Jul/100
Tax Free Savings Account For Post-Retirement Tips
Many recent studies have found that Canadian citizens are not saving enough and have high debts to pay. To control the situation and provide flexible savings options to the people the Canadian government has introduced the investment scheme called Tax Free Savings Account starting January 1 next year. Every Canadian citizen who is 18 years of age or older is eligible to open this account, make annual contributions which are not tax deductible, and earn tax free income from investments made from the account. To understand what is the best tax free savings account strategy for post retirement you need to know the following points.
- Why save for life after retirement?
- What are the savings and investment options available?
- Are these savings options mutually competitive or supplemental?
The need to create a financial cushion for your retired life can hardly be emphasized. Canadians now have more savings options viz. Registered Retired Savings Plan (RRSP), TFSA (Tax Free Savings Account), Registered Income Fund (RIF), Locked-In Retirement Account etc. We are assuming that people already know about RIF, RESP, GIC, and other long term investment options. In a market with competing and equally tempting investment vehicles it is not easy to make an investment decision for post retirement savings. Following are some helpful tips which will make your savings choice easier. The best strategy is to have both TFSA and RRSP accounts. There are advantages attached to both these accounts.
- Firstly income earned inside the TFSA account and withdrawals from the account will not affect eligibility for federal income-tested benefits and credits.
- Secondly the withdrawals are absolutely tax free and the balance of contribution is rolled over to the subsequent year.
- Thirdly there is no tax liability on income earned within the TFSA account. You are free to invest the money in mutual funds, equity, and real estate. The interest, dividend, and capital gains earned on these investments will not be taxable.
- Fourthly if a person has enough money to save he must open both the accounts. But he must invest in a TFSA only after making the maximum contribution to the RRSP (which gives an immediate tax break because it can be deducted from income). A TFSA along with the RRSP account can be a good option for higher income Canadians. People in lower income brackets can choose to create only the TFSA account as there is a provision of contribution rollover unlike the RRSP.
- Fifthly if a person plans to convert his RRSP account into a RIF (Retirement Income Fund) account he can do the same conversion from a RIF to a TFSA account. It is better to get tax free savings benefit. This will have two advantages. One consolidate your retirement plans into one TFSA will increase savings and income flexibility. You will not have to maintain complex records in multiple accounts. Two you will be able to take the advantage of contribution rollover. In contrast to the RIF you will not have to pay any tax on withdrawals. Consolidation is a good strategy only when you have very limited scope for savings.
- Sixthly a retiree plan must carefully analyze the advantages and disadvantages of all the retirement options. For example it is a good idea to get the $5000 shelter in a TFSA account and then if there is any spare income you can consider putting it into a RIF/RRSP account. Another important point to be considered is that it would make sense to convert part of your RRSP to a RRIF account since RRIF income (but not RRSP income) will be eligible for the pension credit. In such a case diversification rather than consolidation is the right strategy.
The important issues to be addressed when planning for your retirement are:
- You have to address ageism and not ignore the fact that you have to quit working after a certain age.
- There are tools available to help you prepare for your retirement. You must use them.
- You must plan a smooth transition to retirement and address existing needs to operate tax free savings account and retirement plans.
Canadians need to save for many different purposes over their lifetimes. Reducing taxes on savings can help. That’s why the Government has introduced a new Tax-Free Savings Account (TFSA). It’s likely the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP).
The TFSA will allow Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. TFSA savings can be used to purchase a new car, renovate a house, start a small business or take a family vacation. With the TFSA Canadians from all income levels and all walks of life can benefit.
Jul/100
Starting A Savings Account
When you look around today, you see very few people with any type of a savings plan. It doesn’t seem like anyone is saving money. The sad fact is, most people are simply living paycheck to paycheck and just barely getting by. It’s no secret that today, just about everyone in our society is struggling financially.
The values we were once taught by our parents years ago are thought upon as old fashioned in today’s society. I can remember during my childhood my parents teaching me that if you wanted something you had to save the money for it. If you didn’t have the cash then you just couldn’t get it. I also recall that part of the money we earned was put in a savings account. I don’t see that happening much today.
I can also remember the times that I moaned and groaned about having to put money into that savings account. I mowed lawns in the summer and shoveled snow in driveways during the winter. I was completely against being forced by my parents to put back a certain percentage of my money into the savings account. It’s funny, my sister would even tell my folks that she made less than she actually did for babysitting just so she could hold back more of the cash she earned. Of course, like most parents, they found out about it and fixed her good. They took all of her babysitting money and put it in her savings account.
We even were forced to put money we received on our birthday into the account. After graduating from high school, my parents shocked me. They gave me a nice gift for graduating of course, but they also gave me the passbook to my savings account I had all those years. You can imagine the surprise on my face when I seen the amount of money that was in my account. I had no clue about what compounding interest on your money actually meant. And I had no idea of the amount of money that I had saved over these eighteen years. It was more than enough to buy my first car.
Unfortunately, too many adults fail to discipline themselves and have a savings account, let alone teach this to their children. It’s the truth. Instead of placing a high value on money in the bank, people gage your value on how much your credit limit is. Credit card companies and the banks all encourage this by advertising using credit to pay for everything. Buy today and worry about your finances later.
I can only imagine how poor of a credit score my folks would have by today’s standards because they paid for purchases in cash rather than on credit card. A savings account was extremely important to them. Many times they would go without before borrowing money for something they wanted. It gave them a true appreciation for everything they had because they had waited to buy it until they could pay cash for it. It seems that today, people look at you different when you pay for a big ticket item with cash. They wonder why you’re not using a credit card and how you came upon that kind of cash.
I have hung on to that old savings account passbook over the years. When I stop to look back on how much money I had saved over my childhood years it doesn’t seem like a tremendous amount, but the values and the lessons it taught me are a part of how I operate my business affairs today. I still have an active savings account that I continue putting money in on a regular basis. I also have other savings and investments.
The lesson to be learned in all this is to look at the big picture. Don’t underestimate the power in starting a savings account, regardless of how much or how little you can open it with. If you haven’t started one yet I would highly encourage you to do so as soon as possible.
Jul/100
Find The Best Savings Account Offering Best Rates
Savings accounts are opened by individuals and maintained by banks, credit unions and other financial institutions. Savings accounts pay interest on money that is deposited in the account. However, the money held in the savings account cannot be spent directly, such as by writing a check. Savings accounts are mainly aimed at allowing account holders to set aside a portion of their liquid assets as a part of their savings strategy. Savings accounts that offer better interest rates to account holders are preferred, as they allow savings to accumulate faster. Therefore, people must compare the interest rates offered by various financial institutions to the find the best savings account offering the best rates.
Best savings account function differently as compared to checking accounts. The numbers of withdrawals, as well as transfers that can be made per month are limited, and savings account holders do not have the option of using checks to do so. It is also possible to use the money in these savings accounts to make purchases. However, in order to make purchases, savings account balances need to be transferred to either transactions deposit that are also known as checkable deposit or currency.
Offshore savings accounts are a great option available for people living and working abroad. Offshore savings accounts allow account holders to protect their wealth and hard-earned assets. They also allow people with global business interests to conduct business in a confidential and private manner. Health Savings Accounts or HSAs are designed to assist individuals to put aside savings for future qualified medical and retiree health expenses without incurring any taxes.
Best Savings accounts are established for the sole purpose of putting aside a part of income that comes in handy during retirement, emergencies or any future purchase. A flourishing savings account positively reflects on the account holders’ credit score, as it establishes their superior money management skills.