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Posts Tagged ‘Investing’

How much can I contribute to my RRSP? Date posted February 18th, 2011

Instead of calculating how much RRSP (Registered Retirement Savings Plan) room you have and risk getting it wrong, I recommend looking on your “Notice of Assessment” which is sent out each year after you file your tax return. On this form you will find both your TFSA (Tax Free Savings Account) contribution limit as well as your RRSP contribution limit.

If you contribute to an RRSP plan or Pension Plan at work will also need to be considered when determining how much you can contribute. You are also allowed to over contribute up to $2000. This is allowed without penalty, however you do not get to deduct the over contribution from your income. I would use this as a safety net and do not usually recommed intentionally using this room.

Your RRSP contribution room is made up of 18% of your taxable income from the previous year to a maximum in 2010 of $22,000, added to the unused room from previous years as far back as 1991.

The RRSP contribution limit has worked as a great annual savings target for many. It is very rare to see someone contribute the maximum to their RRSP each year and not have a sizable retirement savings.

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Should I take money out of my RRSP? Date posted February 16th, 2011

Taking money out of your RRSP (Registered Retirement Savings Account) can cause create a tax bill and loss of that RRSP room. So it is important to consider carefully before taking this step, however if done right it can be beneficial. RRSP is a tax deferral tool, eventually you will have to pay tax on the money, so if it makes sense to pay the tax now it can be a big win. Some of the reasons you may want to take money out or your RRSP and pay the tax now are;

Home buyer plan, if it for a down payment on a home you may qualify to take the money from your RRSP, you will need to pay it back, however this is a way to get the funds without the tax issues.
Life long learning Plan, if the funds are for your schooling this may offer an option to borrow the money without the negative tax implications. You will need to repay the funds once you are finished school.
Low income year. If you have a low income year you may wish to take the funds out of the RRSP. This should be carefully consider as you give up that RRSP room, tax deferred growth of the funds and could owe taxes on the money. With all the drawbacks it can often make sense and leave you with more money long term.
Just need the money. RRSP’s are not ideal for short term saving. If you choose to take money from your RRSP you may face fees, loss of retirement savings, and a tax bill. With all this if you need the money and the RRSP is the best place to get it then it may be necessary. To prevent this we should all have savings to draw from when unexpected expenses strike.
Preparing for Retirement. Once you hit retirement you not only have income tax, but pension claw backs. For many moving from the RRSP.

When looking at making a withdrawal for your RRSP it is important to consider the negatives before making your decision, and discussing with a professional that understands your situation and the implications of the withdrawal is the best way to ensure you make the right choice.

money out of the RRSP before retirement can make sense. This is usually the case when your income will be higher in retirement, or you have an offsetting deduction in the years you make withdrawals.

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RRSP’s and Education Date posted February 11th, 2011

The Life Long Learning plan can be a great option, although I rarely see a fit for it. The Life Long Learning Plan allows you to borrow money from your RRSP (Registered Retirement Savings Plan) without the tax consequences that you incur when withdrawing the funds. Below I have listed the common benefits and negatives to make it assist anyone who is considering the LLP.

The benefits

– You can borrow from your RRSP to fund your schooling (College, university, trade school).

– No need to pay back the funds until after you finish school.

The down side

– You do need to pay back the money of face tax issues

– If you are not working your income may be low enough paying the tax makes more sense to get the money.

– The money does not earn interest while you are using it.

– There may be fees involved in accessing the money.

If you are not working while going to school, often it is a low enough income year that taking the money out of your RRSP can make more sense, and if you are working it is usually possible to pay for school out of your existing income. When it does make sense it works great and then I would recommend talking to a professional planner and visiting the Canadian Government website for the current details as they can change over time.

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RRSPs and Buying a Home Date posted February 10th, 2011

Using your RRSP’s for a down payment on your first home is common, and with the home buyers plan you can borrow money from your RRSP (Registered Retirement Savings Plan) account without the tax penalty usually associated with accessing the funds in your RRSP. So does borrowing from your RRSP make sense?

Like so many financial choices it depends on what you want to accomplish and your unique situation. Considering both the benefits and negatives of using this program is likely the best way to see if it makes sense for you.

The benefit is simple.

- if you have money in your RRSP’s it allows you to use this towards your down payment, without having to pay tax on the money withdrawn.

- If you are in a high enough tax brackets, you can contribute to an RRSP and use the contribution as well as the tax return towards your new home, creating an even bigger down payment.

- Larger down payment can save you CHMC insurance fees.

- Larger down payment can reduce the monthly mortgage payment.

- Larger down payment allows you to qualify for a more expensive place

So why would you not want to borrow from your RRSP?

- When you borrow you do not get the growth in your investments you otherwise would.

- You risk putting off the tax issue until a later time if you do not make the repayments, and the repayments will be due once you have a mortgage, making repayment harder.

- You lose the diversification of investing in both your RRSP and I a home.

- RRSP’s are creditor protected, your home is not.

- Possible fees involved in taking the money out of the RRSP account. These vary depending on how you invest and with whom.

- RRSP’s are more liquid. If something unexpected happens you can use the RRSP’s if need be, to get money out of the home you may need to remortgage or sell, both expensive options.

I often recommend clients use the Home buyers plan. Many people pay CMHC fees as they don’t have a large enough down payment to get past these fees. In many cases we use a contribution into an RRSP and or Spousal RRSP. By including the tax refund and using money already saved for the down payment, this creates a much larger down payment. Other times an existing RRSP is the down payment, allowing the purchase of a home to happen sooner. This can save money that would have been wasted on rent or just make for a better lifestyle.

Home buyers plan is a great option, with many benefits, draw backs and restrictions. When planning I believe that discussing your situation with a professional advisor or planner who you trust will help you make a quality and informed decision. The details of the home buyers plan do change from time to time, so I would also recommend looking on the government of Canada website for current information before using this program.

With housing cost in Greater Vancouver as high as they are, often any detail that can help first time home buyers getting into the market can make a big difference.

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Easy RRSP Solution in Surrey Date posted February 9th, 2011

Nelmes Financial was founded in Surrey and we have kept our main office in Surrey. We are always happy to meet with clients at the office; however we also offer a much more popular mobile solution. We have the majority of our appointments at locations more convenient for our clients, often their office, home or a local coffee shop. So for your RRSP (Registered Retirement savings Plans) needs this year consider having us come to you. No lining up, no driving long drive to an office, just a simple and convenient solution. We can also offer RRSP loans, often with instant approval. We work hard to ensure our solutions and business fit your life.

Simple RRSP Solution in Langley Date posted February 9th, 2011

We offer a convenient and local solution for your RRSP (Registered Retirement Savings Plan). We have an office like most; however we also offer a much more popular mobile solution. We are happy to meet you at your home, your office or a local coffee shop that is convenient for you. So for your RRSP and RRSP loan needs this RRSP season please give us a call as we are always happy to help. No need to take time off work, away from the business or wait in line.

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TMX and LSE to Merge Date posted February 9th, 2011

It has been announced that the Toronto Stock exchange and London Stock exchange will be merging. This is an interesting and exciting announcement. To learn more about this check out their website at http://www.tmx.com/.

RRSP or Spousal RRSP? Date posted February 8th, 2011

One option that RRSP’s (Registered Retirement Savings Account) offer that is underutilized is the Spousal RRSP. With this you can contribute to the RRSP and get the full tax deduction; however the funds are invested in the spouse’s name.

In the last post I discussed if an RRSP contribution should be made in your name or your spouse’s name. A spousal RRSP allows you to plan for income splitting later, where contributing in your spouse’s name allows for income splitting today. With the addition of the option to share pension income in retirement this is not as critical as it once was, but still a worthwhile step.

Income splitting in retirement is important; however this can be of benefit if you need to draw out funds in a low income year. Although this doesn’t seem likely, it is frightening how often due to illness, passing, injury, layoff, career change or other random events an unexpected need for funds is created. RRSP’s and Spousal RRSP;s are not ideal for an emergency fund, but often is needed for this purpose. By balancing out the RRSP’s (yours and your spouse’s) you maximize the potential that you will have the money necessary, in the most tax efficient way possible from an RRSP.

Although the future is full of unknowns, taking simple steps can give you more options and make dealing with issues as they arise much easier. The best way to ensure you address all the relevant details and possibilities involved in planning your finances is to speak with a professional advisor.

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Should I take money out of my RRSP? Date posted February 6th, 2011

Home buyer plan, if it for a down payment on a home you may qualify to take the money from your RRSP, you will need to pay it back, however this is a way to get the funds without the tax issues.
Life long learning Plan, if the funds are for your schooling this may offer an option to borrow the money without the negative tax implications. You will need to repay the funds once you are finished school.
Low income year. If you have a low income year you may wish to take the funds out of the RRSP. This should be carefully consider as you give up that RRSP room, tax deferred growth of the funds and could owe taxes on the money. With all the drawbacks it can often make sense and leave you with more money long term.
Just need the money. RRSP’s are not ideal for short term saving. If you choose to take money from your RRSP you may face fees, loss of retirement savings, and a tax bill. With all this if you need the money and the RRSP is the best place to get it then it may be necessary. To prevent this we should all have savings to draw from when unexpected expenses strike.
Preparing for Retirement. Once you hit retirement you not only have income tax, but pension claw backs. For many moving from the RRSP.

money out of the RRSP before retirement can make sense. This is usually the case when your income will be higher in retirement, or you have an offsetting deduction in the years you make withdrawals.

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RRSP versus TFSA Date posted February 4th, 2011

Now with the TFSA (Tax Free Savings Account) and the RRSP (Registered Retirement Savings Account) I have seen both win the title of “the best”, so which one is it?

These two accounts are very similar, both give you a limit on contributions, both allow your investments to grow without tax and both have a long list of different investment options. The biggest difference is in when you receive the tax benefits or with RRSP’s potentially the bill.

With a TFSA when you contribute there is no tax savings, but when you pull the money out it is all tax free.

With an RRSP when you contribute you can deduct the contribution from your taxable income, but when you pull the money out the entire withdraw is taxable.

For short term savings the TFSA usually makes more sense. For long term savings they both offer benefits. To maximize the benefit a general rule is if you will have more taxable income in retirement the TFSA should work better. If you will have a smaller taxable income in retirement then the RRSP will likely be the better option. It is also important to remember it is not RRSP or TFSA question, in many cases using them both for different reasons makes the most sense.

Whichever option you choose, saving money and building net worth will only make your financial life easier. Saving with the wrong option is better than not saving at all.