Should I Maximize my RRSP Contribution?


Maximizing your RRSP savings is not always a good idea

How do you know if maximizing your RRSP contributions this year is a good idea?

The mutual fund industry will always tell you to maximize, maximize and maximize, despite your personal circumstances. What they fail to mention is that this can lead to massive tax bills on your estate, when almost half of your RRSP/RRIF funds can go to the government in taxes (as the government taxes it as “income earned in one year”)!

The key to avoiding this tax situation lies in how you contribute to your RRSP on a yearly basis. The general idea here is that you should maximize your RRSP in the years when you can save taxation this way. In the years when you have a low tax bill, you should avoid putting anything in your RRSP. This way, you can get the best combination of lower taxes both now and in the future.

For any particular year, these are the three key questions to ask yourself:

1. What is the tax refund I will receive on each dollar of RRSP contribution
If you are in a higher income year, you will be receiving a higher tax refund (i.e. for $127,000 of taxable income, the refund is 46 cents per dollar). Here, you will want to maximize your RRSP contributions to enjoy less present taxes and allow your money to grow tax-free until retirement.

2. What will my tax bill be when I take money out of my RRSP/RRIF?
If you are in a lower income year, then your present tax bill will be fairly low. If you are maximizing your RRSP contributions every year in this situation, then you are simply creating a higher tax bracket for yourself in the future. Consider what your future tax bracket will be in your RRSP/RRIF years, and if this is higher than the present tax bracket, then do not contribute to your RRSP.

3. How much time will the RRSP be able to grow tax-free?
Generally, the younger you are (with a decent income), the more you can benefit from long-term tax free growth so RRSP contributions are encouraged. However, if you are earning less than $40,000 (similar to question 2), consider an alternative like the TFSA.

Remember that RRSP contributions depend on your personal situation and can change from year to year. Speaking to a trusted financial advisor can help you make the most of these tax minimization strategies.
One quick and free tool can be found on our website. The Tridelta Retirement 100 helps you see your likelihood of running out of money, your likely estate size and lifetime tax bill. By playing with RSP numbers, you can see the impact yourself.

Benefits to Charitable Giving in Canada


Tax and Financial Benefits to Charitable Giving in Canada

When it comes to charitable giving in Canada many people believe, “My estate will handle it. They can have it when I die. What’s the rush now?”  Many people are losing the personal and financial benefits gained from charitable giving due to this attitude.

Asher Tward, VP of Estate Planning at TriDelta Financial writes, “The majority of Canadians do not have the knowledge  of their financial situation to create enough confidence to donate larger amounts of money while they are still alive. Many would be surprised to know how much they can afford each year! Without a plan for charitable giving while living, it could be financially costing you . You will pay more taxes than necessary, diminish the size of your final estate for your loved ones and give less to charity than you could have. There are many financial and personal benefits of charitable giving now, rather than waiting.”

Financial Benefits

1) Receive an immediate tax credit of roughly 45% or more, depending on the province you live in.

2) Save the tax on the growth of the money that you will never use in your lifetime. By giving it away now you won’t have to pay tax on the future growth.

3) Take advantage of additional tax benefits by the gifting of shares. You don’t have to pay capital gains tax on donations of qualifying shares.

4) Depending on how you donate, you may still benefit from the principal and be able to control the assets, while receiving annual tax benefits.

5) Eliminate paying some probate fees as you no longer own the asset.

Personal Benefits

1) See the impact and benefit of the wealth you have worked so hard to earn and save.

2) Involve and inspire others to do more and participate in giving.

3) Get more involved in things that make you feel good.

4)  Derive joy and a feeling of importance from seeing your name associated with a donation.

5)  Create a legacy and tradition of philanthropy.

We have a free and easy online tool called the Donation Planner.  It shows you how much more you can afford to donate each year, how much taxes you will save, and AFTER these donations, how much your estate will be worth.  Try out the Donation Planner so you can be in a position to decide whether you want to give more while you are living.

After trying out the Donation Planner, you may be interested in reading about how to leave a legacy without being wealthy.

“She Didn’t Update Her Beneficiary Form” – Joan’s Story


When major life changes occur, forgetting to update insurance and will beneficiaries can have unhappy consequences. Our senior financial planner Heather Holjevac shares this real life story of her client Peggy and daughter Joan, to illustrate the importance of accurately updating your chosen beneficiary.

“When a prestigious law firm in New York recruited Joan for an internship, she seized the opportunity. Unfortunately, she had to leave her boyfriend behind and after a year, the long distance relationship ended. She moved on to meet and marry Jeff, and got pregnant. It was not an easy pregnancy and sadly, when the baby was delivered, the doctors found a large tumour in Joan’s ovary and she was given 3 months to live. To the day, 3 months later Joan passed away.

Since Joan lived in the US while working, it took longer to settle the estate. On a warm summer day, a courier delivered a cheque to my client Peggy. She opened it and in the envelope was a cheque for $75,000 US which was Peggy’s 50% share of Joan’s company life insurance policy benefits. I commented that it was nice that her husband and new son would get the other half.

Peggy looked at me with tears and said no, that the other 50% of Joan’s life insurance went to her ex-boyfriend.

The insurance money that went to the wrong benenificiary

Turns out when Joan was hired, her benefit forms were all filled out naming her ex-boyfriend as beneficiary, the intent was to someday get married. When they broke up and Joan married Jeff, the health benefit forms were updated, but not the life insurance beneficiaries.”

If a Life insurance policy has a named beneficiary, then the proceeds do not go into the estate and therefore are not governed by what is stated in the will. This story should serve as a reminder for all of us to be more diligent in keeping our will current and also the all important beneficiary designations updated, particularly after major life events such as marriage, divorce, death and births.

How to Leave a Legacy for Less: Affordable Giving


How can you leave a legacy for less? Here is one way of making a major charitable contribution, even if you are not wealthy.

To learn how much you can afford to give each year, try the free and powerful analytical tool designed to determine your yearly donation capability: the TriDelta Donation Planner.

As an example, let’s say you are 50 and in decent health (assuming a 35 year life expectancy). You are able donate $1,000 a year to your favourite charity.

Here is what you could do:

Donation Amount $1,000 a year
Cost $550 per year, after tax credits 


or $19,250 over 35 year period

Effective rate of return on this “investment” 10% (after tax credits)
Total Gift possible to your favourite charity $162,000

Shouldn’t  it be a total of $35,000? Where does the $162,000 amount come from?

The $162,000 gift comes from a life insurance contract, with the charity as the beneficiary and owner of the policy. Each year, the premiums on the life insurance is about $1,000 in total, so instead of giving directly to the charity, you keep the insurance. The payout on this insurance is $162,000 upon death. If you had $10,000 a year premiums, you could afford to give almost $2-million.

The only drawback is that the charity will not receive your donation until the end of the 35 year period.

Make it a gift to a parent and benefit a charity sooner

If you wish to give sooner and witness the benefits,  you can use the same strategy (with the same charity as the beneficiary), but take out the life insurance on one of your parents.

For example, a 50 year old may have a 72 year old mother in decent health. The charity would most likely benefit sooner, you would be able to witness the donation, and this can also be a gift to a parent who feels close to their house of worship or particular charity.

Here is an example where you put in $2,000 a year into a plan for your 72-year old mother if she survives to the age of 87:

Donation Amount $2,000 a year
Cost $1,100 per year, after tax credits 

or $16,500 over 15 year period

Effective rate of return on this “investment” 12.7% (after tax credits)
Total Gift possible to your favourite charity $49,000

If you are interesting in leaving a legacy or making a large charitable contribution, do not assume your wealth does not permit it.

To get inspired, learn more about Leaving a Legacy and Donation Planning in Canada.


The RSP: Minimize Your Biggest Future Tax Bill


In the future, your biggest tax bill will be your RSP taxes.

We all know of the benefits of tax refunds and tax-free growth for RSP, but what happens after you retire?

Here is how the RSP taxation works:

• Your RSP grows tax-sheltered until you draw out money. Any money you withdraw each year is considered “yearly taxable income” for tax purposes.

•If you wait to withdraw your money, the year you turn 72, your RSP turns into an RIF, which means that the government mandates you must withdraw at least 7.48% each year and pay tax on it. If you are married and you pass away, the RSP/RIF will simply transfer over to your spouse.

• The year the surviving spouse passes away, the entire value of the RSP/RIF is considered one year’s taxable income. If you have a $500,000 RIF left at that point, the government will take $212,000 in taxes!! This is often shocking to the estate.

A few tips to help you avoid your biggest future tax bill

How do you avoid this huge tax hit?

1. Don’t save so much in your RSP in the first place. Unless you are in the top tax bracket (and enjoying the maximum RSP refunds), saving too much now can lead to a massive tax hit at the end. In low income years, put less or nothing into your RSP.

2. Draw more money out while you are alive to enjoy it. From a pure financial perspective, you want to draw out registered money in years when it can be done at a lower tax rate – those years when you have very little other income. From a philosophical point of view, you want to draw out the funds when you are still able to enjoy it.

3. You can use strategies like the RSP meltdown to effectively draw out more money from your RSP by creating a tax deduction equal to the amount withdrawn. This strategy can be quite effective for many people, but does require some leveraged investing, and you might require professional advice.

The main message here is that you need to have a long-term tax minimization strategy, instead of simply saving up RSP funds.

One quick and free tool is the The Tridelta Retirement 100, which helps you see your likelihood of running out of money, your likely estate size and lifetime tax bill. By playing with RSP numbers, you can see the impact yourself.