Tag Archives: RESP

Aug 8: Best from the Blogosphere

8 Aug

By Sheryl Smolkin

And just like that, it’s August! The days are getting shorter and families are starting to think about getting the kids back to school and getting serious about the upcoming round of fall activities.

Those of you sending your kids off to college or university will be interested in The Business of University Fees by Big Cajun Man aka Alan Whitton on the Canadian Personal Finance blog. Did you know if your child is still in school he/she is probably still covered under your group medical plan at work and most universities will allow you to opt out of the university’s plan?

If you have received your first child benefit cheques and haven’t already spent them on back-to-school supplies, here are 3 Great Ways to Use Your Canada Child Benefit Payment  by Craig Sebastiano on RateHub. RESP contributions, TFSA deposits or charitable donations, anyone?

And talking about TFSAs, take a look at Robb Engen’s TFSA Dilemma and Solution on Boomer & Echo. Like many of us Robb has a ton of TFSA contribution room ($50,500) He plans to turn his $825 monthly car payment – which ends in October – into future TFSA contributions, starting in January 2017. That’s $10,000 per year to stash in his TFSA, which at that rate would catch-up all of his unused room by 2027.

Have you reviewed your life insurance lately? Are you and your partner adequately covered so if one of you dies, the other can continue to pay the family bills? Bridget Eastgaard from Money after Graduation says Cash-Value Life Insurance Is For Suckers, Buy Term Instead.

And finally, Should you work part-time in retirement? by Jonathan Chevreau on moneysense.ca includes an analysis commissioned by Larry Berman, host of BNN’s Berman Call and Chief Investment Officer of ETF Capital Management. It illustrates the powerful impact of earning just $1,000 in part-time income each month between the age of 65 and 75; or in the case of couples $2,000 a month between them.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

Jun 20: Best from the Blogosphere

20 Jun

By Sheryl Smolkin

After several weeks of “theme” issues it’s time to check in with some of our favourite bloggers to find out what’s on their mind.

On Boomer and Echo, Marie Engen asks the perennial question RRIF Or Annuity? Which One Is Right For You?  She suggests combining both so an annuity covers your basic retirement expenses together with with your CPP, OAS, and any other pension income you may be receiving to give you a guaranteed income stream for life. This allows your RRIF to provide you with investment growth opportunities and easier access to your money for your more enjoyable lifestyle expenses.

Tax Freedom Day 2016 happened June 7th this year. Retire Happy’s Jim Yih says it’s another reason to celebrate summer. He explains where all of your taxes go because once you realize the severity of tax on your lifestyle, it is your job to investigate legitimate ways to reduce your tax bill. “I’ve often said that good tax planning is the foundation to any financial, investment or estate decision,” Yih concludes.

Bridget Eastgaard lives in Calgary where due to the drop in oil prices the rental market is very soft. On her blog Money After Graduation she shares One Simple Shortcut To Put More Money In Your Budget. Her research revealed a similar unit renting for $250 less in her building plus a half-dozen comparable apartments renting nearby for less. She succeeded in lowering her rent by 20%, saving hundreds of dollar a month that will be redirected to accumulating a down payment on a house.

Sean Cooper thinks Millennials Should Save Their Down Payment and Not Rely on the Bank of Mom and Dad. He says by showing your millennial child tough love, you’re teaching your kids a valuable lesson: not everything in life will be handed to them on a silver platter. Just like you did, he says they should to work for it.You won’t be there to help them forever.

And the Big Cajun Man Alan Whitten reminds readers to keep an eye on their bank account to make sure automatic withdrawals are being processed properly on an ongoing basis. When he checked on his son’s RESP recently, he found that TD Bank mysteriously stopped depositing in November of 2015. There has been a problem ticket opened on this issue, and someone will be getting back to him.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

 

Aug 17: Best from the blogosphere

17 Aug

By Sheryl Smolkin

You’ve been diligently socking away money in a Registered Educational Savings Plan (RESP) since your child was a toddler and in a few short weeks she starts university. Getting at the money can be a little more complicated than simply taking out money from your savings account. To help you through the process, this week we feature articles and blogs exploring all things relating to RESP withdrawals.

Mike Holman on Money Smarts discusses RESP withdrawal Rules and Strategies for 2015. He says there is one withdrawal rule to get out of the way – you are only allowed to take out $5,000 of accumulated income in the first 13 weeks. After 13 weeks, you can withdraw as much accumulated income (including educational assistance payments) as you wish.  However, there are no limits to withdrawals from the contribution portion as long as your child is attending school.

Bankrate.com blogger Jasmine Miller also writes about How to cash out your RESP. Because the government stipulates that financial institutions must follow “due diligence” to ensure RESP funds are being used for a child’s education your bank may want to see a copy of your child’s acceptance letter before releasing funds or they may take you at your word. Therefore she says it’s a good idea to keep all documentation and receipts.

The Investing for Me blog Withdrawals from RESPs notes that RESP withdrawals can generally be made to cover tuition, room and board, school supplies, computers and transportation as these are all eligible educational expenses under the Human Resources and Skills Development Canada (HRSDC) criteria. However, guidelines for withdrawals from a Group RESP account are governed by the plan’s contract or prospectus and group plans may have more restrictions than family or individual plans.

But what if your child doesn’t continue her education? Get Smarter About Money explains that if your child doesn’t continue her education after high school, there may be financial costs and tax consequences. But you have these four available options:

  1. Keep the RESP open – your child may decide to continue her studies later,
  2. Transfer the money to another beneficiary,
  3. Transfer the money to your RRSP,
  4. Close the RESP.

In Need to use an RESP this fall? Back to school starts now, Rob Carrick covers some of the same territory as the blogs noted above. However, he says one more consideration in filling out the RESP withdrawal form is where you want the money to go. You can have it sent to your chequing account, or your child’s account. He has the money from his son’s RESP paid into his and his wife’s joint account, and then he pays tuition and residence bills via Interac online.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

May 25: Best from the blogosphere

25 May

By Sheryl Smolkin

Due to the holiday Monday (yeah!) and other days away from my desk for random reasons, this issue of Best from the Blogosphere is being written super early. So, on no particular theme we present some great content from the last several weeks.

The Apple watch has received a bad tap from many reviewers, but Retired Syd reports on Retirement: A Full-Time Job that the device works for her. She likes being able to do all sorts of things without digging in her purse for her iPhone like paying for coffee; listening to music; getting directions from Siri; dictating error-free texts; and just lifting her arm to display her boarding pass.

In a guest post on the Financial Independence Hub, Michael Drak writes about one thing he wishes his father had taught him. While he learned about the need for working hard, saving and eliminating debt as quickly as possible, his Dad didn’t teach him about the important concept of Findependence (financial independence) and how it could positively impact his life once it was achieved.

Freedom Thirty-Five is authored by a nameless late-twenties male living in Metro Vancouver. He recently wrote about succumbing to lifestyle inflation. It seems he’s ahead of schedule by one year to reach financial freedom by his 35th birthday. So he has decided to succumb to lifestyle inflation and increase his food expenses from $100 to $150/month; eating out from $25 to $50/month and phone and entertainment from $75 to $100/month. Could you get by on these modest amounts?

Boomer & Echo blogger Marie Engen says unless there is room for occasionally splurging in your budget, becoming too frugal can ultimately undermine your budgeting efforts. Don’t banish nice things from your life. Occasional guilt-free splurges can help you stay on budget if they don’t detract from your other goals. When you don’t feel deprived you will likely find it a lot easier to stick to the plan.

And finally, on Brighter Life, I wrote a piece about Five smart ways to use your tax refund. You can start an emergency fund; top up your RRSP; pay down credit card debt; pay down your mortgage; or, open a Registered Educational Savings Plan for your child.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

Apr 27: Best from the blogosphere

27 Apr

By Sheryl Smolkin

If you haven’t filed your income tax return yet it’s really getting down to the wire. Whether you take advantage of them this year or next, here are some tax tips that could put more money in your pocket,

Are you entitled to a tax refund for your medical expenses? by Brenda Spiering on Brighter Life draws on her experience following her son’s accident when she learned that the part of his dental bills not covered by her health insurance at work could be claimed as a tax credit along with a portion of her health insurance premiums.

Tax accountant Evelyn Jacks addresses The Mad Dash to April 30th in Your Money. Your Life. She says once you have filed your taxes, the most important question is how you will spend your tax return. Some options are: pay down debt; save in a TFSA; use RRSP room; invest in an RESP; or invest in a Registered Disability Savings Plan.

Hey last-minute tax filers: Don’t make these common, costly mistakes says Stephen Karmazyn in the Financial Post. For example, only eight percent of taxpayers are planning to claim the Canada Employment Amount (which is a credit for work-related expenses such as home computers, uniforms, supplies) even though anyone with a T4 income can make a claim.

In a timeless blog on Retire Happy, Jim Yih offers RRSP and Tax Planning Tips. He recommends that only one spouse claim charitable deductions. That’s because the credit for charitable donations is a two-tiered federal credit of 16% on the first $200 and 29% on the balance (plus provincial credits). Spouses are allowed to claim the other’s donations and to carry forward donations for up to five years. By carrying forward donations and then having them all claimed by one spouse, the first $200 threshold with the lower credit is only applied once.

And in a Global news video Smart Cookies: Last Minute Tax Tips, Kate Dunsworth shares last minute reminders for people who have been procrastinating with their taxes. She says if you are expecting a refund and you are not planning to file on time because you don’t owe anything, you are basically giving the government a tax free loan. And if you owe money, you will be penalized for every single day you file late. Also, repeat late offenders will be penalized up to double.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

 

How much of your savings can you tax shelter?

12 Feb

By Sheryl Smolkin

Saving for retirement or any other important goal like a home purchase or your child’s education is not easy. But if you are able to deduct your annual contributions from taxable income and/or accumulate investment earnings tax-free, the balance in your accounts will accumulate much faster.

Most Canadians have heard about and save in at least one of the following registered accounts: Registered Retirement Savings Plans (RRSPs), pension plans, Tax Free Savings Account (TFSAs) or Registered Educational Savings Plans. But many may not be aware of exactly how much money they can contribute to these programs annually or carry forward to future years.

RRSP/Pension Plan 
In 2014 you can contribute 18% of your income to a defined contribution (DC) pension plan to a maximum of $24,930. RRSP contributions are based on your previous year’s earnings (2013 earnings for 2014 contributions). As result of the one year lag, maximum RRSP contributions for 2014 are $24,270.

In order to contribute up to $2,500/year to the Saskatchewan Pension Plan (SPP), you must have RRSP contribution room. Maximum permissible defined benefit (DB) pension plan contributions are calculated per year of service, and reduce your DC plan or RRSP contribution room.

RRSP and pension plan contributions are tax deductible and the contributions accumulate tax deferred. However, you do not have to take a deduction for RRSP contributions in the year you contribute. You can wait until a later year when your earnings are higher and if you do, the tax savings will be greater.

Unused RRSP contribution room can also be carried forward to use in any future year. And you can still catch up even if you are retired. For example, if you have unused RRSP contribution room from past years and funds are available, contributing to your own or your spouse’s RRSP is allowed up until the end of the year the plan holder turns age 71. However, you cannot contribute to an RRSP for a person (yourself or your spouse) who already turned age 71 in the previous year.

Unlike DB or some DC pension plans (i.e. SPP), funds in your RRSP are not locked in. That means you can take money out at any time subject to paying taxes on the money in the year of withdrawal.  But it is important to remember that once you withdraw money from your RRSP the contribution room will not be restored and you lose the benefit of future compounding on the amount of the withdrawal.

If tax-free withdrawals are made under the RRSP Home Buyers’ Plan or Lifelong Learning Plan, you will eventually be liable for taxes on the money if you do not pay back the principal over a prescribed period.

Tax-Free Savings Account
The TFSA is a flexible, registered savings account that first became available to Canadians in 2009. From 2009 to 2012 maximum annual contributions were $5,000/year. Based on indexation due to inflation, the annual contribution maximum was increased to $5,500 in 2013. 

A TFSA can be used to enhance retirement savings or to accumulate money for other goals. Contributions are not tax-deductible but savings grow tax-free. If you make a withdrawal from your TFSA, the contribution room is restored in the year following the year you take money out. Unused contribution room is also carried forward.

Because withdrawals are tax free and contribution room is restored after a withdrawal, a TFSA can be an ideal place to stash your “emergency funds.” Another benefit of a TFSA is you can continue to make contributions indefinitely, unlike RRSP contributions which must end after age 71.

An additional attractive feature of a TFSA is that neither income earned within the plan nor withdrawals affect eligibility for federal income-tested government benefits and credits such as Old Age Security, the Guaranteed Income Supplement and the Canada Child Tax Benefit.

Also read:
SPP or TFSA?
TFSA or RRSP? Try these five tests 

Registered Educational Savings Plan
A Registered Educational Savings Plan (RESP) is a tax-sheltered plan that can help you save for a child’s post-secondary education. Unlike an RRSP, contributions to an RESP are not tax deductible. However, investment earnings accumulate tax-free in the plan. When money is paid out of the plan it is taxable in the hands of the student, who typically will be in a lower income bracket than the parent or other contributor.

There is no limit on annual RESP contributions but there is a lifetime maximum of $50,000 per child. However, there are annual and lifetime maximums on the Canadian Education Savings Grant (CESG) available for eligible beneficiaries under the age of 18.

The federal CESG matches 20% on the first $2,500 (maximum of $500) contributed annually to an RESP. The maximum total CESG the government will give, up to age 18, is $7,200 per beneficiary. The grant proceeds are invested along with your contributions, further enhancing the benefits of tax-deferred and compound investment growth within your plan.

A $500 Canada Learning Bond (CLB) is also provided for children of families who are entitled to the National Child Benefit Supplement (net family income of $44,701 in 2015) and who are born after December 31, 2003. These children also qualify for CLB instalments of $100 per year until age 15, as long as they continue to receive the National Child Benefit Supplement. The total maximum CLB payable per child is $2,000.

CLBs are allocated to a specific child; unlike CESGs, they cannot be shared with other beneficiaries. There is no requirement to make contributions in order to qualify for the CLB.

Adding it all up
Over the years RRSP/pension savings limits have crept up and with the introduction of TFSAs in 2009, Canadians have another tax-effective way to save. RESPs are particularly attractive vehicles for educational savings as the federal government offers CESG grants and the Canada Learning Bond as further incentives for saving.

Understanding annual savings limits for all of these registered plans will help you to budget and save the maximum affordable amount every year in the most tax-effective way. Any unused savings room that can be carried forward will come in handy as your income increases or if you ever need to tax shelter a lump sum such as the proceeds of a severance package or capital gains on the sale of a property other than your principal residence.

BOOK REVIEW: 397 ways to save money

27 Nov

By Sheryl Smolkin

Earlier this year we interviewed Kerry K. Taylor aka Squawkfox as part of our Personal Finance Bloggers series. Although Squawkfox has been blogging infrequently over the last few months, her blog continues to be a hilarious and invaluable resource for money saving tips.

So when I was looking for books with great cost containment ideas to review for savewithspp.com readers I was delighted to come across Kerry’s book “397 ways to save money” published in 2009. As I flipped through the book, it became apparent that the vast majority of her suggestions have stood the test of time.

This 275 page book is divided up into four parts with several chapters in each part:

  • Big Decisions: (renting, home ownership, financial choices, shopping)
  • Home Management: (home maintenance, energy, cleaning)
  • Room by Room: (kitchen, living room dining room, kids room, garage etc.)
  • More ways to save: (vacation, pets, cheap family dinners, monthly maintenance checklists)

Here are 10 of my favourite tips in the book:

  1. Change your ATM habits: Use only your bank’s ATM machines to make withdrawals. Know how many free ATM withdrawals you can make each month from your account. Some banks offer free accounts including ATM withdrawals for seniors.
  2. Don’t insure your kids: The purpose of life insurance is to serve as income replacement for the insured’s dependants. Pass on agents who try to sell you on the investment aspects of a cash value policy. Instead, save for your child in a registered educational savings plan (RESP).
  3. Barter to save money: Generally bartering is the trading of goods and services without the use of money. Check out the website U-exchange.com to find like-minded people to swap services such as website building for a haircut.
  4. Pass on extended warranties: Don’t buy extended warranties on inexpensive product like cameras and kitchen appliances. The only time a warranty makes sense is if a repair will devastate your budget.
  5. Don’t pay for shipping: Look for a free shipping option when you order from an online store. Many online retailers offer free shipping when you buy up to a specified dollar amount in merchandise.
  6. Turn off all electronic devices: Turning off your unused electronic devices like gaming consoles and computers is an easy way to save electricity. By turning on your computer only when needed for three hours each day rather than running it continuously can save you $75/year.
  7. Watch the price scanner: Mistakes on electronic price scans are common at the grocery store. Watch as your items are scanned at the checkout and you could save many dollars per month and even score free food. The Retail Council of Canada has a Code of Practice and a list of participating stores you can read here.
  8. Open the dishwasher to air dry dishes: Skip your dishwasher’s heat dry cycle by opening the dishwasher door to air dry dishes after the final rinse. I do this frequently because the full cycle is ridiculously long. Its mice to know it also saves me money.
  9. Skip the sofa bed: A sofa that can be used as a bed may seem like a good idea if you have frequent guests, but they can be much more expensive that a regular couch. They take a lot of room you may not have to open and even top of the line models may be uncomfortable. A blow up bed is easy to inflate and move and a queen size costs around $100.
  10. Buy clothing at the end of the season: Winter in Canada is interminable and most things are on sale by December 26th at the latest. If you can make it through the fall with last year’s wardrobe you can refurbish it with quality items at half the cost or less late in the year.

I really like the Hardware Store Shopping List for all of the do-it-yourself energy-saving projects so you save money on gas. However, by the time you fill your cart with items like caulking, weather stripping, attic insulation, low flow showerheads, programmable thermostats, dimmer switches for lights and compact fluorescent light bulbs to replace incandescent, you will definitely have a big upfront bill.

This is a great book to read once, go back to and help you set achievable goals for saving money. You can browse several chapters here and order the book online from Amazon or Indigo for about $11.00.

Kerry K. Taylor

How to save for retirement (Part 3)

28 Aug

By Sheryl Smolkin

28Aug-nestegg

See Part 1 and Part 2.

In the first two parts of this series on how to save money for retirement we focused on how to get started and some of the registered and unregistered savings plans available to Canadians.

This final segment looks at some other ways (in no particular order) you can both grow and preserve your retirement savings. And making sure your children are educated to effectively manage their finances is a big part of this discussion.

  1. Keep fees low: You ignore investment fees at your peril, says Toronto Star personal finance editor Adam Mayers in a recent article. The simple chart below illustrates what happens if you invest $6,000 a year for 40 years in a registered retirement savings plan. It assumes your RRSP earns a little over 5% a year and ignores taxes.
    1. In a utopian fee-free world, your money is worth $785,000 in 40 years.
    2. In a 1-per-cent fee world, you’ll have $606,000 (23% less).
    3. In a 2-per-cent fee world, you’ll have $435,000 (45% less).
    4. Annual fees in the Saskatchewan Pension Plan (SPP) average 1%.fees
  2. Understand your risk tolerance: You should have a realistic understanding of your ability and willingness to stomach large swings in the value of your investments. Investors who take on too much risk may panic and sell at the wrong time. Other factors affecting your risk tolerance are the time horizon that you have to invest, future earning capacity, and the presence of other assets such as a home, pension, government benefits or an inheritance. In general, you can take greater risk with investable assets when you have other, more stable sources of funds available.
  3. Develop an asset allocation plan: Once you understand your risk tolerance, you can develop an asset allocation strategy that determines what portion of your retirement account will be held in equities (stocks) and fixed income (bonds, cash). The investment allocation in the SPP balanced fund is illustrated below.
  4. Rebalance: The asset allocation in your portfolio will change over time as dividends are paid into the account and the value of the securities you hold goes up or down. Rebalancing helps you reap the full rewards of diversification. Trimming back on a winner allows you to buy a laggard, protect your gains, and position your portfolio to benefit from a change in the market’s favorites.Balanced-Fund-Web
  5. Auto-pilot solutions: Balanced funds including the SPP balanced fund are automatically rebalanced. In your RRSP or company pension plan Target Date Funds (TDFs) are another way to ensure your investments reflect your changing risk profile. Developed by the financial industry to automatically rebalance as you get closer to retirement. TDFs are typically identified by the year you will need to access the money in five year age bands, i.e. 2025, 2030 etc. They are available in most individual registered retired savings plans and in your employer-sponsored group RRSP or pension. However, all TDFs are not alike so consider the investment fees as compared to the expected return before jumping in.
  6. Educate yourself: Personal finance blogs contain a wealth of information about everything from frugal living to tax issues to how to save and invest your money. You can find out about some of them by listening to our podcast series of interviews on savewithspp.com or reading the weekly Best from the Blogosphere posts. Some posts are better than others so caveat emptor. But blogs like Retirehappy and Boomer & Echo have huge archives so you can find answers to virtually any virtually personal finance question.
  7. Choose your retirement date carefully: We are living longer so your money has to last longer. And starting in April 2023, the age of eligibility will gradually increase: from 65 to 67 for the Old Age Security (OAS) pension. Even if you are among the minority who have a defined benefit pension, retiring early means you will get a reduced amount. Whether you keep working because you need the money or you love your job, you will have a more affluent retirement if you work full or part-time until age 65 or longer.
  8. Develop other income streams: One of the things that stayed with me after reading Jonathan Chevreau’s book Findependence Day is the importance of having multiple income streams in retirement. So even if you are saving at work or in an individual RRSP, don’t put all your eggs in one basket. While you may not want to work at your current job indefinitely, you may be able to use your skills or hobbies to do something different after retirement. For example before I retired I was a pension and benefits lawyer. Now I augment my retirement income by writing about workplace issues.
  9. Start RESPs for your kids: The following two Globe and Mail articles by financial columnist Rob Carrick brought home to me the impact that your children’s debt and failure to launch can have on your retirement.
    1. Carrick on money: Will millennials ruin parents’ retirement dreams?
    2. Parents of Gen Y kids face their own financial squeeze

Registered educational savings plans allow you to accumulate money for your children’s education tax free and receive government grants that add to your savings. When the money is paid out, your child pays taxes, typically at a lower rate. Saving for your kids’ education now so they can minimize student loans down the road is one of the best investments you can make in your future ability to retire sooner rather than later.

  1. Raise financially literate children: And last but not least, educate your children about money so they grow into financially responsible adults. Every event from the first allowance you give your kids to buying Christmas gifts to planning for college is a teachable moment. Someday your offspring may be managing your money and ensuring you are properly taken care of. That’s when all of your great parenting skills will definitely come home to roost!