HRM Parent Blog

In just a couple of years since it was introduced by the federal government, the Tax-Free Savings Account (TFSA) has become a very popular personal savings vehicle. And with good reason: Who doesn't like the idea of tax-free savings growth? In fact, the TFSA has been called the most important savings option since the 1950's launch of Registered Retirement Savings Plans (RRSPs). If you haven't already hopped on board the TFSA savings wagon, you may be asking yourself these questions: Is a TFSA really that good? Should I have one? Will it work for me? Good questions - here are the answers.

How a TFSA works
Every Canadian over the age of 18 is eligible to save up to $5,000 a year in a TFSA and the investments held within the TFSA grows on a tax-free basis. TFSA withdrawals can be made at any time for any reason - and the withdrawn money is tax-free.

The value of the TFSA eligible investments is increased by making the most of all available contribution room. For example, you can contribute $5,000 a year plus the total of withdrawals made in the previous year. \And all the contribution room you don't use right away accumulates year after year so you can fill it any time you choose. It's important to know that contributions to investments held in a TFSA do not affect RRSP contribution room.

TFSAs provide investment flexibility. TFSA-eligible investments are the same as those available for investments held within RRSPs, including mutual funds and money market funds, Guaranteed Investment Certificates (GICs), publicly traded securities, and government and corporate bonds.

How a TFSA works for you
A TFSA is a worthwhile investment option for almost every income earning or retired Canadian because it works so well for both short- and long-term financial goals like these:

- Providing an immediate source of emergency funds.

- Saving for just about anything - from a new car or cottage to a dream vacation.

- Saving for the down payment on a new home or even starting a business.

- Reducing taxes on your non-registered investments.

- Adding to your retirement savings. By the way, TFSA withdrawals don't affect eligibility for such income-tested benefits as Old Age Security (OAS).

- Splitting income with your spouse to minimize taxes.

To explore these and the many other ways a TFSA can work for you, and to make sure you'll always get the most from all the elements in your financial plan, talk to your professional advisor.

 

Call us to find out more about how the team at Investors Group - Halifax can help you prosper now… and over time.  (902) 423-8294.  www.investorsgrouphalifax.com 

There are book smarts and street smarts and wise parents make sure their children benefit from equal measures of both. Then there are money smarts - an often overlooked, but equally important, area of education that will pay off for your children as they grow. It's essential to build 'money maturity' in children because money management skills are vital to achieving their life goals.

"The important thing to remember when it comes to teaching your children dollars and sense is that money is actually a good thing when it is used responsibly to help lead a better life and to help others", says Debbie Ammeter, Vice President with Investors Group. "That's why your toonie tutorials should include hard money skills - such as managing money, understanding debt and credit, and managing income and investments - and soft money skills that illustrate how money can help achieve their dreams." Here are some other age-appropriate lessons you can use to give your children the money smarts they'll need to achieve their life goals, to support worthwhile causes, or just to have fun.

 

 

6 - 12 years: Start your children off with a 'fun' bank they can fill with coins from you and others. Later, let them graduate to a 'real' bank account and give them an allowance clearly tied to the completion of certain tasks. An allowance for a fixed amount is best because it teaches your children there are serious choices to be made about when to spend and when to save. Open a second account for them where at least ten percent of their allowance must be deposited. Explain how interest works to make their money grow. Other good money education tools include board games like Monopoly or websites such as the Bank of Canada that have interactive sections about banking and money for kids.

12 - 16 years: Help your children develop a simple budget plan that includes keeping their tax receipts and statements to evaluate where their money went, and a regular charitable giving component so they'll understand how their money can be a positive force in the community. Give your children an allowance 'bonus' for special work with the stipulation that this extra money must be invested. Introduce them to the concepts of 'compounding' and tax-saving through investment vehicles such as a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA).

Use shopping trips to discuss debit and credit, why and how interest is charged and the fact that credit cards (especially retail cards) carry much higher interest rates than other forms of borrowing, such as personal loan.


16 - 18 years: Have your children file their own tax returns as soon as they have a job that results in a T4. This will give them a more 'personal' view of income taxes and build up room for future contributions to an RRSP and/or a TFSA. Further their credit education by co-signing for a credit card in their name with a low limit. Carefully monitor its use and instill in your children the importance of paying credit card payments monthly to maintain their good credit rating and avoid high interest rates or late fees. Use monthly credit card statements to discuss their spending patterns and best uses of their purchasing power.

Involve your children in your family finances. Show them how the family budget balances expenses and income. Introduce them to savings and investment products such as stocks, bonds, Guaranteed Investment Certificates, registered and non-registered savings plans, and the role of insurance, as well as investment concepts like portfolio diversification and risk/reward decisions.

 

It's smart to talk money with your children and if you need help with your toonie tutorials, give the folks at Investors Group a call. (902) 423-8294.  www.investorsgrouphalifax.com 

Tax time already?  Yup...whether we like it or not, it's that time of year again, but with these tips and info on the various credits available, you may be able to get more tax savings than you thought. 

Some basics:
1. You are never too young or have too little income -- always file a tax return, which can trigger eligible benefits and credits such as the GST/HST credit and Canada Child Tax Benefit, get back tax withheld at source, add to RRSP contribution room, or prove that a student has no income if applying for federal/provincial loans and bursaries.

2. Basic personal tax credit - raised to $10,527.

3. Spouse/equivalent to spouse and/or eligible dependent credit - for an eligible partner and/or dependent with a net income of less than $10,527.

4. Caregiver credit - up to $4,282 for care of an infirm or elderly relative in your home.

5. Disability credit - transfer unused portion to a supporting relative.

6. Medical expenses credit - generate the largest credit by combining expenses on the return of a lower earning spouse and/or by choosing the most advantageous 12-month period for unclaimed expenses ending in the current taxation year.

7. Charitable donation credit - maximize by combining donations on one tax return or carrying forward to achieve higher tax rate for contributions over $200. Claim previously unclaimed donations for a five-year period.

Child focused benefits:

1. Children's art tax credit - up to $500 per child against eligible fees for arts programs.

2. Children's fitness credit - up to $500 per child against eligible fees for a physical activity program.

3. Credit for children born in 1994 or later -- $2,131 per child.

4. Childcare - claim babysitting/other childcare expenses that allow you or your spouse to work or take a training course. Must be claimed by lower-earning spouse.

5. Adoption expenses - claim up to $11,128 for an adoption finalized in 2011. Credit can be split between adoptive parents.

6. For students - you can claim eligible tuition fees, education and textbook costs, and interest on student loans - the supporting parent or grandparent of a student may be able to claim all or a portion of the tuition, education and textbook amounts when transferred to you to a maximum of $5,000.

For any older parents, grandparents, Boomers etc:

1. Age credit - for those over 65 with a net income below $76,541. Transfer unused portion to supporting spouse.

2. Pension income credit - claim up to $2,000. Transfer unused portion to eligible spouse.

3. Pension income splitting - may be advantageous to allocate half of your qualifying pension to a lower-earning spouse.

Other tax-trimmers:

1. Company pension plan contribution for 2011 - deductible within limits.

2. Public transit credit - claim the costs of monthly passes/electronic payment cards.

 

Call us to find out more about how the team at Investors Group - Halifax can help you prosper now… and over time.  (902) 423-8294.  www.investorsgrouphalifax.com 

Loans are a part of life for most Canadians. We take out loans to pay for our cars and our homes, for vacations, furniture and TVs. And, at this time of year, as the deadline for making your 2010 Registered Retirement Savings Plan (RRSP) contribution looms, you may be asking yourself if it makes sense to make one more loan - a loan to increase your RRSP contribution.

The right answer for you depends on the overall shape of your financial life. Let's look at the factors you should consider.

Makes sense to borrow ...

- Because contributing to your RRSP can pay off in two ways: First, you'll increase the size of your tax refund; second, you'll have more tax-deferred money growing inside your retirement plan. But the first rule is this: The loan must fit your budget.

- When you intend to pay off the loan within a year. Remember: Interest on an RRSP loan is not tax-deductible. Consider a series a smaller RRSP loans with payments within your budget. Longer term loans are more suitable for purchasing non-registered investments (when the interest is tax deductible).

- When size of the loan maximizes tax savings. Tax rates rise with income. More tax can often be saved by spreading RRSP deductions over more than one year. While contributions made in one year can be deducted in a future year, it does not always make sense to borrow to make an RRSP contribution if it will take several years to fully utilize the deduction. Again a series of smaller loans may produce the better financial result.

- When you use your tax refund to pay off the loan as quickly as possible.

 

Or maybe not ...

- If you expect to be taxed at, or near, the lowest marginal rate over time. In that case, you won't get the full tax-reduction benefit of making your maximum RRSP contribution, so the cost of taking out an RRSP loan doesn't make sense. Instead, you might want to consider contributing to a Tax-free Savings Account (TFSA). The contribution isn't tax deductible but money and interest inside a TFSA is tax-free and, unlike your RRSP, so are withdrawals, which can be made at any time for any purpose.

- If your increased RRSP refund is already earmarked, in whole or in part, to pay taxes you owe on other income.

- If you are unsure your income level will allow you to meet your RRSP loan obligations, which you will be required to do regardless of your income level and the performance of your RRSP in the shorter term.

Borrowing to increase your RRSP contribution can be a useful strategy but it also comes with specific risks. Perhaps you can avoid the need to borrow next year through a Pre-Authorized Contribution (PAC) plan that automatically deducts and saves any amount you want from your
regular paycheques.

And, of course, your professional advisor can help you map out the RRSP contribution strategy that fits the overall shape of your financial life.

 

 Call us to find out more about how the team at Investors Group - Halifax can help you prosper now… and over time.  (902) 423-8294.  www.investorsgrouphalifax.com 

 

 

The market goes up and down and so does your stress level. Are you uncomfortable with your investments or confident their value will be there when you need it? Investing for the future and the future of your family can be tricky. There are so many things to consider, including how much investment risk - the potential for your portfolio to decline in value over the short term - you're comfortable with.  

To help you get a solid read on what's right for you, here are some tips for separating facts from feeling to create a comfortable portfolio that works.

Take your time to make the right decisions based on your personal risk level  Carefully assess the investments from which your portfolio will be constructed. If you are uncomfortable with risk, focus on capital preservation and income generation in a portfolio comprised mainly of the more stable fixed-income type investments. As your capacity for risk increases, add equities for a potentially higher rate of return and potentially higher volatility.

Determine your personal capacity for investment risk

Ask yourself fact-based questions like this:
What is my investment timeframe? If it's less than four years, don't invest in
higher risk assets. If you have an investment horizon beyond ten years, experts believe that you should invest in a more aggressive portfolio because historical trends show that, over the long term, you will benefit from a higher rate of return with ample time to recover from short-term volatility.

 
Ask yourself feeling-based questions like this:
Can I sleep soundly at night?  Regardless of your investment horizon, the way
you feel in the short term when the markets go through a severe decline will not change.  Feeling-based questions should serve as a tool to prepare you for what you should expect and focus your logic and emotions to identify a consistent pattern of how you perceive investment risk and what you are realistically capable of withstanding.
 
The biggest mistake investors make is to overstate their comfort level with risk because that often leads to abandoning their investment strategy at the first sign of volatility.  When you choose the right strategy from the start and stick with it, you will be rewarded over the long term.  

Of course, you should revisit your portfolio and investment strategy as conditions and your financial and life goals change to keep it in tune with you.
 
With so many different types of investment products, different asset classes, different industries and countries, determining the right strategy can be daunting.  Get help from your professional advisor and ask them if they can provide you with an investment questionnaire, which is a great tool for identifying your personal risk level and creating a framework for constructing a sound, well-diversified strategy for you.

 

Call us to find out more about how The Plan™ can help you prosper now… and over time.  Investors Group – Halifax, NS. (902) 423-8294.  www.investorsgrouphalifax.com