We are in our last week of “RRSP Season”, the time in which you are eligible to make contributions to your RRSP and have them counted towards your 2009 tax year. Most of our clients prefer to do regular, automatic, monthly deposits, and so do not have to concern themselves with finding “leftover” money to put in after the holiday season… if you don’t have a pre-authorized deposit plan set up, I highly recommend you take this opportunity to start one for 2010 (you can start with as little as $25 per month).

To give you an idea of the value of using an RRSP as part of your retirement plan, I encourage you to play around with Mackenzie’s RRSP Illustrator. You can also see just how much more can be saved by reinvesting the tax refund earned from RRSP deposits. If you have any questions, please give us a call!

As we move into the March tax season, it is the perfect time of year to give yourself a financial makeover. After the last couple years, are your investments still in line with your goals and risk tolerance? Do you have enough, or are you saving enough, to enjoy the kind of retirement you would like to have? Is your money protected from future economic downturns, from creditor’s claims or unnecessary probate costs, or from a personal emergency? We have options designed for people in all stages of life and business, please give us a call to talk about which ones are right for you.

If you are curious about the technical structures behind Canada’s RRSP program, here is a link to the Canada Revenue Agency’s Registered Retirement Savings Plan site.

Grant MacEwan University "Tilt-Shifted" Photo (Edmonton, Alberta)

Photo credit: “Grant MacEwan University Tilt-Shift” by pixelens photography (Flickr)

Courtesy of iNews 880:

Taxed for Time?

8:54am

4/30/2009

It may end up being a taxing day for many Canadians.

Your annual contributions are due at midnight tonight. If you’re late, you’ll see a penalty if you owe the government money. The exception is residents of Manitoba that have been affected by the recent flooding in the province. They’ll have until June 1st to file. 

The best resource for federal taxes is at the Canadian Revenue Service Website. Be sure to check out the Claim It section, which breaks down common tax cuts for Canadians from all walks of life. 

Also helpful in figuring out how much you owe, try out the Tax Calculator at Tax-services.ca.

Once you’ve got it all figured out, you can file your taxes electronically using the CRA’s NETFILE . Or, you can do it the old-fashioned way by mailing it. You can find the tax forms for Alberta here. 

If you have any questions, you can phone the CRA at 1-800-267-6999 or 1-800-959-8281… although be prepared for a wait. You’re probably not the only one calling.

(sl)

You can hit a nail with a monkey wrench, but that doesn’t mean it’s the best tool for the job.

There has been some excellent discussion of the new Tax-Free Savings Accounts (TFSAs) and how they compare to Registered Retirement Savings Plans (RRSPs), in particular relation to retirement income and tax efficiency (i.e.: in which account do you end up saving more).  The simple answer is that it depends on what your tax rate is when you are putting money into the accounts versus your rate when you are taking it out in retirement.

However, I don’t think this is the right, or at least the only, way to look at these two options.  Like the monkey wrench analogy above, the TFSA and the RRSP are two different tools, not designed or intended to do the same job.  I recommend you seriously consider using both for the jobs for which they are built.

RRSP = Retirement

TFSA = Savings

The TFSA is a savings account.  Yes, you can use it to save for retirement, but you can also use it to save for a house, for a car, or my personal favourite: for that unforeseen emergency that usually ends up on our credit cards or taking a chuck out of our RRSPs.

So how should you use your TFSA?  If you regularly max out your RRSP and still have money left to invest, then it’s a ‘no-brainer’.  Even if you are unable or choose not to use all your RRSP contribution room, the TFSA is a very smart choice to put (or start building) your 3-month emergency fund, savings for your children’s education (beyond the optimal RESP maximum), or any other financial goal more than one year in the future.

There are a number of downsides if you ever choose to take money out of your RRSP before retirement.  Chief amoung them is the tax hit (your withdrawal is considered income), or at best you are locked in to a repayment schedule (as with the Home Buyer’s Plan).  Neither of these apply to withdrawals from your TFSA, which makes it a far more efficient and flexible choice for any pre-retirement financial goals/needs.

To get your TFSA started quickly, there are a few easy strategies you could consider:

• Move your current emergency fund into a TFSA ($5,000 maximum this year).
• If you make bulk annual deposits into your RRSP, put 10-15% into a TFSA.
• Deposit your tax return in a TFSA.
• Start a $25/month automatic deposit.

My first recommendation to most people is to always have that 3-month (minimum) emergency fund in safe, liquid investments (such as a high-interest savings account, GIC, or bond/money-market fund).  You want that money to be there if/when you need it.  Beyond that, it is worth having a conversation with your advisor to help you determine an appropriate portfolio for your time horizon and risk tolerance.  If it would help you keep your goals straight, you may even want to consider opening two different TFSA accounts; one for your emergency fund and the other for your savings (new home, renovations, car, big vacation, wedding, etc.)!  Remember, you can still only contribute a maximum of $5,000 combined for the year (unused room does carry over).

Retirement planning with your TFSA is worth a article on it’s own, but suffice to say that the closer you get to retirement, the more you want to have built up in your TFSA.  One big reason: income-tested benefits and clawback.

The Tax-Free Savings Account is an excellent tool for all of us to add to our financial plan.  To quote one of my favourite movies that was on TV over the weekend: “Would you like to know more?”

Pick the right tool for the job, and you'll be all smiles!

Photo credit: “Out of line” by j / f / photos and “The Astronaut Twins” by oskay