Tax | Nelmes Financial | Conversations about Money

Posts Tagged ‘Tax’

RRSP to Pay Down Credit Cards Date posted February 28th, 2011

Often once you get behind on a credit card it is hard to catch back up at the often high interest rates. In some circumstances an RRSP (Registered Retirement Savings Plan) can help. If you are making a credit card payment each month at a high interest rate, it is often close to the payment required for an RRSP loan. Let’s say you were at a 40% tax bracket, if you were to take a $10,000 RRSP loan, you would likely get $4,000 back in taxes. You could use the $4,000 to pay off your credit card and the RRSP loan would usually be at a much lower interest rate. Replacing a credit card payment with a payment on an investment and wiping out the credit card debt can be a good option.

The key to any plan that involves paying off credit cards, is keeping the credit card balance at zero.

(more…)

RRSP Deadline Date posted February 25th, 2011

The 2010 RRSP deadline is March 1 2011. If you are planning to get an RRSP (Registered Retirement Savings Plan) this year time is running out.

Vancouver RRSP Solution Date posted February 22nd, 2011

We do maintain an office in Vancouver, however for many our mobile solution seems to be much more convenient. We are happy to come to your office, home or local coffee shop. We can offer full RRSP (Registered Retirement Savings Plan) service, RRSP loan service and a full array or solutions where you are. No need to fight traffic or wait in lines. Investing in your future has never been easier.

If you are interested or would like more information please call our office 604 637 7422.

Should I save my RRSP Contribution Room? Date posted February 22nd, 2011

Most of us like the idea of saving on tax, so if you have the money to save in a RRSP and you have determined the tax savings are large enough to make it worthwhile, there are still a few situations where you might want to wait to make that contribution. Below I discuss a couple of situations where even if RRSP’s make sense for you, you may want to hold off investing in an RRSP.

Expecting a buyout? Many companies offer significant buyouts to long time employees a few years before retirement when trying to cut back staff, labor costs or shift the direction of the company. Although a large cheque can be exciting it can also create a significant tax issue. One simple solution to this is to take the buyout and put it in a RRSP. With this option the deduction the RRSP creates offsets the taxes on the buyout. As a lump sum like this will often push you into a much higher tax bracket than usual, this is often a great time to use your RRSP room to save tax, that is if you have enough RRSP room.

High income year. If you get a bonus, or sell an asset (such as a rental house) that sends your income into a higher tax bracket than you normally would be in, this could be worth saving your RRSP room for.

Skip a low income year. If you happen to make less one year than normal, then skipping the deduction that year may make long term sense.

When planning your finances it is important to look into the future and plan for low income years, high income years and any future financial transactions that may impact your tax situation.

(more…)

1 Comment »

IPP versus RRSP Date posted February 21st, 2011

An IPP (Individual Pension Plan) is a tool that can replace an RRSP (Registered Retirement Savings Account) for small business owners. So which one is better to hold your investments in?

Why consider an IPP (Individual Pension Plan).

As you near retirement the contribution limit is greater than that of an RRSP
In some circumstance IPP’s behaves differently in your estate.
Can be used in different tax planning strategies (Accountant is recommended to discuss these, but can include under funding to devalue a business)

Why would you not want an IPP (Individual Pension Plan)

Annual fees are due to maintain IPP’s
Many more rules and restriction than an RRSP
A more complicated tool to understand.

If you are considering an IPP I would recommend talking to both an investment professional that understands this tool and an Accountant that can explain the tax benefits. These can be a great tool if understood and used in the right planning situation.

(more…)

RRSP’s White Rock, South Surrey Date posted February 18th, 2011

With life as busy as it has become, if you need to make a RRSP contribution or need a RRSP loan before this year’s deadline, we are happy to help. We offer a mobile service, we are happy to come to your office, home or local coffee shop. No need to fight traffic and wait in line to see your advisor or planner. We broker for many investment and loan providers in the convenience of your preferred location.

If you prefer we can meet you in our office as well.

We have many clients in the South Surrey, White Rock area and are happy to provide reference.

Repaying RRSP Home Buyers Plan Date posted February 17th, 2011

After borrowing from an RRSP (Registered Retirement Savings Plan) with either the HBP (Home Buyers Plan) or LLLP (Life Long Learning Plan), there comes a time when you need to either put the money back into the plan or pay tax on the money. I do believe saving for the future is good, however putting the money back is not always the best option, here is a common example of when back these plans do not make sense.

Example. A young couple wants to buy a house; they decided to use the Home Buyers plan for part of their down payment. A few years later it is time to start putting the money back into their RRSP. Often they have had kids by this time and one of them may be staying at home with the kids. If staying at home they likely have no income, in this case I recommend not contributing to the RRSP for this person, but instead make a contribution in the spouses name who is working.

What ends up happening is the spouse not earning any money will have to pay tax on the RRSP payment that was owed; often this is nothing or small. The RRSP room is lost. However the spouse who has an income makes a RRSP contribution and since they are in a higher tax bracket they receive a bigger tax break. As a result the same money put into an RRSP gets a bigger tax benefit.

I do believe in saving, however just because there is tax owed if the funds are not returned does not mean it is the best place for you to put your money. A little planning here can make a big difference. As always I recommend talking to a professional. If you have any questions and are in BC I am happy to help.

(more…)

1 Comment »

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.

(more…)

1 Comment »

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.

(more…)

1 Comment »

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.

(more…)

« Older Entries