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HomeMy WebLinkAboutThe Citizen, 2010-02-11, Page 6PAGE 6. THE CITIZEN, THURSDAY, FEBRUARY 11, 2010. Saving money in an economic recession is a little like trying to build a snowman in June. There’s not a lot of construction material to be found, and even if you can scrape a little snow together, there’s the risk your creation will just melt away. “Saving 10 per cent of our gross income is considered ideal, but it can be a stretch at times,” says chartered accountant Peter D. Brown of Niagara Falls. Experts like Brown say that one of the easiest and best ways to save is to set up an automatic deduction plan that moves a fixed amount of money into a savings or investment vehicle on a regular basis. “Young people should meet with a financial advisor when they start working, and bring their company’s benefits information with them,” says chartered accountant Hazen E. Henderson, a financial planning advisor in Whitby. “Many times, there are pension enhancements or RRSP-matching plans that people fail to take advantage of because they don’t know about them. That’s free money being thrown away.” With his mixed base of clients looking for investment advice, Brown often uses the “three-pots- principle” to explain how markets work. “The first pot is money they’ll need in the next two years. This needs to be kept safe and should be invested in something non-volatile, like government bonds or money- market savings accounts. “The second pot is mid-term money they’ll need in two to seven years. This can be put into something a little more aggressive, like a balanced mutual fund. Pot three – the money they won’t need for seven years or more – can be risked a bit. As time goes by, each pot gets replenished from the other. It’s really cash flow management.” But if the markets are still too sketchy, or you need to come up with some cash to invest, don’t look any further than the taxman. “One of the best and often missed opportunities is the Tax Free Savings Account (TFSA),” says Hazen. In 2010, Canadians can deposit up to $10,000 in any number of savings or investment vehicles (less what you put in last year), and any investment income or capital gains associated with that money is yours to keep tax-free, even when it’s withdrawn. “Only about 30 per cent of Canadians have even opened an account, and far fewer have deposited the maximum,” he adds. “This is a give-away that everyone should take advantage of, and people earning less than about $40,000 a year may be better off with a TFSA than an RRSP.” Other often-overlooked opportunities to save for education are the Registered Education Savings Plan (RESP) and the Canada Education Savings Grant (CESG). Under the CESG, the government actually matches a percentage of your contribution amount and deposits it directly into your RESP. There is also the Registered Disability Savings Plan to help care for a loved one with special needs. Both Brown and Hazen agree that it’s the consistency and habit of saving that will get you through the long haul, not the actual amount that you put in. Brown’s advice can work for everyone: “Start by making a regular monthly payment to the Bank of Me.” Brought to you by the Institute of Chartered Accountants of Ontario. What to do with the little you’ve got “Setting up an RRSP can be as simple as opening up a bank account,” explains chartered accountant Carmelo Linardi, of Newmarket. “RRSPs are special tax-deferred savings plans that must be administered by qualified financial institutions such as banks, trust companies and insurance companies. These financial institutions are responsible for ensuring these tax- deferred plans meet and maintain very specific guidelines.” Certain information is required – your Social Insurance Number (SIN); the type of plan you want to set up; and the beneficiary of the plan should something happen to you before you have withdrawn your funds on retirement. “The type of plan you choose can be as simple or as complicated as you like,” explains Linardi. “While an RRSP provides the same investment choices as a non- registered plan, you can start out by making a straightforward investment such as a GIC or basic interest account.” Many employers offer group RRSP plans. Certain amounts are typically withdrawn periodically from your pay and contributed to the group RRSP – making saving and contributing easier. The main difference between a group RRSP and one you set up yourself is that, in many cases, a group RRSP has a set number of investment plans. If you set up your own RRSP, you can tailor your plans to your own needs and goals. Brought to you by the Institute of Chartered Accountants of Ontario Your child’s postsecondary education could cost between $80,000 and $100,000. How will you pay for it? Here are the most common sources of funding for postsecondary studies. Government student loans and grants – “Of the loans available, student loans are the best by far,” says chartered accountant Terri Heggum-Allen, Oakville. “If your child qualifies, the loans are interest- free until the child is finished school, and a portion of the amount may be a grant. There are many types of assistance available, so don’t assume you don’t qualify.” You can check out the Ontario Student Assistance Program (OSAP) at www.osap.gov.on.ca. Registered Education Savings Plans (RESPs) and the Canada Learning Bond – “RESPs are a good option for higher-income earners,” says Heggum-Allen. “The savings inside RESPs are tax- sheltered and the total RESP lifetime contribution limit for each RESP beneficiary is $50,000. The federal government will also contribute a Canada Education Savings Grant (CESG) to your child’s RESP.” Low-income families with children born after December 31, 2003 are also eligible for a federal Canada Learning Bond (CLB). “The CLB contributes $500 to an RESP in the first year and $100 for each subsequent year for up to 15 years,” says Heggum-Allen. More information about RESPs and the CLB is available at www.canlearn.ca. Scholarships, bursaries and awards – “These aren’t just available to students with high marks,” advises Heggum-Allen. “They may be based on financial need or special learning needs. Talk to the financial assistance office at the college or university to see what your child is entitled to or can apply for.” Bank loans – “If you go this route, it’s usually better for the parents to take out the loan and lend the money to the child,” advises Heggum-Allen. “They will get a lower interest rate.” Trusts – “Grandparents or great- grandparents can contribute to their grandchild’s RESP, but they can also create a trust that will provide funds for their grandchild’s education when they die,” says Heggum-Allen. Student income – “Your children’s savings or summer job income may affect what they get in a grant or loan, so in some cases it may make more sense for them to go to school in the summer,” says Heggum-Allen. “Once the student has been out of high school for four years, he or she is viewed as an independent and will qualify for loans and grants.” Students can also save money on their postsecondary education costs by living at home and sticking to a budget. Talk to a Chartered Accountant – “CAs can help middle-income earners determine what grants and loans may be available,” says Heggum-Allen. “They can help higher-income earners set up a trust and help families decide what type of RESP will work best for them.” – Institute of Chartered Accountants of Ontario Sources of funding for post-secondary education RSP Deadline March 1, 2010 Seek A Second Opinion! ENIB provides a total wealth management service. A licensed professional can help you plan and achieve your financial, retirement, insurance and education goals. ➟Global Diversification ➟Tax Efficient Investing ➟Private Wealth/ICPM Investment Services Contact Darren Stevenson for a personal account review. Receive a confidential second opinion of how Private Wealth Management can: ➟Reduce your Risk ➟Reduce your Tax ➟Increase your Returns Get a Private Wealth Management Account Working for you today! Call Elliott Nixon Insurance Brokers (519) 523-4481 One Stop Bookkeeping & Income Tax Services Glenda Morrison, CIM Personal Tax Return Preparation & Bookkeeping Services New clients always welcome 81 Alfred St., Brussels 519-887-8642 E-Filing Available E-Filing Available Reasonable Rates Susan Alexander, CFP Doug Sholdice 472 Turnberry St. PO Box 69 Brussels, Ontario N0G 1H0 Phone: 519-887-2662 Toll Free: 1-866-887-2662 Fax: 519-887-2671 www.sholdicefinancial.com susan@sholdicefinancial.com PEAK Investment Services Inc. How do I set up an RRSP?