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Alert! The RRSP Contribution Deadline is Approaching!

Wednesday, January 25th, 2012

RRSP Contribution Deadline: February 29, 2012

With the deadline fast approaching, it’s important to remember that the maximum contribution limit for 2011 is $22,450.

RRSP Contribution Room:

RRSP contribution room is based on prior year’s earned income. It is the lesser of 18% of earned income or the maximum contribution limit. If you are a member of a Registered Pension Plan or Deferred Profit Sharing plan, your contribution room will be reduced by a pension adjustment.

Not sure on how much you can contribute?

The limit can be found on your Notice of Assessment that Canada Revenue Agency (CRA) sends after processing a tax return. It also includes any unused room.
The Tax Information Phone Systems (TIPS) also gives current contribution limit – Toll Free Number 1-800-267-6999. SIN and previous year’s tax return must be handy.
In addition, the new “My Account” online service on the CRA website can be used to check your RRSP deduction limit for 2010. My Account lets you get personalized information about your RRSP contributions and deduction limits as well as information about payments, installments, outstanding balances, statements of accounts and much more.

For more information, please contact me at 604-661-1532 or rhonda_sherwood (at) scotiamcleod.com.

What to do with your tax return

Thursday, April 28th, 2011

Do you remember the good old days when spending our tax refund frivolously wasn’t such a big deal? Our jobs were stable, house values seemed to be on a never-ending climb and the stock market was booming. Things were looking pretty good.  Well, we are all feeling a little less wealthy these days; our portfolios have been beaten up, the wealth in our homes have taken a blow and on top of all that, we are worried about our jobs and the stability of our income.  There is a lot of insecurity or fear out there and so spending our tax refund on a great vacation or a new flat screen TV may not be the most financially savvy thing to do.

 So what should we do with this year’s tax refund- spend it or save it, invest it or splurge?

Well, that all depends. In these tough times, it is a good idea to give some thought to your overall financial health with the first and most obvious area being your emergency reserves.  Lets take Karen for example, a 42 year old marketing executive with a small independent firm who wants to know what she should be doing with her estimated $10,000 tax refund. In past years, Karen just reinvested her refund into her RRSP but this year things have changed. Karen’s company has been hit hard by the economic slump and has been hinting that layoffs are eminent. Although Karen is a long time employee with seniority she is not immune to layoffs.

The first thing Karen needs to do is evaluate her existing emergency savings funds to ensure that she has at least 3 to 6 months of living expenses set aside. Knowing that you have some backup money just in case can definitely ease some of your anxiety about what may happen. If Karen has little in the way of savings, a tax refund can give her the means to start building up a reserve. I would also suggest that Karen open up a low rate line of credit to help make up for the shortfall in savings. It is easier to qualify for debt when you have income, keeping in mind that this line of credit is ONLY to be used to help pay bills or pay emergency expenses.  

Let’s assume that Karen does have an adequate emergency savings fund, how then should she best use her tax refund?

Karen should review her overall debt load and either consolidate her loans into one low rate loan or start aggressively paying down any high rate loans.  You would be quite surprised at how many people have no idea how much they owe and what it is actually costing them to borrow it. Most often this is because we have way too much debt and it’s all over the place.  So we need to simplify our debt. We can do this by taking all our loan statements to our banker and ask if they can consolidate them into one, low rate, manageable loan. If you have only one loan payment, it not only makes life much simpler but also makes getting out of debt much more ‘doable’. Now if you have some high interest rate loans that you cannot negotiate into a lower rate loan then I would highly advise you to make it a priority to start aggressively paying them down. Use your tax refund here.

What if you have already paid off your debt and have a sizable emergency fund- then what? 

Lets say that Karen has a healthy savings accounts and no debt with the exception of her 4% mortgage, what then should she do with her refund?  Today’s low interest rates and stock markets make it a good time to invest versus paying down debt. Karen is in a high tax bracket, has a long time horizon and is a moderately aggressive investor who should yield between 7-8% over the long term. With all this in mind, investing versus paying down her 4% mortgage makes more sense for her. And since Karen’s tax refund was earned by making contributions to her RRSP, then why not continue the cycle and invest back into the RRSP creating an ever-growing nest egg. The $10,000 contribution would generate a $4,000 refund at the 40% marginal tax bracket, which she can throw back into the RRSP again next year.

So what should you do with your tax refund?

It’s important that you understand your unique financial circumstances before making any decisions. Use the refund productively and resist the temptation to spend it on frivolous items. In the long run you will be better off having money in the bank, with little to no debt then a big TV or just the memory of a two week vacation……..

Is your marriage ‘financially’ sound?

Tuesday, December 1st, 2009

Finances and Marriage is a Marriage of its own

The merging of two financial lives into one can create havoc on even the strongest of relationships and especially if money talks were never tackled beforehand. Ideally, financial discussions should have happened long before the marriage; however, it is never too late to try to understand your partner’s feelings about money and how compatible they are with yours.

The following quiz can help provide some insight into you and your spouse’s financial compatibility

1. Do you have some sort of realistic budget or a spending plan in place that you are both accountable to?

2. Are you comfortable with your spouse’s spending habits?

3. Do you argue over monthly bills?

4. Do you and your spouse discuss major financial decisions before they are made?

5. Do you and your spouse have a plan of attack in case one of you should lose your job? (I.E. Currently live off of only one income and bank the other)

6. Do you and your spouse share in the responsibility of managing your financial affairs?

7. Do you and your spouse regularly discuss your finances including your short and long term financial goals?

8. Do you and your spouse share the same views towards debt and savings?

9. Are you and your spouse both actively saving for retirement?

10. Do you and your spouse send the same message about money to your children?

Ideally, the answers to all the above questions should be yes.

To achieve complete financial unity may not be a realistic goal for many couples but to achieve greater financial compatibility is. However, this does require a lot of work. Here are a few tips to help improve your financial compatibility:

· Devote more time to financial discussions and to goal planning.

· Define what each of your financial responsibilities is.

· Start making joint decisions about how your money is to be spent.

If you are finding it a challenge to have these important money discussions you may want to seek the advice of an experienced financial planner. A financial planner can help you identify differences you may have and how you can work towards finding a happy medium, which is valuable and meaningful to you both. When there is mutual understanding about financial goals, couples most often will work together to achieve them resulting in fewer money confrontations. You can then redirect such valuable energy towards building a more positive and prosperous future together.

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The best use of your tax refund

Wednesday, April 29th, 2009

Do you remember the good old days when spending our tax refund frivolously wasn’t such a big deal? Our jobs were stable, house values seemed to be on a never-ending climb and the stock market was booming. Things were looking pretty good.  Well, we are all feeling a little less wealthy these days; our portfolios have been beaten up, the wealth in our homes have taken a blow and on top of all that, we are worried about our jobs and the stability of our income.  There is a lot of insecurity or fear out there and so spending our tax refund on a great vacation or a new flat screen TV may not be the most financially savvy thing to do.

So what should we do with this year’s tax refund- spend it or save it, invest it or splurge? (more…)

A man is NOT your retirement plan!

Tuesday, March 10th, 2009

I always advise women of two things, first take care of your personal finances throughout your years ‘as if you had to’. And  second, save regularly regardless of your financial health. This was the adage of a client I dealt with years ago. A lesson learned when her husband of 25 years walked out and left her and their 3 kids in a state of financial shock. As she said, “how I wished I had paid attention to our finances over our marriage”.  Twenty years later she is retired and fulfilling her dream of travel.  (more…)

Why women need to plan for their own retirement!

Tuesday, March 3rd, 2009

As women, we are likely to outlive our spouses or partners by an average of 5 years. Although this may seem financially insignificant when planning for a 20 to 25 year retirement, it could potentially be our most expensive years.

Things Women Need To Know (more…)

RRSP’s versus your mortgage- the great debate

Tuesday, February 10th, 2009

One of the most frequent questions I am asked is whether one should pay down their mortgage or invest in their RRSP’s. Although I am a big believer that financial freedom is achieved first and foremost by being mortgage free, there are a few factors that play into the equation such as, the return on your investments, your marginal personal tax rate and your current mortgage rate. (more…)