February 2012
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Fore Score and 6 years ago......

 

Greetings!

  

Six years ago I met Peter Bailey. At that time, we had a very interesting discussion about the future that both of us wanted to pursue. Within a few weeks, we both knew that there was an excellent fit, and so I hired Peter... initially to assist me. Over the next 5 years of working together, we consistently followed our plan as Peter learned the business and met most of the clients. He demonstrated both a willingness to learn from me and the confidence to present his own ideas based on his prior experience, in particular, his facility with technology. The 'old' and the 'new' blended well.

 

One year ago now we concluded the deal we had talked about back in early 2006. Peter took over the bulk of the work-load...ably assisted by Claudio...and I moved to a much reduced schedule. The timing could not have been better for me as, at about the same time, I received a diagnosis of cancer and had to have surgery in late March. Having concluded our transaction in January I could then focus all of my attention and energy on my health challenge.

 

Today, as I look back on the past 6 years, I am both proud of what we have accomplished and thankful that Peter has done so well. We are working very well together and my health is excellent. I quickly recovered from the surgery and all the subsequent tests have been very encouraging. Last year Peter and I not only managed the transition successfully but were also able to add a record number of new clients. The 'team' approach seems to be working!

 

Looking forward, I hope to stay active in the business as Peter's associate and head cheerleader. It is my hope that we will continue to find this arrangement stimulating and advantageous to our clients for many years to come. Staying active and doing something you love to do is the best way to stay young and healthy!

 

 
Thank you
Richard  ...along with Peter & Claudio

RRSP Rules Refresher

by Gail Vaz-Oxlade Online only -Moneysense.ca

 

I wrote The RRSP Answer Book (now out of publication) almost 20 years ago. Geez, I'm getting old! Back then, no one understood what an RRSP was and I spent a lot of time saying the same thing over and over. Sadly, I still meet people who don't know the RRSP rules. So here's a quick refresher.

 

The deadline for RRSP contributions is always 60 days after the end of the previous year if you want to be able to claim the deduction for the previous tax year. Since 2012 is a leap year, the deadline is February 29.

 

Keep in mind that a contribution made in the first 60 days of 2012 can be applied against your 2011 income or any income you earn in 2012 and beyond.

If you're turning 71 this year, this is the last year you can contribute to your own RRSP since you must convert your RRSP by December 31. However, if you have a younger spouse, common-law or otherwise and you continue to have earned income, you can contribute to a spousal RRSP up until your partner turns 71.

 

Anyone who has earned income, a social insurance number and files a tax return can contribute to an RRSP up until the end of the year they turn 71 (or their spouse turns 71 in the case of a spousal plan). Kids CAN have an RRSP although they can't have a TFSA until they're 18. If you make a contribution when you don't have to pay any tax (or very little tax) don't claim the deduction. Hold it for later when your income and your tax rate go up so you get a bigger bang for your buck.

 

You can contribute the lesser of 18% of your earned income from 2011, or the maximum annual contribution limit. If you're contributing for the 2011 tax year, your maximum is $22,450. If you're contributing for the 2012 tax year, your maximum is $22,970. If you belong to a company pension plan, your RRSP contribution limit is reduced by a pension adjustment or PA. The PA represents the value of any pension benefits accruing from participation in a registered pension plan or deferred profit sharing plan.

 

Review last year's Notice of Assessment. It will show you both your 2012 contribution limit and any unused contribution room you may have built up. Can't find your Notice of Assessment? Call the TIPS number (blue pages in your phone book under "tax services"); have your SIN and last tax return handy.

For most T4-grunts, your "earned income" is the amount that shows up in box 14 on T4 slips. If you're self-employed, it includes your employment income after expenses have been deducted. If you're a landlord, it includes your net rental income. And if you're getting CPP/QPP disability payments, those count too. What doesn't count? Investment income, pensions and retiring allowances, death benefits, taxable capital gains and limited-partnership income aren't included.

 

What if you don't have any cash to contribute? You don't necessarily need cash to make an RRSP contribution. You can contribute a security, like a mutual fund, stock or GIC you already own to a self-directed RRSP. The contribution is equal to the fair market value of the security when you stick it into the RRSP. The security is deemed to have been disposed of-meaning that it's treated as if you SOLD it to the RRSP-at time of contribution, and this can have tax consequences, so check with your tax advisor.

Could a TFSA be a more flexible savings tool?

 

In 1957 when our federal government rolled out their latest budget the attention of Canadians was squarely focused on a new 10% tax on candy and not on the new savings vehicle that would later be known as the Registers Savings Plan (RSP).

 

In hindsight the RSP proved to be the longer lasting and sweeter piece of legislation in that budget. Today, more than fifty years later, another savings vehicle has emerged and it too has not been recognized with the attention that it deserves. This new savings vehicle is, of course the Tax Free Savings Account (TFSA) which was introduced in 2008 and has yet to gain traction with many of us.

 

To be fair, we lead busy lives and do not focus all of our attentions on how much we need to save, the choices we have to save in and how we can keep more of our funds at home instead of in Ottawa.

 

Making and researching these decisions takes time and with each new technological conception it seems that we have less of it every year. However, each year we should make time to examine our financial circumstances with our advisor in order to ensure that at a minimum we are taking full advantage of the opportunities that are available to us.

 

With respect to the TFSA it is perhaps Canada's most flexible investment vehicle because it allows us to save up to $5,000 (indexed to inflation to the nearest $500) each year. While tax savings are not associated with the contribution, investment income earned in the plan is allowed to grow tax free and when funds are withdrawn from the plan it is done so without tax consequence.

 

However, most that use the plan do so to save for a short term goal such as a vacation or to shelter cash holdings and the interest earned on it from tax. While these are worthy investment decisions the purpose behind the plan's introduction was to encourage Canadians to save longer term for endeavors such as retirement. 

 

While it is a challenge to save given the constraints of our schedules, tax system, lifestyles and the number of dependants that many of us have, most of us spend far too much in order to keep pace with the latest trends. It is this trend that needs to be reversed if we are to create our own wealth and not simply rely on the wealth created by the savings of generations past to improve our fortunes.

 

This year's RSP deadline to make a contribution and allocate the tax savings associated with it to the 2011 tax year is February 29. And while the TFSA has no such deadline, utilizing the plan as well as integrating it with other savings vehicles should become habitual as opposed to a calendar driven event 

TFSA or RRSP?

Since the introduction of the Tax Free Savings Account (TFSA) in 2009, many Canadians have wondered how it compares to the Registered Retirement Savings Plan (RRSP). Today many ask the following question: "Should contributions be made to a TFSA or to an RRSP?" The answer to this query is, ideally, contributions should be made to both savings vehicles, as it is high savings rates that drive both strong economies and households. If, however, contributions can be made to only one plan, the following should be considered: 
 
* Contribute to an RRSP if you are in a mid-to-high tax bracket now and foresee being in a lower one when you will need to generate retirement income from your savings.
*Contribute to a TFSA if your income in your golden years will be sufficient enough to impact social benefits such as Old Age Security (OAS) being clawed back.
 
 
tfsa vs. rrsp

Of interest to you.....

 

* Worldsource Financial  Management now has Self Directed TFSA Plans available for you - this can be a great invesment account for you as you are now able to have $20,000 invested there

 

* TFSA Contributions are made from after-tax income, with both the contributions and the investment earnings exempt from tax upon withdrawal.  Withdrawals will not affect eligibility for Federal income-tested benefits or tax credits

 

* RRSP contribution limit for 2012 is $22,970 and the RRSP contributions are tax deductible, with both the contributions and the investment earnings taxable upon withdrawal.  Withdrawals are included as income and taken into account in determining eligibility for Federal income-tested benefits and tax credits.

 

* In case you missed it, you can view our helpful RSP guide by clicking here

Issue: 14
Financial Markets
In This Issue
RRSP Rules Refresher
Could a TFSA be a more flexible savings tool?
TFSA or RRSP?
Of interest to you...
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Peter Bailey
Worldsource Financial Management
272 Lawrence Avenue West, Suite 203
Toronto, Ontario M5M 4M1