Wednesday, August 9, 2017
Saving and Taxes
Spending less than you earn is an important skill that we all need. We all have unexpected expenses, larger purchases that we need to pay for, and we will eventually stop earning money from our careers and live on our savings.
Recent government proposals for tax changes to small businesses and corporations have raised questions about savings and taxes; some of the proposals seem to punish for saving. Unravelling the proposed changes, their impact and why you need to save is a process. Today we’ll start with the savings.
If you are starting a savings plan, there are several steps that I recommend:
Define different types of savings
Ideally, your emergency and short-term savings will have different locations than your main bank account ie- separate bank accounts, a TFSA, a non-registered investment account. Differentiating the location helps you to keep the purpose separate (and you are less likely to spend the money on something else).
Match the Type of Saving to the Type of Investment
Different types of savings need different types of investments.
Separating your savings based on purpose has many benefits: organizing your day-to-day cash; ensuring money is available for larger expected purchases and protecting your family and finances in an emergency.
To apply this to your situation or discuss further, please contact Sara at 519-569-7526 or [email protected]
Wednesday, June 14, 2017
As this school year wind down, for some families, there will be significant change in a few months. For high school graduates moving on to post-secondary education, there are many hopes and fears.
For parents with Registered Education Savings Plans, there is relief that you have money available, and often uncertainty about how to access it. This post is a primer on how to use the money that you’ve saved and how any withdrawals will be treated for tax purposes.
When you were putting money in to the RESP and tracking it’s growth, you looked at 3 different amounts or ‘buckets’: your contributions; government grant amounts and investment growth. On withdrawal, the government allows for 2 buckets- Post-Secondary Education Amount and Educational Assistance Payment.
For example, your RESP account has $7200 in grant money and $10,000 in investment growth. If your withdrawal form indicates $5,000 in EAP, that amount will be removed from the RESP to your bank account. You will receive a follow up letter from the government letting you know how much of that $5,000 is grant. The remainder is investment growth. There is no way to ask that all of the $5,000 be taken from the grant money, even though there is more than $5,000 in grant in the account.
Your financial institution can review the 3 different amounts with you and help you understand the implications of each type of withdrawal. Remember to review the specific investment holdings within that account- you will need to sell investments to generate cash for the withdrawal; your investment advisor should ensure that remaining investments meet your goals. Once your student starts withdrawing, the timeline for investments becomes quite short; holding investments that change in value quickly when you know you need the money within 2 years can mean that you don’t have funds available when you need them.
To discuss your education funding goals for your family, please contact [email protected] to arrange a meeting.
The above is an illustration for planning purposes only. For advice related your specific situation, speak to your accountant and investment professional.
*caveat- other blog posts on this site are less helpful
February 21, 2024
May 10, 2017