INVEST TO ACHIEVE YOUR FINANCIAL GOALS

An RRSP is a retirement plan that we register and that you or your spouse or common-law partner establish and contribute to. Deductible RRSP contributions can be used to reduce your tax.

Any income you earn in the RRSP is usually exempt from tax for the time the funds remain in the plan. However, you generally have to pay tax when you cash in, make withdrawals, or receive payments from the plan.

A type of investment account that allows Canadian citizens to save money for the long term. Non-registered accounts only tax the capital gains realized inside the account at 50% of the accountholder’s top marginal tax rate. And unlike RRSPs, non-registered accounts have no contribution limits.

If your financial objectives include more than basic insurance coverage, you may benefit from this option’s added investment potential. Permanent insurance solutions allow you to insure against the unexpected while increasing the value of your investment over time. These plans are flexible; you can tailor the level of investment potential and insurance coverage to meet your personal financial goals. You can also select a plan that gradually minimizes insurance coverage so you can maximize your policy’s investment potential.

How the Tax-Free Savings Account Works

• Canadian residents age 18 or older can contribute up to $6,000 annually to a TFSA.
• Investment income earned in a TFSA is tax-free.
• Withdrawals from a TFSA are tax-free.
• Unused TFSA contribution room is carried forward and accumulates in future years.
• Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
• Choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs) and bonds.
• Contributions are not tax-deductible.
• Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.

LIRA is better known as a locked-in RRSP. The rules found in the Income Tax Act with respect to an RRSP apply to your LIRA. Therefore, you must purchase a life annuity or transfer money to a RRIF or a Variable Benefit Account by the end of the calendar year in which you reach 71 years of age. You also must follow the rules for investing an RRSP found in the Income Tax Act when investing your LIRA money.

A RRIF is a retirement fund that you establish with a carrier and that we register. You transfer property to the carrier from an RRSP, RPP, or from another RRIF, and the carrier makes payments to you. Establishing a RRIF can be done at anytime, but must be done no later than the year the annuitant turns 71. Once a RRIF is established, there can be no more contributions made to the plan nor can the plan be terminated except through death.

The basic differences between segregated funds and mutual funds are shown in the following table, however, more important differences are revealed if you read further.

Mutual funds are regulated under the provincial securities regulators and segregated funds are regulated by the provincial insurance officials. Mutual funds are offered through a prospectus filed with the provincial securities commission and segregated funds are offered through an information folder.

Segregated Funds are actually variable deferred annuity contracts with insurance protection in the event of death. It is this insurance component that brings together many of the benefits of segregated funds. At death, proceeds of a segregated fund can pass directly to a named beneficiary, and are not subject to creditor’s claims, probate, lawyer’s or executor’s fees. As long as a preferred beneficiary is designated, creditor protection exists during the policy holder’s lifetime even if a bankruptcy occurs. Mutual funds don’t have this protection, since, upon death, they become part of the deceased’s estate and are subject to taxes, legal, executor and probate fees.

Although Segregated Funds can have higher MER’s they offer guarantees at maturity or death on the limit of potential losses – normally 75% of original deposits, less any withdrawals, are guaranteed which makes them an attractive alternative for the cautious and/or long term investor. No such guarantees exist for mutual funds and it is possible to have little or nothing left at death or when the funds are needed.

Non-registered segregated funds have an additional tax advantage over mutual funds. If a segregated fund looses capital in a given year, the unit holders can claim the capital loss on their taxes and offset any capital gains made on other investments. Taxation rules allow the allocation of capital gains or losses without cashing in the units held. Mutual funds do not have the ability to allocate. They distribute gains or losses and a loss cannot be distributed. The only way to declare a loss with a mutual fund is to sell the units held.