February 2010 Newsletter

IN THIS ISSUE!

March 1, 2010 is the deadline to have a 2009 RRSP contribution on your tax return. This issue will discuss how to get an RRSP, is it right for you, how to boost your RRSP, and other tax credits available to reduce the amount of tax you pay to the government!

What You Should Know About RRSPs

Interested in RRSPs but don’t know how to get started? This quick and easy introduction to RRSPs is a great first step.

Do RRSPs have you scratching your head? Don’t worry: You’re not alone. Although 68% of Canadians have a Registered Retirement Saving Plan (RRSP), that leaves nearly one-third of Canadian without. Some non-RRSPers choose to plan for retirement in other ways, primarily through employer-sponsored pensions and others are financially savvy types managing their investments using other vehicles.

But there’s also another group who aren’t buying in because they think they can’t afford it, or they simply have no idea how to get started. If you’re in that group, this article is for you.

Why you need an RRSP

Whether you’re financially savvy or not – but especially if you’re not – RRSPs are a fantastic way to save for retirement. Think of an RRSP account as a lockbox for your savings, only better. Here’s why.

Contributions are tax deductible, bringing down your gross income for income tax purposes.
Your RRSP is a tax shelter. You don’t pay tax on your investment income, until it’s withdrawn, meaning the overall value grows much faster.
You won’t be taxed on your RRSP until you make withdrawals, presumably during retirement. It will be taxed as income – most likely at a lower rate since you’ll be earning less then as compared to now, your peak earning years.

How do I set up an RRSP account?

You can set up your RRSP through a Financial Advisor like myself.

Meet with a Financial Advisor so they can walk you through the process and the different types of RRSPs they offer.

RRSPs are investment portfolios, and returns will vary depending on market conditions. Your RRSP portfolio may contain mutual funds, savings deposits, treasury bills, GICs, equities and/or other options.

Talk with your Financial Advisor to find the mix that works best for you given your tolerance for risk and potential reward, as well as whether an individual or spousal RRSP would be best for you.

How much do I have to contribute?

You can find your individual allowable contribution (i.e., your maximum contribution for the tax year) on the Notice of Assessment you received from Canada Revenue Agency on your previous year’s tax return.

In recent years, according to an RBC-commissioned poll, the average annual Canadian contribution was just under $6,000.

$6,000! How do I find that kind of money?

The easiest ways to maximize your contribution is to:

Take out a low-interest RRSP loan from the same financial institution where you open your RRSP account;
Sign up for biweekly or monthly contributions withdrawn directly from your bank account; or
Both of the above.

Who doesn’t need an RRSP?

If you’re in the lower income brackets under $30,000, and without prospects for retirement savings over $100,000, it may not be worthwhile to scrounge for money to pay into an RRSP. If you contribute while in a low income tax bracket, then withdraw your funds while also in a low income tax bracket, you won’t see any tax savings. Unlike a high or middle earner who gets tax breaks by reducing her taxable income while paying in during her peak earning years, and more tax breaks when withdrawing when retired and in a lower income bracket.

After your RRSP matures and is rolled into a Registered Retirement Income Fund, withdrawals will be fully taxable. And if you qualify for the government’s Guaranteed Income Supplement for low-income seniors, it may be subject to claw-backs. You may see similar claw backs to social housing, transportation and prescription drug benefits. Chances are the income brought in by the RRSP withdrawals may not make up for the benefits lost. In your case, socking savings away in a bank account is a safer bet.

Bottom line

For everyone else, RRSPs remain a smart idea.

If you’re one of the 60% of Canadian workers (and self-employed folks) who don’t have a company-sponsored pension plan, RRSPs are an excellent safety net and the most reliable way to ensure you can live comfortably in your golden years.

Get Your RRSPs Working Harder For You

Borrowing to make an RRSP contribution can be beneficial. The real cost of the loan is offset by your income tax savings and the subsequent investment income accumulates tax free.

Although there’s lots of discussion about the best way to save for retirement, one thing is clear: If you’re going to use an RRSP, making the maximum contribution as early as you can is almost always the way to go. Not that most people do. Instead, they scurry to the bank during the last few days of February.

Unfortunately, when you invest this way, you’re always playing catch up, effectively remaining one year behind in receiving those tax refunds, and subsequently getting a lower overall return on a lower RRSP balance.

That’s why contributing to your RRSP year round makes so much sense. For starters, you aren’t faced with the problem of coming up with a large lump sum right before the deadline. More importantly, regular contributions force you to save, to “pay yourself first” — something that most of us have a hard time doing.

What do you do when the deadline for contributing is near and you just don’t have the money? Well, you can pass and make a bigger contribution next year, of course. Or, you can go into debt — which, while perhaps a bit counterintuitive, often makes financial sense.

As a rule, if you can repay your RRSP loan within one year, borrowing makes even more sense. Your cost will be the interest you paid for one year. Your gain will be one year of tax-deferred growth, which should far outweigh the debt cost over the long haul.

And, if you know you’re getting a tax refund, you can reduce the cost of borrowing still by applying your tax refund directly to your outstanding loan principal. With many mutual fund companies, payments are typically deferred for a couple of months anyway — although interest will still accrue — thereby giving you enough time to get your refund before you have to start paying back any money.

Want an extra 35% Tax Credit?
Think SaskWorks or Golden Opportunities Fund!

Why Should You Invest in a Saskatchewan Labour Sponsored Investment Fund?

Substantial Tax Savings – These funds are RRSP eligible and therefore qualifies for a tax deduction. In addition you will receive a 15% Federal tax credit to a maximum investment of $5,000 as well as a 20% Provincial tax credit to a maximum contribution of $5,000 annually. The 35% in tax credits combined with the RRSP tax deduction provides for substantial tax savings for investors, reducing their net cash outlay and risk in an investment in this fund.
Keeping Your Funds at Work in Saskatchewan – An investment in these funds ensures that your hard earned money is reinvested in Saskatchewan, thereby staying at work for you, your family and friends, and creating growth for Saskatchewan companies and new job opportunities.
Diversified Portfolio – Each of the funds investment philosophy is to invest in high growth sectors within a diversified portfolio across numerous industry sectors. A review of the portfolio of companies will show a wide range of investments, from agriculture, oil and gas, biotechnology, renewable energy, value added processing and technology.
Saskatchewan Jobs – Your money is working right here in Saskatchewan by providing capital for companies to implement their business plans. This investment activity is creating quality jobs and providing young people with opportunity, optimism and a bright future. Your investment is making Saskatchewan a great place to live and work.
Saskatchewan’s Best Companies – When you invest you’re actually investing in each of the local companies in the Fund`s portfolio. It gives investors like you an opportunity to invest in private, local companies. Chances are, you or someone you know works for one of these companies to support their family. When these companies prosper, so do you, and so does Saskatchewan. It’s a winning formula!

For more information on investing in SaskWorks or Golden Opportunities Funds, click here.

Janea Bellay, Your Insurance & Investment Advisor

Janea Bellay is an independent insurance and investment advisor, specialized in a unique 360 degree financial planning approach for individuals and families:

Liquidity accounts – Your spending, savings and retirement accounts

Family Security – Maintaining life insurance for all life’s unexpected financial needs

Family Protection – Maintain your current lifestyle even if there are unexpected illnesses such as cancer, heart attack or a stroke

Retirement Planning – Are you putting enough away and into the right investments to retire successfully?

Contact our office today to have your questions answered!!

Janea Bellay

Performance Financial Services Inc

217-3501 8^th Street East

Saskatoon, SK S7H 0W5

Tel: 306-281-3891

janea@performancefinancial.ca

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Questions or comments? E-mail us at janea@janeabellay.com or call 306-281-3891.

LEGAL DISCLAIMER

Janea Bellay is an independent self-employed insurance and investment representative, licensed to sell insurance and investment products and services through Performance Financial Services Inc. This is an independent MGA brokerage, and part of the United MGA Group of Canada. Mutual funds are offered though Desjardins Financial Security Investments Inc. Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investment. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information in this article is not intended nor should it be considered as providing specific legal or tax advice. Individuals should consult with their individual advisors to ensure that any information is applicable and appropriate to their specific situation.