Investing for Income
- Many people aren’t investing enough for their future.
- Due to the rise in life expectancy the need to ensure that you have enough income in retirement is greater than ever.
- More than ever the onus is now on the individual to provide for their retirement.
- With years of experience behind us, we can help you invest with the aim of investiong for income.
- As with all our recommendations, the level of risk, potential return and involvement you prefer will potentially determine the rate of return.
Registered Retirement Savings Plan (RRSP)
An RRSP, or Registered Retirement Savings Plan, is an Investment account which permits you to defer the tax on earned income invested. When you contribute into the RRSP plan, you get a tax deduction for the amount contributed, based on your Marginal Tax Rate. Thereby reducing your taxable income.
The Investment Growth within an RRSP account is non taxable while remaining in the RRSP investment account, thus growing tax exempt until funds are withdrawn. Your money may be invested in Mutual Funds, Segregated Funds, Guaranteed Investment Certificates (GIC’s) and numerous other investments or within a self-directed account.
The investments within an RRSP may be withdrawn at any age; but must be included as taxable income the year of withdrawal. Tax will be withheld at source based on the amount withdrawn. Contributions at present, can be made until the contributor turns 71, at which time the funds must be withdrawn, or converted into a Registered Retirement Income Fund (RRIF) that will provide ongoing cash flow.
This is a plan opened in the “Spouses” name where the contributor (other spouse) claims the tax deduction. The spouse is the legal owner of the plan with the right to make all investment decisions. The total contributions of the investment contributor may not exceed the contributor’s maximum limits for RRSP contributions as outlined in the notice of assessment (or see your accountant). Any contribution made to the Spousal RRSP does not affect your spouse’s deduction limit for the year.
There are advantages of a spousal RRSP. It can provide you with the opportunity to split income before and after retirement. Tax savings are realized when the spouse is in the lower tax bracket taking income from the plan. The net effect is that the couple should pay less tax overall. The plan may be used for creditor protection of the contributor’s deposits.
Withdrawals from a spousal RRSP will be taxed in the spouse’s hands unless the funds were invested in the current or preceding two calendar years. At that time the amount withdrawn will be included in the contributor’s income for that year.
Contributions at present can be made to a spousal RRSP until the end of the year in which your spouse turns 71.
Tax Free Savings Accounts (TFSA)
The government of Canada in 2009 introduced a new way for Canadians to save money. Opening a Tax Free Savings Account (TFSA) will allow you to presently contribute up to $5500 (in 2017) annually and grow it Tax exempt.
All investment income earned within a TFSA is tax-free. Any unused TFSA contribution room is carried forward indefinitely into the future. Withdrawals are tax-free and can be put back into the TFSA in future years. The minimum age to open a TFSA is age 18.
Registered Retirement Income Funds (RRIF’s)
RRSPs must presently be converted to a RRIF no later than the end of the year in which the account holder turns 71. The account owner must commence withdrawing a minimum dollar amount as established by Canada Revenue Agency. These amounts are taxable income to the account owner.