In 2016/2017, the average annual undergraduate tuition for a full-time student was $6,373. But tuition and related fees represent just one-third of the expenses that students face each year. Add in accommodation, food, transportation, books and computers, and leisure, and the cost increases substantially.
The solution is to start saving today. Why RESPs are your best option
1. The government offers a 20% grant on the first $2,500 contributed to an RESP each year, up to a lifetime maximum of $7,200. It’s called the Canada Education Savings Grant (CESG). 2. The money that you contribute gets to grow tax-free. When it’s time to withdraw, any gains would be taxed in the hands of the beneficiary (i.e., your child) at their presumably low tax rate. 3 The maximum lifetime contribution for each child is now $50,000 with no annual contribution limits.
Get a Social Insurance Number (SIN) for your child – see www.servicecanada.gc.ca for more information.
Open an RESP. Your financial advisor can provide an application and help you decide what type of RESP account is appropriate, whether an individual plan or a family plan.
To encourage modest-income families to save, the government offers an additional 20% on the first $500 for families with net incomes under $46,605. Families with net incomes between $46,605 and $93,208 get an additional 10% on the first $500 contributed. (Dollar amounts are for 2018.)
Canada Learning Bond
Families may also be eligible for the Canada Learning Bond. The initial CLB grant is $500, and $100 for each year of eligibility until the child is 15 years old.
The Quebec Education Savings Incentive (QESI) consists of a basic grant of up to $250 that is paid directly into an RESP and up to an additional $50 per year, depending on family income. The British Columbia Training and Education Savings Grant (BCTESG) was introduced in British Columbia in 2015. Eligible RESP beneficiaries will receive a grant of $1,200.
Save. Even when you think you can’t.
Striking a balance between spending and saving
No matter which stage of life you’re in, you probably have competing demands for your
money. Whether it’s paying down debt, saving for a down payment on a home, funding
your children’s education or making home renovations, there’s always something else to
But even if you feel there’s no more money left, you can still find pain-free ways to save for your future, and in particular, your retirement years. This guide is designed to provide an overview of Registered Retirement Savings Plans (RRSPs).
It will review the many advantages they provide, including tax benefits, a wide range of investment options and most importantly, the ability to ensure that you have enough income to enjoy a comfortable retirement. With the help of your financial advisor, you’ll gain peace of mind when you choose registered investments as the foundation of your long-term investment strategy. Your advisor can recommend investments that will help your RRSP grow with your needs, while reflecting your comfort with risk.
It has been over 60 years since the federal government introduced RRSPs to encourage Canadians to plan and save for their own retirement instead of relying solely on public pension plans. RRSPs.
The RRSP has evolved over the last 60 years, giving investors increased incentive to save for their retirement. Most fundamentally, the growth on investments inside an RRSP is tax-deferred, meaning you don’t immediately pay tax. Any interest, foreign income, capital gains or dividends earned will compound tax-deferred. Money is taxed – as ordinary income – only when you remove it from the plan. In addition, you get a deduction from the annual taxable income you earn for every dollar you contribute to your RRSP, up to certain limits.
Key benefits of an RRSP
Investments compound tax-deferred as long as they remain in the plan
Choose your investments from a wide range of options
Contributions are tax-deductible
A Registered Retirement Savings Plan (RRSP) is an excellent solution
that can help you plan for retirement, purchase your first home or
fund your continued education. Here are a few things to consider
when contributing to an RRSP.
Your RRSP checklist.
1. Confirm your RRSP contribution limit. You can contribute up to 18% of your earned income to a maximum of $27,230 in the 2020 tax year (minus pension adjustments from your company pension plan) and unused RRSP contributions that are carried forward each year. Your current contribution limit is included in your Notice of Assessment from the CRA.
2. Explore your investment options.
An RRSP can hold a variety of investments, from stocks to bonds, mutual funds and
ETFs. A diversified portfolio should include a variety of assets to help mitigate risk and
maximize return potential.
3. Contribute often. Avoid waiting to March 2, 2021, which is the final day you can contribute to an RRSP. One of the benefits of an RRSP is that your investments are allowed to compound tax- deferred, meaning there are significant advantages to investing on a regular basis. Consider a pre-authorized chequing plan that spreads your contributions over time and potentially gives you greater long-term returns.
4. Speak to a financial advisor. Unsure of what is the best option for you? A financial advisor can recommend investments to help your RRSP grow with your needs and reflect your risk tolerance.
The RDSP is a tax-deferred savings vehicle introduced by the Government of Canada to help Canadians with disabilities and their families save for their long-term financial security.
A Canadian resident who’s eligible for the Disability Tax Credit (DTC) is also eligible for an RDSP until December 31 of the year they reach age 59.
The DTC is available if you have mental or physical impairments that markedly restrict your ability to perform one or more of the basic activities of living, such as speaking, hearing or walking). The impairment must be expected to last for one or more years, and a physician or nurse practitioner must certify the extent of the disability. You can apply to the Canada Revenue Agency (CRA) for the DTC using Form T2201.
To qualify for an RDSP, you must:
1.Be eligible for the Disability Tax Credit
2.Be a resident of Canada
3.Be less than 60 years of age
4.Have a valid Social Insurance Number (SIN)
An RDSP can be transferred from one financial institution to another as the holder and/or beneficiary wish.
Contributions to your RDSP
Once you open an RDSP, anyone may contribute to the plan, either directly with the holder’s written consent, or by giving money to the holder to deposit.
Taking advantage of grants and bonds
The federal government offers assistance in the form of Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs). The beneficiary is eligible for CDSGs and CDSBs until December 31 of the year the beneficiary turns 49
Canada Disability Savings Grants (CDSGs)
CDSGs are annual matching federal grants deposited into a beneficiary’s RDSP to help build long-term savings. The grants are based on the amount contributed and family net income.
2021 CDSG matching rates
|Family net income*||CDSG matching rates||Maximum annual CDSG|
|Up to or equal to
|300% on first $500
200% on next $1,000
|Over $98,040||100% on first $1,000||$1,000|
2021 rates. For a minor beneficiary, family net income is that of their parents. For an adult, family net income is that of the beneficiary and their spouse, if applicable. The income threshold is indexed annually to inflation.
Canada Disability Savings Bonds (CDSBs)
In addition to CDSGs, lower-income families may qualify for Canada Disability Savings Bonds (CDSBs). The government may deposit up to $1,000 a year to the RDSP of a low-income beneficiary, even if no contributions are made into the RDSP.
|Family net income*||Maximum annual CDSB|
|Up to or equal to $32,028||$1,000|
|Between $32,028 and $49,020||$1,000 is reduced on a
prorated basis (based on the
formula in the Canada
Disability Savings Act)
|Over $49,020||No bond is paid|
Beware of early withdrawals
Before withdrawing funds, you should be aware of the 10-year rule. If your RDSP received CDSGs or CDSBs in the 10 years prior to the withdrawal, the Assistance Holdback Amount (AHA) will apply; for every $1 withdrawn, $3 worth of CDSGs or CDSBs must be repaid to the government.
Because RDSPs are intended for long-term savings, the AHA ensures that government funds aren’t withdrawn and re-contributed to gain additional matching grants in future years.
• The rule also applies to grants and bonds received in the 10-year period before the beneficiary’s death or the cessation of their disability.
• Grants and bonds received more than 10 years prior don’t have to be repaid.
Because of the repayment provisions, your RDSP may not be a good option for short-term expenses.
In the 2008 Federal Budget, the government introduced the Tax-Free Savings Account (TFSA), a registered account designed to provide tax-free income.
As a TFSA holder, although your contributions are not tax deductible, investment income earned and withdrawals are tax-free. As you withdraw amounts from your TFSA, the withdrawals can be re-contributed in a future year in addition to the contribution limit for that future year. Because of the combined effects of the carry forward provision and ability to re-contribute.
There is a broad range of investments you can use in your TFSA.
Because your TFSA provides tax-free income, interest on money borrowed to invest in a TFSA is not tax-deductible.
TFSAs are meant to be flexible, general-purpose accounts. As such, withdrawals are permitted at any time for any purpose, and are not included in taxable income.
Because TFSAs are tax-free accounts, taxes are not normally a concern when transferring assets from a TFSA to another savings plan (e.g., investment account, RRSP, RRIF, RESP).
Here’s another TFSA advantage
The Income Tax Act (ITA) permits TFSAs to be used as security for a loan. This is not the case for your RRSPs or RRIFs.
When you set up a TFSA, you have the opportunity to name a “successor holder” who will continue as holder of your plan on your death. Under rules in the ITA, when a successor holder is named, your TFSA will not terminate on your death – your successor simply replaces you as plan holder, and the plan will continue with all rights passing to the successor.
Speak to me to determine how to make the best use of TFSA.
Your TFSA contribution room is the maximum amount that you can contribute to your TFSA.
Only contributions made under a valid SIN are accepted as TFSA contributions.
If you were 18 or older in 2009, your TFSA contribution room grows each year even if you do not file an Income Tax and Benefit Return or open a TFSA.
If you turned 18 after 2009, your TFSA contribution room starts in the year you turned 18 and your TFSA contribution room accumulates every year after that year.
The annual TFSA dollar limit for the years 2009 to 2012 was $5,000.
The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
The annual TFSA dollar limit for the year 2015 was $10,000
The annual TFSA dollar limit for the year 2016 to 2018 was $5,500
The annual TFSA dollar limit for the year 2019 and 2020 is $6,000.
The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500.
Where can I find my TFSA contribution room information?
Your TFSA contribution room information can be found by using one of the following services:
• My Account for Individuals.
• MyCRA at Mobile apps – Canada Revenue Agency.
• Represent a Client if you have an authorized representative.
• Tax Information Phone Service (TIPS) at 1-800-267-6999.
Most people do not have the time or inclination to research the merits and risks of individual stocks and bonds.
One benefit of a mutual fund is that it is managed by a team of highly trained professionals.
Performance potential: Portfolio managers aim to deliver superior risk-adjusted returns over the long term.
Liquidity: You can sell a portion of your mutual fund at its current price on any weekday. Note: Fees may apply, depending on the fund. returns over the long term.
Tax-efficiency: Corporate class funds and funds with tax-efficient income streams can help reduce taxes and increase your investment returns.
Cost efficiency: It would be costly, time-consuming and, in some cases, impossible to create a similar portfolio on your own.
On top of these benefits, Canadian mutual funds are carefully regulated to protect investors and foster fair and efficient capital markets.
The holdings of most mutual funds are traded throughout the business week, and their prices can fluctuate as investors buy and sell each stock or bond. Selling a mutual fund for more than you initially paid for it will generate a capital gain. This may be reduced by any associated fees or charges for selling, but we will not include these in the following example.
Another benefit of mutual funds is that they provide the option of compounding returns over time. Rather than taking the distributions in cash, Jill could have chosen to have them re-invested in the fund.
• Invest in lower risk bonds and preferred shares, income funds aim to provide a steady stream of cash.Growth funds:
• Typically invest in stocks, with the goal of profiting from rising share values.Asset allocation funds:
• Invest in a blend of stocks and bonds, with a goal of providing growth, while mitigating the impact of periodic price declines. They’re also known as “balanced” funds.
Contact me to learn more about which investments suit your financial goals.