Personal Finance and Money Management 28 - How Pension Adjustment Effects Your Rrsp Contribution Room
As we mentioned in other articles the government only represents about 30% of our retirement income, the company retirement pension plan offers another 30 % and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans. In fact, besides understanding the company retirement pension plan it is for your own benefit to know how pension adjustments (PA) affects your RRSP contribution room.
I. Understand PA adjustment and benefits
1. The PA represents pension benefits accruing to you under a company pension plan or deferred profit-sharing plan that will reduce your RRSP contribution room.
2. Under defined benefit pension plans, the actual contributions made are generally far less than the PA.
3. When you leave an employer (particularly after a short period), the benefits you are entitled to are often far less than your accumulated PA’s.
4. The PA is generally added to your RRSP contribution room in the year you cease employment; it is reported as a separate amount on a T10 slip.
5. Since 1999, Revenue Canada has allowed tax-free RRSP withdrawals to finance full time education for you or your spouse, with the total withdrawn not exceeding $20,000 over 4 calendar years and funds must be returned to the RRSP over a 10 year period.
II. Pension adjustment effects your RRSP contribution room
1. The PA reduces your RRSP contribution amount since you earn pension benefits through your employer’s respective pension plan and your RRSP is limited to 18% of the previous year`s income up to $20,000 in the year of 2008 that varies every year with adjustment to inflation index.
2. In determining your RRSP contribution limit for the following year, Revenue Canada takes 18% of your earned income for the year up to the maximum limit, $20,000 and then reduces it by your PA contribution amount.
For example, if your PA amounts to $9,000 per year and your maximum RRSP contribution amount is $20,000, you may place $11,000 into your RRSP.
I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
http://personalfinance28.blogspot.com/
http://medicaladvisorjournals.blogspot.com
I. Understand PA adjustment and benefits
1. The PA represents pension benefits accruing to you under a company pension plan or deferred profit-sharing plan that will reduce your RRSP contribution room.
2. Under defined benefit pension plans, the actual contributions made are generally far less than the PA.
3. When you leave an employer (particularly after a short period), the benefits you are entitled to are often far less than your accumulated PA’s.
4. The PA is generally added to your RRSP contribution room in the year you cease employment; it is reported as a separate amount on a T10 slip.
5. Since 1999, Revenue Canada has allowed tax-free RRSP withdrawals to finance full time education for you or your spouse, with the total withdrawn not exceeding $20,000 over 4 calendar years and funds must be returned to the RRSP over a 10 year period.
II. Pension adjustment effects your RRSP contribution room
1. The PA reduces your RRSP contribution amount since you earn pension benefits through your employer’s respective pension plan and your RRSP is limited to 18% of the previous year`s income up to $20,000 in the year of 2008 that varies every year with adjustment to inflation index.
2. In determining your RRSP contribution limit for the following year, Revenue Canada takes 18% of your earned income for the year up to the maximum limit, $20,000 and then reduces it by your PA contribution amount.
For example, if your PA amounts to $9,000 per year and your maximum RRSP contribution amount is $20,000, you may place $11,000 into your RRSP.
I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
http://personalfinance28.blogspot.com/
http://medicaladvisorjournals.blogspot.com
Personal Finance and Money Management 29-understand Characteristics of Registered Retirement Saving Plan
As we mentioned in other articles the government only represents about 30% of our retirement income, the company retirement pension plan offers another 30 % and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans. In this article, we will discuss some important characteristics of registered retirement saving plans.
I. Reduce income tax withhold
Contributing to RRSP through pay role deduction will reduce the amount of income tax withheld on your employment income. You pay less income tax over the year, rather than overpaying and then applying for a refund the following year. Usually, Customs & Revenue Canada will permit a reduction in withholdings for RRSP contributions made early in the year.
II. When to make RRSP contributions
On the first day of any year, but you may not know your 2007 RRSP contribution room until February or March because you have to wait until Customs & Revenue Canada advises you of your RRSP limit for the new tax year, it will take several weeks after your previous year tax return is assessed.
III. Carried forward for unused contribution
Your unused contribution amount after 1990 is allowed to carry forward and can be used in any future year.
IV. Investment options
You can invest your RRSP in any eligible investments such as guaranteed investment certificates, government bonds, shares listed on Canadian stock exchanges, corporation bonds instruments listed on Canadian stock exchanges, and units of Canadian-based mutual funds that meet government guidelines.
V. Spousal contribution
a) Contributes to spousal RRSP that qualifies for a tax deduction for you, as long as the total contributions to your plan and your spousal plan do not exceed your contribution limit.
b)When you reach age 69 and must convert your RRSP into a maturity option, if your spouse is younger than you you can maximize your tax-deferral and tax payment by placing your matured RRSP into your spouse’s name.
c) RRSP withdrawal by your spouse is taxable to your spouse if you have not made any contribution to your spouse’s plan in the past three years.
I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
http://medicaladvisorjournals.blogspot.com
http://personalfinance29.blogspot.com/
I. Reduce income tax withhold
Contributing to RRSP through pay role deduction will reduce the amount of income tax withheld on your employment income. You pay less income tax over the year, rather than overpaying and then applying for a refund the following year. Usually, Customs & Revenue Canada will permit a reduction in withholdings for RRSP contributions made early in the year.
II. When to make RRSP contributions
On the first day of any year, but you may not know your 2007 RRSP contribution room until February or March because you have to wait until Customs & Revenue Canada advises you of your RRSP limit for the new tax year, it will take several weeks after your previous year tax return is assessed.
III. Carried forward for unused contribution
Your unused contribution amount after 1990 is allowed to carry forward and can be used in any future year.
IV. Investment options
You can invest your RRSP in any eligible investments such as guaranteed investment certificates, government bonds, shares listed on Canadian stock exchanges, corporation bonds instruments listed on Canadian stock exchanges, and units of Canadian-based mutual funds that meet government guidelines.
V. Spousal contribution
a) Contributes to spousal RRSP that qualifies for a tax deduction for you, as long as the total contributions to your plan and your spousal plan do not exceed your contribution limit.
b)When you reach age 69 and must convert your RRSP into a maturity option, if your spouse is younger than you you can maximize your tax-deferral and tax payment by placing your matured RRSP into your spouse’s name.
c) RRSP withdrawal by your spouse is taxable to your spouse if you have not made any contribution to your spouse’s plan in the past three years.
I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
http://medicaladvisorjournals.blogspot.com
http://personalfinance29.blogspot.com/
Personal Finance and Money Management 34 - Types of Deferred Annuity
As we mentioned in other articles, the government only represents about 30% of our retirement income,, the company retirement pension plan offers another 30 % and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plan. Now you have reached your retirement age, there are some important investment options for your RRSP or 401k plan. In this article, we will discuss characteristics of deferred annuity.
Deferred annuity is a contract that delays payments of income, installments or a lump sum until the investor elects to receive them. This type of annuity has two main phases, the savings phase in which you invest money into the account, and the income phase in which the plan is converted into an annuity and payments are received.
1. Fixed deferred annuity
a) A fixed interest deferred annuity is a product that is designed to help you accumulate funds for your retirement.
b) The money in your annuity earns a fixed rate of interest and the fund in deferred annuity accumulates on a tax-deferred basis.
c) You do not pay taxes on your earnings until you actually withdraw them from your policy.
d) You can choose to lock in your interest rate for different periods in this type of annuity and the money can be used to provide guaranteed lifetime income.
2. Variable deferred annuity
Variable annuities invest in the stock market with the tax advantages and other security including bonds, money market funds. At the request of the annuitant the money can also be used to provide income for the rest of annuitant life.
3. Equity index deferred annuity (EIA)
a) Equity index deferred annuity earns interest based on performance of stock market index such as the S&P 500.
b) An EIA guarantees that your principal investment will not go down in value.
c) In any given year, if the stock market go up, you as owner of EIA will enjoy additional gains. If the index goes down, your principal investment will not go down in value.
I hope this information will help. If you need more information or insurance advices, please follow my article series of the above subject at my home page at:
http://medicaladvisorjournals.blogspot.com
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
http://personalfinance34.blogspot.com/
Deferred annuity is a contract that delays payments of income, installments or a lump sum until the investor elects to receive them. This type of annuity has two main phases, the savings phase in which you invest money into the account, and the income phase in which the plan is converted into an annuity and payments are received.
1. Fixed deferred annuity
a) A fixed interest deferred annuity is a product that is designed to help you accumulate funds for your retirement.
b) The money in your annuity earns a fixed rate of interest and the fund in deferred annuity accumulates on a tax-deferred basis.
c) You do not pay taxes on your earnings until you actually withdraw them from your policy.
d) You can choose to lock in your interest rate for different periods in this type of annuity and the money can be used to provide guaranteed lifetime income.
2. Variable deferred annuity
Variable annuities invest in the stock market with the tax advantages and other security including bonds, money market funds. At the request of the annuitant the money can also be used to provide income for the rest of annuitant life.
3. Equity index deferred annuity (EIA)
a) Equity index deferred annuity earns interest based on performance of stock market index such as the S&P 500.
b) An EIA guarantees that your principal investment will not go down in value.
c) In any given year, if the stock market go up, you as owner of EIA will enjoy additional gains. If the index goes down, your principal investment will not go down in value.
I hope this information will help. If you need more information or insurance advices, please follow my article series of the above subject at my home page at:
http://medicaladvisorjournals.blogspot.com
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
http://personalfinance34.blogspot.com/
Is the Rrsp the Most Effective Savings Plan for your Retirement?
Is The RRSP The Most Effective Plan For Your Retirement?
For many years Canadians have been relying on the income from their RRSP, which was instituted in 1957, to fund their retirement years.
Now, however, the small rates of return, taxes and inflation are threatening to reduce the income generated by RRSP’s to a barely livable amount.
When you retire after 20, 30 or 40 years of earning an income, you expect to reap the rewards of your hard work and good planning.
The RRSP was meant to provide financial security to the Canadian taxpayer and it actually pre-dates the Canada Pension Plan by almost 10 years!
What is an RRSP?
RRSP is an acronym for: Registered Retirement Savings Plan.
It means that you have started a savings plan for your retirement and you have told the Government so, by registering it with an accredited seller of the plan.
That’s it!
Because you have taken the initiative to financially support your retirement, thus lessening the burden on the Government, you will get some benefits from purchasing and funding your RRSP.
What are the benefits of an RRSP?
• Tax reduction
• Tax deferral
• First time home buying/Continuing education
Tax reduction:
Your taxable income will be reduced dollar for dollar by the amount you contribute to your RRSP.
As an example: If your income is $55,000 per year and you contribute $5,000 to the plan you will pay taxes only on $50,000 for that year.
Tax deferral:
The income in the RRSP is tax sheltered until you make a withdrawal or upon retirement.
First time home buying/Continuing education:
Home buyers are allowed to make a one time withdrawal of funds in their RRSP to help purchase their first home.
However the rules for utilizing this strategy seem to change often, so do your homework or ask the advice of a professional with expertise in this using strategy.
As a retirement planning tool the RRSP is still a good strategy.
However, due to the increasing restrictions being placed on the contributions to the plan, it is not the most effective and should be used in conjunction with other more tax effective and income producing strategies.
As an example:
More and more Canadians are earning incomes in excess of $100,000/Yrly; however, the maximum allowable contribution per annum is capped at %18 or $19,000.
This will not provide much of a tax relief and in Canada this individual will still be taxed at the highest tax rate.
The banks and the Government do benefit when taxpayers employ the RRSP as their only tax reduction and retirement strategy.
So, it is in each individual income earner’s best interest to become financially knowledgeable and empowered to ensure that they are using as many effective retirement planning tools as are available.
Don’t let poor planning put your retirement at risk!
For many years Canadians have been relying on the income from their RRSP, which was instituted in 1957, to fund their retirement years.
Now, however, the small rates of return, taxes and inflation are threatening to reduce the income generated by RRSP’s to a barely livable amount.
When you retire after 20, 30 or 40 years of earning an income, you expect to reap the rewards of your hard work and good planning.
The RRSP was meant to provide financial security to the Canadian taxpayer and it actually pre-dates the Canada Pension Plan by almost 10 years!
What is an RRSP?
RRSP is an acronym for: Registered Retirement Savings Plan.
It means that you have started a savings plan for your retirement and you have told the Government so, by registering it with an accredited seller of the plan.
That’s it!
Because you have taken the initiative to financially support your retirement, thus lessening the burden on the Government, you will get some benefits from purchasing and funding your RRSP.
What are the benefits of an RRSP?
• Tax reduction
• Tax deferral
• First time home buying/Continuing education
Tax reduction:
Your taxable income will be reduced dollar for dollar by the amount you contribute to your RRSP.
As an example: If your income is $55,000 per year and you contribute $5,000 to the plan you will pay taxes only on $50,000 for that year.
Tax deferral:
The income in the RRSP is tax sheltered until you make a withdrawal or upon retirement.
First time home buying/Continuing education:
Home buyers are allowed to make a one time withdrawal of funds in their RRSP to help purchase their first home.
However the rules for utilizing this strategy seem to change often, so do your homework or ask the advice of a professional with expertise in this using strategy.
As a retirement planning tool the RRSP is still a good strategy.
However, due to the increasing restrictions being placed on the contributions to the plan, it is not the most effective and should be used in conjunction with other more tax effective and income producing strategies.
As an example:
More and more Canadians are earning incomes in excess of $100,000/Yrly; however, the maximum allowable contribution per annum is capped at %18 or $19,000.
This will not provide much of a tax relief and in Canada this individual will still be taxed at the highest tax rate.
The banks and the Government do benefit when taxpayers employ the RRSP as their only tax reduction and retirement strategy.
So, it is in each individual income earner’s best interest to become financially knowledgeable and empowered to ensure that they are using as many effective retirement planning tools as are available.
Don’t let poor planning put your retirement at risk!
Personal Finance and Money Management 26 -registered Retirement Pension Plan and 401 K Plan Maturity Options
As we mentioned in previous articles we know that our government only represents about 30% of our retirement income. The company retirement pension plan offers another 30 % and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans. Some people choose to invest into personal registered retirement saving plans in Canada or 401k plans and IRA plans in the US. In this article, we will discuss RRSP, 401k plan maturity options.
I. Take all in Cash
a) In Canada at 69 years of age, depending on the amount of your RRSP account, you may have to pay up to 50% of tax if you take all money of the RRSP plan in cash.
b) Before April 1 of the year following the year in which you reach age 70½ you can transfer your 401 k plan to your IRA plan with out paying tax, but minimum withdrawal is required.
c) You can cash out your 401k and IRA plans with 20% tax withhold of amount withdrawn.
II. Purchase an annuity for your 401k plan and RRSP
This option requires you to give up all control of your funds in return for receiving a fixed and regular annuity income from an insurance company. The income annuity is based upon the current interest rate and the amount of annuity investment you purchase.
III. Other options
a) In the US, your 401K can remain invested in your employer-sponsored plan, if your former employer allows it. It avoids current taxes and penalties, and may offer other advantages unavailable elsewhere but minimum withdrawal is required every year. The IRS allows a number of options under which you can calculate your MRD. Make sure that the plan allows you to select the method that is most advantageous to you.
b) For IRA plans, minimum withdrawal is required at maturity.
c) In Canada, you can invest your RRSP like other investment programs in registered retirement income funds. Minimum withdrawal is required every year.
I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
http://medicaladvisorjournals.blogspot.com
http://personalfinance26.blogspot.com/
I. Take all in Cash
a) In Canada at 69 years of age, depending on the amount of your RRSP account, you may have to pay up to 50% of tax if you take all money of the RRSP plan in cash.
b) Before April 1 of the year following the year in which you reach age 70½ you can transfer your 401 k plan to your IRA plan with out paying tax, but minimum withdrawal is required.
c) You can cash out your 401k and IRA plans with 20% tax withhold of amount withdrawn.
II. Purchase an annuity for your 401k plan and RRSP
This option requires you to give up all control of your funds in return for receiving a fixed and regular annuity income from an insurance company. The income annuity is based upon the current interest rate and the amount of annuity investment you purchase.
III. Other options
a) In the US, your 401K can remain invested in your employer-sponsored plan, if your former employer allows it. It avoids current taxes and penalties, and may offer other advantages unavailable elsewhere but minimum withdrawal is required every year. The IRS allows a number of options under which you can calculate your MRD. Make sure that the plan allows you to select the method that is most advantageous to you.
b) For IRA plans, minimum withdrawal is required at maturity.
c) In Canada, you can invest your RRSP like other investment programs in registered retirement income funds. Minimum withdrawal is required every year.
I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
http://medicaladvisorjournals.blogspot.com
http://personalfinance26.blogspot.com/
Rrsp Home Buyers Plan Helps Canadians Buy Homes
Toronto, ON December 20, 2007 – The Canadian real estate market has been growing over the past seven years and is currently at an all time high. With the cost of houses and condominiums rising exponentially each month, it has become more difficult for potential homebuyers to enter the market. There are many resources available for new homebuyers of which they might not even be aware.
RRSP Home Buyers Plan.com is a comprehensive site providing knowledge and resources to Canadians looking to enter the real estate market. The Home Buyers Plan (HBP) allows first-time homebuyers or persons who have not been homeowners for five years to withdraw funds from their RRSP to purchase a home, with no income tax payable on the amount withdrawn.
In addition to information about the HBP program, the site lists Financial planners who can assist homebuyers by providing navigation through the program as well as provide other investment and financial advice the homeowner may require. Further, there are resources for information on insurance, estate and will planning and tax strategies.
As home prices continue to rise, the dream of homeownership can quickly move from a reality to a dream. You should definitely explore the use of an RRSP Home Buyers Plan in consultation with your accredited financial planner.
RRSP Home Buyers Plan.com is a comprehensive site providing knowledge and resources to Canadians looking to enter the real estate market. The Home Buyers Plan (HBP) allows first-time homebuyers or persons who have not been homeowners for five years to withdraw funds from their RRSP to purchase a home, with no income tax payable on the amount withdrawn.
In addition to information about the HBP program, the site lists Financial planners who can assist homebuyers by providing navigation through the program as well as provide other investment and financial advice the homeowner may require. Further, there are resources for information on insurance, estate and will planning and tax strategies.
As home prices continue to rise, the dream of homeownership can quickly move from a reality to a dream. You should definitely explore the use of an RRSP Home Buyers Plan in consultation with your accredited financial planner.
Personal Finance and Money Management 27 - Retirement Allowance Options
As we mentioned in previous articles we know that our government only represents about 30% of our retirement income. The company retirement pension plan offers another 30 % and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans. Retiring allowance options allow you to choose to take out your 401k plan or registered pension plan as soon as leaving or retiring from your company. Here are some options:
I. Take all of it in cash
Many young people prefer this option. They may be right because they are too young to think about retirement. For many other older people, taking all your retirement allowance all in cash will trigger tax withholding from 10-30% in Canada and 20% in the US.
II. Transfer all of it into personal pension plan
1) In Canada, by transferring your retiring allowance to an RRSP you shelter the allowance from the taxes you would otherwise pay. Another benefit is that your investment will grow on a tax-deferred basis, and you will only pay taxes upon withdrawal from your RRSP.
You may also make a special transfer of some or all of your retirement allowance to your RRSP with your regular RRSP contribution room untouched (you can transfer up to $2,000 per year of service with your employer from your start date to the end of 1995).
2) In the US, with a 401k rollover, the best way is to make a trustee-to-trustee transfer.
In this case your retirement allowance goes directly from one tax-deferred account to another and there are no potential tax consequences for you.
If the retirement allowance is sent directly to you, you will have a 60-day period in which to place the money in a new tax-deferred account. Otherwise, you will have to pay an early withdrawal penalty if you are younger than 59½ and taxes on the amount.
III. Other options
In case of being laid off and you are not sure when you can find a new job, specially when you are between 50-59 years you may consider to take a percentage of the retirement allowance in cash and shelter the rest into your personal plan.
Always remember by transferring your retiring allowance to an RRSP or IRA account, you shelter the allowance from the taxes. Another benefit is that your investment will grow on a tax-deferred basis, and you will only pay taxes upon withdrawal from your RRSP and IRA account.
I hope this information will help. If you need more information or insurance advices, please follow my article series of the above subject at my home page at:
http://medicaladvisorjournals.blogspot.com
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
I. Take all of it in cash
Many young people prefer this option. They may be right because they are too young to think about retirement. For many other older people, taking all your retirement allowance all in cash will trigger tax withholding from 10-30% in Canada and 20% in the US.
II. Transfer all of it into personal pension plan
1) In Canada, by transferring your retiring allowance to an RRSP you shelter the allowance from the taxes you would otherwise pay. Another benefit is that your investment will grow on a tax-deferred basis, and you will only pay taxes upon withdrawal from your RRSP.
You may also make a special transfer of some or all of your retirement allowance to your RRSP with your regular RRSP contribution room untouched (you can transfer up to $2,000 per year of service with your employer from your start date to the end of 1995).
2) In the US, with a 401k rollover, the best way is to make a trustee-to-trustee transfer.
In this case your retirement allowance goes directly from one tax-deferred account to another and there are no potential tax consequences for you.
If the retirement allowance is sent directly to you, you will have a 60-day period in which to place the money in a new tax-deferred account. Otherwise, you will have to pay an early withdrawal penalty if you are younger than 59½ and taxes on the amount.
III. Other options
In case of being laid off and you are not sure when you can find a new job, specially when you are between 50-59 years you may consider to take a percentage of the retirement allowance in cash and shelter the rest into your personal plan.
Always remember by transferring your retiring allowance to an RRSP or IRA account, you shelter the allowance from the taxes. Another benefit is that your investment will grow on a tax-deferred basis, and you will only pay taxes upon withdrawal from your RRSP and IRA account.
I hope this information will help. If you need more information or insurance advices, please follow my article series of the above subject at my home page at:
http://medicaladvisorjournals.blogspot.com
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
First-time Homebuyer? your Rrsp May be the Downpayment You’re Looking for
Thinking about buying your first home? Wish you had saved up a good downpayment? Maybe you have, but didn’t know it.
First-time homebuyers can tap into their RRSP to help with a home purchase. Thank the federal government (a previous one) for this great initiative. Designed to help first-time buyers get into home ownership, the program lets you access tax-free monies for use towards the purchase or even construction of your first home.
Why Tap Into Your RRSP?
The most common reason is to boost the downpayment on a home. The bigger your downpayment, after all, the smaller your mortgage. And you may qualify for better interest rates too; your healthy downpayment shows the lender that you are a low risk candidate for a mortgage loan. Your RRSP can help provide the funds for a downpayment that will make a difference to your costs in the long run.
Here’s How It Works
If you’ve been contributing to an RRSP, then you already know that the program is designed to set aside money for retirement, with the money going into the program tax-free (and the plan to pay taxes on the funds when they’re withdrawn later). But there are some good and valid reasons why you may want to access these funds earlier. A home purchase may be one of them. As a first-time homebuyer, you are allowed to withdraw money: still tax-free,,provided you adhere to the easy repayment plan. (Just make sure, of course, that your RSP is not a locked in plan). You can withdraw up to $20,000.00 from your plan.
If your spouse qualifies as a first-time homebuyer, then he or she will also be able to withdraw $20,000.00. Between the two of you, you could possibly have a hefty down payment sum of $40,000.00. That’s enough to make a substantial difference in the affordability of home ownership!
Check online or ask your broker for more information about this program, known as the Home Buyer’s Plan (HBP). There are some conditions that you should know about.For example, you need to spend the money once it’s withdrawn: you must enter a written agreement (offer to purchase) before you can withdraw money. And you are
expected to complete the home purchase no later than October 1 of the year following your withdrawal. And don’t spread your withdrawals out; all HBP-eligible withdrawals must be made in the same calendar year. Above all, you must meet certain repayment terms. Repayment to your RSP begins the second year following the year of withdrawal. You have up to fifteen years to repay, and each annual repayment must be at least one-fifteenth of the withdrawn amount.
A common question: so who exactly qualifies as a first-time homebuyer? What if one partner has owned a home before, for example? Well, it often happens that only one partner qualifies as a first-time homebuyer, so only one RRSP can be tapped for funds. But if either of you has not owned a home for the past five years, then you meet the description of a first time homebuyer! Keep that definition in mind as you plan the timing of any RRSP withdrawals.
The program shouldn’t influence the kind of home you purchase. Any kind of home qualifies for the program - detached, semi-detached, mobile, condominium, etc. - as long as it is located within Canada.
If you’re thinking ahead to using your RRSP for your home,consider meshing your RRSP strategy with your downpayment savings. Putting away funds in your RRSP not only saves you the current income tax, but the tax saved translates into more dollars towards your downpayment.
It’s not too soon to begin a conversation with an Ontario mortgage specialist about your future plans for home ownership. A good plan is always a great beginning!
First-time homebuyers can tap into their RRSP to help with a home purchase. Thank the federal government (a previous one) for this great initiative. Designed to help first-time buyers get into home ownership, the program lets you access tax-free monies for use towards the purchase or even construction of your first home.
Why Tap Into Your RRSP?
The most common reason is to boost the downpayment on a home. The bigger your downpayment, after all, the smaller your mortgage. And you may qualify for better interest rates too; your healthy downpayment shows the lender that you are a low risk candidate for a mortgage loan. Your RRSP can help provide the funds for a downpayment that will make a difference to your costs in the long run.
Here’s How It Works
If you’ve been contributing to an RRSP, then you already know that the program is designed to set aside money for retirement, with the money going into the program tax-free (and the plan to pay taxes on the funds when they’re withdrawn later). But there are some good and valid reasons why you may want to access these funds earlier. A home purchase may be one of them. As a first-time homebuyer, you are allowed to withdraw money: still tax-free,,provided you adhere to the easy repayment plan. (Just make sure, of course, that your RSP is not a locked in plan). You can withdraw up to $20,000.00 from your plan.
If your spouse qualifies as a first-time homebuyer, then he or she will also be able to withdraw $20,000.00. Between the two of you, you could possibly have a hefty down payment sum of $40,000.00. That’s enough to make a substantial difference in the affordability of home ownership!
Check online or ask your broker for more information about this program, known as the Home Buyer’s Plan (HBP). There are some conditions that you should know about.For example, you need to spend the money once it’s withdrawn: you must enter a written agreement (offer to purchase) before you can withdraw money. And you are
expected to complete the home purchase no later than October 1 of the year following your withdrawal. And don’t spread your withdrawals out; all HBP-eligible withdrawals must be made in the same calendar year. Above all, you must meet certain repayment terms. Repayment to your RSP begins the second year following the year of withdrawal. You have up to fifteen years to repay, and each annual repayment must be at least one-fifteenth of the withdrawn amount.
A common question: so who exactly qualifies as a first-time homebuyer? What if one partner has owned a home before, for example? Well, it often happens that only one partner qualifies as a first-time homebuyer, so only one RRSP can be tapped for funds. But if either of you has not owned a home for the past five years, then you meet the description of a first time homebuyer! Keep that definition in mind as you plan the timing of any RRSP withdrawals.
The program shouldn’t influence the kind of home you purchase. Any kind of home qualifies for the program - detached, semi-detached, mobile, condominium, etc. - as long as it is located within Canada.
If you’re thinking ahead to using your RRSP for your home,consider meshing your RRSP strategy with your downpayment savings. Putting away funds in your RRSP not only saves you the current income tax, but the tax saved translates into more dollars towards your downpayment.
It’s not too soon to begin a conversation with an Ontario mortgage specialist about your future plans for home ownership. A good plan is always a great beginning!
Personal Finance and Money Management 36 - Eligible Rrif, IRA Investment Options
Remember that the government only represents about 30% of our retirement income, the company retirement pension plan offers another 30 % and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans. RRIF is registered retirement income fund that the government allows RRSP holders to transfer their RRSP to when they reach the year of roll over with minimum withdrawn payment is required.
IRA account holder do not need to roll over but minimum withdrawn payment is also required. In this article, we will list the eligible RRIF and IRA investment option.
1. RRIF account
RRIF can be invested just like RRSP
a) Canada and provincial savings bonds.
b) Federal government treasury bills and federal, provincial, and municipal government bonds.
c) Canadian mortgage and home corporation mortgages and mortgage-backed securities.
d) Corporate bonds and debentures as well as stripped bonds and coupons.
e) Guaranteed investment certificates.
f) Mutual funds shares, certain right, warrant and call options of Canadian public companies.
g) Shares listed on prescribed foreign exchanges.
h) Etc.
You can find all allowed investment options in Canadian revenue agency website.
2. IRA account
a) Residential real estate, including apartments, single family homes, and duplexes.
b) Commercial real estate and undeveloped or raw land.
c) mortgages, deeds of trusts and promissory notes.
d) Private limited partnerships, limited liability companies,and corporations.
e) Tax lien certificates and oil and gas investments.
f) Publicly traded stocks, bonds, mutual funds.
g) Private stock offerings, private placements.
h) Gold bullion.
i) Shares of Canadian-controlled private corporations.
j) Etc.
You can find all allowable investments at equity trust in IRS website.
I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
http://financialinvesting09.blogspot.com/
IRA account holder do not need to roll over but minimum withdrawn payment is also required. In this article, we will list the eligible RRIF and IRA investment option.
1. RRIF account
RRIF can be invested just like RRSP
a) Canada and provincial savings bonds.
b) Federal government treasury bills and federal, provincial, and municipal government bonds.
c) Canadian mortgage and home corporation mortgages and mortgage-backed securities.
d) Corporate bonds and debentures as well as stripped bonds and coupons.
e) Guaranteed investment certificates.
f) Mutual funds shares, certain right, warrant and call options of Canadian public companies.
g) Shares listed on prescribed foreign exchanges.
h) Etc.
You can find all allowed investment options in Canadian revenue agency website.
2. IRA account
a) Residential real estate, including apartments, single family homes, and duplexes.
b) Commercial real estate and undeveloped or raw land.
c) mortgages, deeds of trusts and promissory notes.
d) Private limited partnerships, limited liability companies,and corporations.
e) Tax lien certificates and oil and gas investments.
f) Publicly traded stocks, bonds, mutual funds.
g) Private stock offerings, private placements.
h) Gold bullion.
i) Shares of Canadian-controlled private corporations.
j) Etc.
You can find all allowable investments at equity trust in IRS website.
I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
http://financialinvesting09.blogspot.com/
Index Funds (and Etfs) Vs. Mutual Funds
Intended Audience
For those of you deciding where to put excess cash or retirement savings.
Summary Points to Take Away
Three points to consider on why market index funds will outperform actively managed mutual funds: (1) Strong performance by a mutual fund will see an influx of cash that increases the asset base – bringing down the return in terms of %; (2) Options for fund managers with new influxes of cash are sparse - Higher cash can be invested in current well performing asset positions would push them into being overvalued; or could invest it into stocks that were not deemed strong enough investments in the first place. (3) SEC limits the % ownership a mutual fund can have in a stock; thus, with more cash, more positions in more stocks have to be taken; thus, the fund becomes more representative of the market. Actively managed mutual funds become glorified index funds, which charge higher fees; thus, fail to beat market index benchmarks (ex. S&P 500). Investing in market index funds gives you growth and diversification, which most actively managed mutual funds promise you in the first place, so might as well skip the middle man (i.e. the highly paid investment team hired to manage your money).
Analysis
Common saying on Wall Street is that “most mutual fund managers can’t outperform the market” –measured by comparing the fund return to representative benchmarks (ex. S&P 500). Looking into the logic of this statement – there appears to be some truth to it.
Before we go on, please note the two investing options being compared within this article: (1) Actively managed mutual funds have well qualified (and expensive) professionals making investment decisions usually with specific themes (i.e. specializing in base metals or Asian Pacific stocks), because of this – the management fee to the investor is typically 2% of the total asset base given the highly skilled investment team that are managing the assets. (2) Passively managed mutual funds or ETFs –have the mandate of tracking the performance of the general movement in the market (ex. If Citigroup presents 2% of the S&P500, then the passively managed fund that is tracking the index would hold 2% of Citigroup). Since there is no detailed financial analysis, etc – the fund is run by a skeleton team; thus, a lower fee is charged to investors (ranging from 0 to 1% of total assets).
Why it is that mutual fund manager can’t outperform the market?
(1) Strong performance by a mutual fund will see an influx of cash that increases the asset base. This appears to be a logical conclusion since as mutual fund posts a gain higher than the market it’ll catch the average investors attention, which will flood the fund with excess cash with the hopes that history will repeat itself. More cash equals a larger asset base. Let’s assume that the fund receives additional cash that doubles their current asset base; thus, the team will have to identify enough investment opportunities to bring double the prior year gains incurred in order to provide the same performance year over year. If the cash isn’t invested – then the return would be cut in half as the gain in terms of dollars stays the same but the asset based used to generate that gain has doubled – this puts mutual fund managers into a tough position.
(2) With the new founded cash – what options do the fund managers have, they can either take the cash and invest it in the funds current holdings, which have performed well over the year; thus, pushing these stocks to levels where they’ll be considered overvalued; or they could take the new cash and invest it in stocks that were not deemed strong enough investments in the first place. Similar to the point above – opportunities are a finite constraint; thus, with more cash – less optimal opportunities have to be utilized as the fund eventually runs out of investment options with further increases in cash to play with.
(3) SEC limits the % ownership a mutual fund can have in a stock; thus, with more cash, more positions in more stocks have to be taken. Given that funds can only invest so much into each stock identified, more worthy investments would need to be identified in order to put the new cash into play. Eventually with enough influxes in cash – the fund must purchase a large basket of diverse stocks, which will essentially track the market; thus, becoming a glorified index funds them.
Given that the pre-fee return of passively and actively managed funds is expected to be the same, passively managed funds (i.e. market index funds or ETFs) will outperform actively managed funds due to the lower management fees. This is assumed in the long run as for every year the fund outperforms the market it will see an increase in cash from investors flowing into the funds, which will continue to lead the fund into purchasing numerous holdings resulting in a diverse basket of funds; thus, becoming an overpriced index fund inadvertently.
Where to go from here?
For those of you with RRSP, 401K’s or discretionary saving plans or if you’re planning on staring up a savings fund – consider moving from actively managed mutual funds to ETF’s or passively managed index funds that track the market or passively managed index funds with your local asset management firm or financial institution. Market index funds will prove to be the winner.
THANKS,
SIMON GIANNAKIS
For those of you deciding where to put excess cash or retirement savings.
Summary Points to Take Away
Three points to consider on why market index funds will outperform actively managed mutual funds: (1) Strong performance by a mutual fund will see an influx of cash that increases the asset base – bringing down the return in terms of %; (2) Options for fund managers with new influxes of cash are sparse - Higher cash can be invested in current well performing asset positions would push them into being overvalued; or could invest it into stocks that were not deemed strong enough investments in the first place. (3) SEC limits the % ownership a mutual fund can have in a stock; thus, with more cash, more positions in more stocks have to be taken; thus, the fund becomes more representative of the market. Actively managed mutual funds become glorified index funds, which charge higher fees; thus, fail to beat market index benchmarks (ex. S&P 500). Investing in market index funds gives you growth and diversification, which most actively managed mutual funds promise you in the first place, so might as well skip the middle man (i.e. the highly paid investment team hired to manage your money).
Analysis
Common saying on Wall Street is that “most mutual fund managers can’t outperform the market” –measured by comparing the fund return to representative benchmarks (ex. S&P 500). Looking into the logic of this statement – there appears to be some truth to it.
Before we go on, please note the two investing options being compared within this article: (1) Actively managed mutual funds have well qualified (and expensive) professionals making investment decisions usually with specific themes (i.e. specializing in base metals or Asian Pacific stocks), because of this – the management fee to the investor is typically 2% of the total asset base given the highly skilled investment team that are managing the assets. (2) Passively managed mutual funds or ETFs –have the mandate of tracking the performance of the general movement in the market (ex. If Citigroup presents 2% of the S&P500, then the passively managed fund that is tracking the index would hold 2% of Citigroup). Since there is no detailed financial analysis, etc – the fund is run by a skeleton team; thus, a lower fee is charged to investors (ranging from 0 to 1% of total assets).
Why it is that mutual fund manager can’t outperform the market?
(1) Strong performance by a mutual fund will see an influx of cash that increases the asset base. This appears to be a logical conclusion since as mutual fund posts a gain higher than the market it’ll catch the average investors attention, which will flood the fund with excess cash with the hopes that history will repeat itself. More cash equals a larger asset base. Let’s assume that the fund receives additional cash that doubles their current asset base; thus, the team will have to identify enough investment opportunities to bring double the prior year gains incurred in order to provide the same performance year over year. If the cash isn’t invested – then the return would be cut in half as the gain in terms of dollars stays the same but the asset based used to generate that gain has doubled – this puts mutual fund managers into a tough position.
(2) With the new founded cash – what options do the fund managers have, they can either take the cash and invest it in the funds current holdings, which have performed well over the year; thus, pushing these stocks to levels where they’ll be considered overvalued; or they could take the new cash and invest it in stocks that were not deemed strong enough investments in the first place. Similar to the point above – opportunities are a finite constraint; thus, with more cash – less optimal opportunities have to be utilized as the fund eventually runs out of investment options with further increases in cash to play with.
(3) SEC limits the % ownership a mutual fund can have in a stock; thus, with more cash, more positions in more stocks have to be taken. Given that funds can only invest so much into each stock identified, more worthy investments would need to be identified in order to put the new cash into play. Eventually with enough influxes in cash – the fund must purchase a large basket of diverse stocks, which will essentially track the market; thus, becoming a glorified index funds them.
Given that the pre-fee return of passively and actively managed funds is expected to be the same, passively managed funds (i.e. market index funds or ETFs) will outperform actively managed funds due to the lower management fees. This is assumed in the long run as for every year the fund outperforms the market it will see an increase in cash from investors flowing into the funds, which will continue to lead the fund into purchasing numerous holdings resulting in a diverse basket of funds; thus, becoming an overpriced index fund inadvertently.
Where to go from here?
For those of you with RRSP, 401K’s or discretionary saving plans or if you’re planning on staring up a savings fund – consider moving from actively managed mutual funds to ETF’s or passively managed index funds that track the market or passively managed index funds with your local asset management firm or financial institution. Market index funds will prove to be the winner.
THANKS,
SIMON GIANNAKIS