Savings – Suman Bhandari

RRSP or TFSA?

Suman — Sun, 27 Jun 2021 23:55:17 +0000

Both registered retirement savings plan (RRSP) and tax-free savings accounts (TFSAs) offer a significant range of benefits when it comes to saving for retirement.

TFSAs :

TFSAs are registered accounts that offers tax free gains as well as withdrawals. However, contributions to a TFSA are not tax-deductible. Some of the benefits of a TFSA are:

withdraw at any time without penalty
You can make a withdrawal at any time without affecting any government benefits.
The amounts you withdraw are not considered part of your income.
There is no age limit for contributing.
Contribution is not dependent on your income or your tax return.
If you do not contribute the maximum amount each year, the unused portion of your contribution room accumulates from year to year.

RRSPs

RRSP is also a registered account purpose of accumulating retirement income. The amounts you contribute are deducted from your taxable income, which may entitle you to a tax refund. However, during withdrawals it is taxed at marginal rate.

RRSPs are especially beneficial for Canadians in a high tax bracket.
The interest generated by your investments is not taxable provided it remains within your RRSP.
You may contribute up to 18% of your eligible earnings or the maximum allowed by the government.
If you do not contribute the maximum amount each year, the unused portion of your contribution room accumulates from year to year.
If you do not contribute the maximum amount each year, the unused portion of your contribution room accumulates from year to year.

RRSP Withdrawals: You may withdraw money from your RRSP however it will count as income and you will be taxed on the amount at a higher tax rate plus a withholding tax. You will also permanently lose the contribution room you used to originally make your deposit. However, if you use RRSP to buy a new property under the Home Buyers’ Plan (HBP) or for school fees, taking advantage of the Lifelong Learning Plan (LLP) you will not be charged.

RRSP must be converted to a Registered Retirement Income Fund (RRIF) by Dec 31 of the year you turn 71.

RRSP or TFSA?

TFSA or RRSP both are great plans. It truly depends on your financial goals, needs and your income. Withdrawals from TFSAs are always tax-free, whether you are working or retired. Withdrawals from RRSPs are always taxable.

You can also combine the two and use your RRSP for your main retirement income, while keeping some money in a TFSA to cover any unexpected expenses without affecting your taxable income.

RRSP, TFSA or both? Need help deciding?

Message or call to find the best savings solution to meet your needs!

Saving Accounts vs. Investing? Which one should I do?

Suman — Thu, 10 Jun 2021 17:30:00 +0000

First, it is a very wise decision either to put money into savings account or to invest. Which one should you do? The answer depends on your financial goal, short or long-term plans, retirement goals etc.

Although the word Investment may sound scary, it is not. Investments is for everybody, regardless of you financial situations.

Savings Account:

Setting aside your money or and storing for a future need is called savings. Banks offer savings accounts with fixed or tiered interest rates, relatively very low, starting from 0.005% to 1.5%. Savings account is more like low-risk place to keep your money safe but not expecting large growth.

Pros:

You do not lose your money.
Easy to setup.
Good for short-term savings.

Cons

Since the return is low, your money won’t grow that much.
Due to inflation, your real rate of return might be negative.
Do not expect large gains.
Interest on savings is subject to regular income tax.

Example: If you are saving $100.00 a month starting today, with initial deposit of $0.00, at an annualized interest rate of 0.05% will be worth $1200.32 after 1 years when compounded yearly.

In short, putting $1200 for a whole year in a savings account will generate $0.32 in a year, however the growth is subject to regular income tax.

Even though there is a growth of $0.32 a year, factoring the inflation of 3.4%, your real rate of return is negative. To keep up with the inflation, your saving account must give you higher return than 3.4%.

Investing Accounts:

Investing account is also involves storing your money for future needs, but instead of relying on low interest rate, your money is invested in various assets (ETF, Stocks, Bonds, Mutual Funds, Segregated funds etc) for higher growth with higher rate of return.

Pros

Investing products such as stocks can have much higher returns than savings accounts.
Usually best for long-term financial goals (5, 10, 15 or more years)
No taxes on some investment accounts such as TFSA.

Cons

Returns are not always guaranteed as they depend on market
All investments have a certain level of risk.

Example: If you are investing $100.00 a month starting, today on a TFSA, with initial deposit of $0.00, at an annualized rate of return of 6% will be worth $1238.68 after 1 years when compounded yearly.

In short, putting $1200 for a whole year in a TFSA account will generate $38.68 in a year, and earnings is tax-free.

Even with inflation of 3.4%, your real rate of return is 2.6%, which is significantly higher than savings account.

Conclusion

In conclusion, consistent investments over a number of years can be an effective strategy to accumulate wealth. If you have short-term goals such as savings for a vacation, putting money into Savings is ideal.

If you have long-term goals and have a long time horizon, such as retirement in the next 10-20 years, putting money into Investing will generate more returns.

It’s up to you to decide whether saving or investing is the better choice to reach your financial goals.

Contact today to discuss what is best for you.

Children’s Education Savings Plan

Suman — Mon, 07 Jun 2021 16:42:07 +0000

By now, you probably have heard this term a lot but still not sure, what exactly is Children’s Education Savings Plan? Have you heard of RESP?

Yes – that is great.

No – No worries, we will explain.

RESP stands for Registered Education Savings Plan.

Qualification: RESP is a special savings account for parents/grand parents who want to save for their child’s education after high school. An RESP can be set up for any “beneficiary,” including your children, grandchildren, nieces, nephews or family friends.

Benefits:

Government grants – In short, the federal government contributes up to a maximum of $500 per child per year. The lifetime maximum contribution per child is $7200. Additional grant up to $2,000 can also be available for low-income families. Additionally, some province offers additional incentives although that varies by provinces.
Tax-free investment – The money you contribute and invest grows tax-free within an RESP, including the grants and interested earned.

Contribution: You can contribute to the plan as much as you want however, up to a lifetime maximum of $50,000 per child. There is no annual contribution limit; however, the maximum grant you will receive is $500 per year. The government only matches 20% of your contribution for up to $2,500 per year contribution. Example: If you contribute $3000 a year, you will only receive $500 in grant. If you contribute $1800 a year, the grant will be $360.

Plans: Primarily there are three RESP plans to choose, Single, Family and Group.

Withdrawals: In a nutshell, as soon the children is enrolled in an approved post-secondary institution either part-time or fulltime, you are eligible to withdraw the funds in the form of Post-Secondary Education (PSE) and Education Assistant Payment (EAP). PSE withdrawals are not taxable and no withdrawal limit, however EAP is taxable in the hands of the student as well as have a withdrawal limit, students will likely pay very little or no income tax as a result of RESP withdrawals.

What if child doesn’t go on to post-secondary education?

For now lets hope that doesn’t happen. You saved hoping for your child’s education and better future. If they don’t pursue post-secondary or don’t need the money, there are various options to have this fund utilized or withdrawal.

You can pass it on to a different beneficiary, such as another child, transfer the money to your RRSP or RDSP or simply close the RESP.

You can pass it on to a different beneficiary, such as another child, transfer the money to your RRSP or RDSP or simply close the RESP. If you choose to move money to RDSP or RRSP or close the RESP you must return the government grants.

So?

Interested to invest in RESP for your child’s future or want to lean more? Contact us today to get started.