealth has changed little since 1999 – up by just $1,000. But their debt has skyrocketed by $20,000. That translates into $20 of debt for each additional dollar of wealth millennials have accumulated. Gen Xers, by comparison, have taken on 75 cents in debt for every dollar they have accumulated.

One would think that a generation who is, on average, facing more financial challenges wouldn’t be putting what they have into retirement savings. With that said, 67.9 percent of millennial households are still managing to save for retirement, Statistics Canada data shows.

It is the older millennials, in their early to mid 30s, along with Gen Xers, who are particularly pressured and are among Canada’s most indebted citizens. They are entering the most expensive time of their lives, as they come up against milestones like establishing or growing their families and taking on home ownership. And they are reaching those milestones a decade later than Baby Boomers, too.

For all the progress they are making at putting aside savings for retirement or other goals, there is still a third of millennials who are not making much headway, and even those who are could probably use some financial guidance.

If you’re among them, here are some places to start.

Intelligently and proactively manage your finances, so you have funds available to put aside for retirement and other long-term needs. Go beyond your assets and liabilities and evaluate your cash flow. This will give you a realistic picture of your overall financial standing and help you identify trouble spots, like ongoing debts.

Budgeting is important, too, and it doesn’t have to be complex. Figure out what is coming in, what is going out, track your costs, and be brave enough to cut costs where you can. Your budget should help you determine what you can afford to “pay” yourself for retirement savings or emergencies. Automating your contributions with each paycheck makes it painless and keeps you from getting caught short.

Finally, work to understand what type of retirement plan will meet your needs.  This is something a financial advisor can give you input on, based on your financial profile and expected circumstances over the long term.

Tax-Free Savings Accounts (TFSA) have become one of the most popular plan options among millennials.  Registered Retirement Savings Plans (RRSPs), which 37.3 percent of millennials have, also have tax advantages in the form of tax-deferred growth and tax credits.

The good news is that millennials are doing better saving for their retirement years despite some substantial hurdles. 

This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities.  Dwayne Rettinger is solely responsible for its content.    For more information on this topic or any other financial matter, please contact an Investors Group Consultant.