Financial advisors have various tools at their disposal to help Canadians save for their retirement or their children’s education in a tax-efficient manner.
Investment vehicles like the registered retirement savings plan (RRSP), the registered education savings plan (RESP) and the tax-free saving acount (TFSA) each have their own unique benefits and can help investors achieve their goals. Yet, investors need to know these tools’ unique characteristics to make the most of these accounts and to generate the greatest tax-sheltered growth. They also need to be aware of the strategies available if they need to tap into these funds.
The following articles published on Globe Advisor this year focus on the important information around registered plans and various investment strategies for each of them:
The RESP remains a popular and flexible tool for Canadians looking to supercharge their children’s savings for post-secondary schooling. While many are moderately versed in how this plan works, the parameters and practical uses of the RESP still cause some confusion and can lead investors to ask their advisors for some clarity. In turn, advisors say there are three important facts about the RESP that Canadians need to know.
Every year, the investment industry pulls out all the stops to educate Canadians on the advantages of putting their retirement nest eggs into their RRSPs. But while Canadians hold a total of more than $40-billion in these tax-deferred vehicles, there remains a lot of confusion over what they actually are and how they work. We spoke to Sara Zollo, financial advisor, Sara Zollo Financial Solutions Inc. at Sun Life Assurance Co. of Canada, Lorne Zeiler, vice-president, portfolio manager and wealth advisor at TriDelta Investment Counsel and Evelyn Jacks at Knowledge Bureau Inc. to find out some of Canadians’ biggest RRSP misunderstandings.
U.S. dividend stocks can be appealing for income and diversification, but they are best parked in an RRSP. This move allows Canadian investors to avoid the 15-per-cent withholding tax the U.S. government imposes on the dividends that U.S. companies pay out. That tax applies to these securities in non-registered and TFSAs. Unlike Canadian dividends, which qualify for a reduced tax rate in a non-registered account, U.S. dividends don’t get special treatment. They are fully taxable. We asked three portfolio managers for their top U.S. dividend stock picks for an RRSP.
Building a retirement nest egg with low-cost exchange-traded funds (ETFs) has become more popular in recent years. Although passive, market-weighted index funds dominate this space, investors may want to consider adding some actively managed ETFs for diversification or, potentially, to beat their benchmarks. These ETFs are pricier than passive index offerings, but typically cheaper than mutual funds. We asked three analysts for their top picks among Canadian-listed actively managed ETFs for an RRSP.
Getting a tax refund from an RRSP contribution has become a rite of spring for many winter-weary Canadians. But some advisors say much of the lifelong tax-saving power of RRSPs is lost if the refunds aren’t reinvested. Jordan Damiani, senior wealth advisor at Meridian Credit Union in St. Catharines, Ont., contrasts three scenarios using a basic compound interest calculator, each assuming an individual makes annual RRSP contributions of $5,000 for 35 years, beginning at the age of 30 and ending at the retirement age of 65. He assumes a modest annual return of 5 per cent, compounded monthly, for a diversified portfolio of equities, fixed income and cash.
An RESP is an attractive way to build a nest egg to finance a child’s post-secondary education. But while low-interest rates and high stock-market valuations could make investing more challenging in this tax-deferred savings vehicle, there are different strategies that could improve potential returns. Matthew Ardrey, vice-president and portfolio manager at TriDelta Financial Partners Inc., Justin Bender, a portfolio manager with PWL Capital Inc. and Steve Bridge, an advice-only financial planner with Money Coaches Canada Inc., offer some can’t miss tips.
The Home Buyers’ Plan and the Lifelong Learning Plan are two advantages of investing in an RRSP as they allow Canadians to pull funds – interest- and tax-free – to buy a home or get educated, then pay it back over the long term. But there are some downsides to these programs, including the potential of missing out on tax-sheltered growth in an RRSP, some advisors say. And investors need to consider their ability to pay back the amounts borrowed from their RRSPs.
As the pandemic lingers and universities and colleges offer online-only courses, the situation presents a new financial quandary for families who have faithfully squirrelled away money for years within their children’s RESPs: What to do with those assets during this time of uncertainty? For students opting to live at home, it means saying goodbye to $15,000 or so for residence and a meal plan this year. Travel and entertainment costs are likely to be curtailed, too.
The economic fallout from COVID-19 has many parents pulling funds out of their savings particularly to help children who have lost work and need income, or have recently graduated and can’t find a job. Although the best place to pull that money is from cash reserves because there are no tax consequences to doing so, for parents who don’t have the cash available, the TFSA is the next best solution. It becomes more complex if the money is taken from an RRSP or a registered retirement income fund because those accounts do trigger taxes when money is withdrawn.
Investment returns are just one way advisors can help retirees increase their net worth. Many advisors also look for tax-reduction strategies and say year-end is a good time to finalize those moves. “It’s easy in the fall months to tax plan,” says Ethan Astaneh, an advisor at Nicola Wealth Management Ltd. in Vancouver. “If something needs to be done by year-end, now is the best time to maybe estimate, for example, the investment income earned throughout the course of the year.”