HomeMy WebLinkAboutThe Citizen, 2002-02-13, Page 8PAGE 8. THE CITIZEN, WEDNESDAY, FEBRUARY 13, 2002.
Money Tips
(NC) — If you're older, your
children have grown and you
have already built up substantial
equity in your home, you may
want to free up capital by
downsizing. Moving into a
smaller, less expensive home will
provide additional cash for
investment or retirement living
expenses.
For financial tips and
investment information visit the
Investors Group web site at
http:/www.investorsgroup.com
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Turning 69 means winding up your RRSP
spousal RRSP up to and including contributing to a spousal RRSP.
the year the spouse reaches the age • For further information about
RRSPs, contact a Chartered
Accountant.
Brought to you by the Institute of
Chartered Accountants of Ontario.
If you turn 69 in 2002, you must
wind up your Registered Retirement
Savings Plan (RRSP) by the end of
the year.
"The law stipulates that you must
draw on your retirement savings for
income once you reach the end of
the year in which you become 69,"
explains chartered accountant Dave
Sinclair. "This means you should
convert your RRSP to a retirement
income option, such as a Registered
Retirement Income Fund (RRIF) or
an annuity."
Sinclair says RRIFs are often
described as the "mirror image" of
RRSPs. "Instead of contributing
each year in order to save for
retirement, you withdraw a portion
of your investment each year to use
for your retirement."
If you were born in 1933, make
sure you don't miss the Dec. 31,
2002 deadline to convert your
RRSP.
Remember the "Forgotten"
RRSP Contribution
Did you know that in the year you
turn 69 you can make an extra
$13,500 contribution to your
Registered Retirement Savings Plan
(RRSP)?
If you were born in 1933, you
have until Dec. 31, 2002 to make
your final RRSP contribution and
then you are required to convert
your RRSP, most likely into a
Registered Retirement Income Fund
(RRIF). But you can make one more
RRSP contribution - simply by
making it one month before you
convert your RRSP.
"First, make the maximum
$13,500 contribution to your RRSP
for the 2002 tax year," says
chartered accountant Brian
Kingston. "When December 2002
Have you received a retiring
allowance due to the termination of
employment or in recognition of
long service? If so, it is taxable in
the year it is received.
"However, you can defer taxes if
you directly contribute a portion of
the retiring allowance into your
Registered Retirement Savings Plan
(RRSP)," says chartered accountant
Brian Kingston.
The amount eligible for transfer to
an RRSP is the lesser of:
The contribution room available
in the RRSP immediately prior to
the transfer; or $2,000 for each year
of full or part-time service prior to
1996, plus $1,500 for, each year of
service prior to 1989 for which the
employer's contributions to a
Registered Pension Plan or Deferred
Profit Sharing Plan on the
employee's behalf have not vested.
The 1995 federal budget
eliminated the tax-free rollover of
retiring allowances to RRSPs for
years of service after 1995 because
arrives, make an additional $13,500
RRSP contribution for 2003. Since
you've already made your
maximum contribution for 2002, the
government will consider this extra
amount an over-contribution, and
will penalize you, but only for one
month."
The penalty is minor — between
$115 and $135. "Once January 2003
arrives, the extra $13,500 is no
longer considered an over-
contribution, as each new year
brings about more contribution
room, assuming you had earned
income from the previous year,"
explains Kingston. "The penalty is a
small price to pay, particularly when
you consider the extra contribution
is tax deductible and could result in
a tax refund of up to $6,000. Plus,
you'll have more money in your
RRIF to compound over time."
, Consider a Spousal RRSP if
Over 69
If you are over the age of 69 and
can no longer contribute to your
own Registered Retirement Savings
Plan (RRSP), you may still be able
to contribute to a spousal RRSP and
get a tax deduction.
"Even if you are 69, you may still
be able to deduct spousal RRSP
contributions in the future if your
spouse is younger than you are,"
says chartered accountant Kathy
Faber.
"Your ability to deduct RRSP
contributions depends on whether
you have earned income, not on
your age," explains Faber. "Age
only disqualifies you from having
your own RRSP. So, if you have
earned income, and your spouse is
not yet 69, you can make your
contributions to the spousal RRSP."
Contributions can be made to the
of changes to the pension system
and to RRSP contribution limits.
"By directing the eligible portion
of the allowance into your RRSP
you can defer tax and possibly avoid
withholding taxes that might
otherwise be deducted," says
Kingston.
Brought to you by the Institute of
Chartered Accountants of Ontario.
of 69.
Spousal RRSPs can Maximize
Tax Savings
Will your spouse have a lower
retirement income than you? If so,
you should consider contributing to
a spousal Registered Retirement
Savings Plan (RRSP) in order to
maximize your tax savings upon
retirement.
"The key to this strategy is to plan
on both spouses having similar
retirement incomes," explains
chartered accountant Paul
Panabaker. "A spousal RRSP allows
you to shift income from the spouse
with the higher potential retirement
income to the spouse with the lower
income. This income-splitting
creates retirement assets and a
retirement income stream that will
be taxed at a lower rate."
For example, two spouses both
earning $30,000 annually in
retirement income would pay at
least $1,500 less in taxes each year
than spouses earning $49,000 and
$11,000.
"It makes no sense for a spouse
with a good pension plan to
contribute to their own RRSP if they
can contribute instead to a spousal
RRSP held by a spouse with no
pension plan," says Panabaker.
"Spousal RRSPs — which are
available to both married and
common-law couples — can pay off
dramatically in the long run."
Maximize Old Age Security
Benefits with Income Splitting
Income splitting can help reduce
taxes by shifting income from a
spouse in a higher income-tax
bracket to a spouse in a lower
income-tax bracket. But income
splitting can also maximize your
total family Old Age Security (OAS)
benefits.
"If you receive OAS benefits and
your total income exceeds $53,960,
you are subject to a clawback of the
OAS benefits," explains chartered
accountant Fred Gregoris. "You can
minimize this clawback by ensuring
that payments from your Registered
Retirement Savings Plan (RRSP) or
Registered Retirement Income Fund
(RRIF) are split between you and
your spouse so that neither your
incomes exceed $53,960."
You can also income split by
RRSP can shelter
retiring allowance