BJK Financial Group Blog

Yes, it’s time to finalized our RRSP contributions for another year

Well, it’s time once again to finalize our income taxes and that includes reviewing and topping up our RRSP contributions for the previous tax year. So, as you look over your tax bill for 2023, I want to help you think a few things over. There is so much information out there that seems contradictory and can end up just confusing you. I would like to think that I can help you make sense of it.

 

How much money do I need?

One of the most common questions I get from clients is: “How much money do I need to put into my RRSP for retirement?” It’s a sensible question and here’s a sensible answer.

 

If you look at the income statement I have included here, you will see a trial account with $700,000. This account is set up with monthly withdrawals of $3,000 and an expeceted rate of return of 5%. This is a reasonable rate of return to count on over the long haul. As all of us know, rates of return our investments constantly fluctuate and are affected by many factors. Some of those factors are within our control and some are not. It’s what makes so much of this so “interesting”.

 

As you can see from this test result there is enough money in the account to last for 30 years - in this scenario from age 65 to age 95. Of course, this would not be your total income as you will also have CPP, OAS, and whatever money you can find stuck between the cushions of the couch.  

 

As you can also see, this is based on a tax rate of 35%. It’s important to point out here that when you take money out of your RRSP it is considered taxable income. The reason we scramble to put money into our RRSPs at this time of the year is that any money set aside deducted from our taxable income for the current tax year, up until the end of February of the following year. Money put aside in an RRSP is considered deferred tax money, and when you take that money out during retirement, then you will have to pay the tax on it then.

 

That’s different from a TFSA (Tas Free Savings Account). Money you put into your TFSA does not affect your taxable income for that year, so you don’t have to run around putting money into it just before tax time. Just like your RRSP none of the savings that build up in the plan are taxed. But the difference is that when you eventually take money out of your TFSA, you do not have to pay any income tax on it, no matter whether we are talking about the original principal or any increased savings that have built up since.

 

Here is a retirement income calculator you can use to get an even better idea of where your savings are and how well you might be doing in comparison to what you hope to achieve.

 

Every case is different. Let’s talk.

I know this is just the beginning. While you may be in a hurry to make this year’s RRSP contribution in time for your 2023 tax return, it’s also important to set things up for the long haul. And we can work together on both those goals.

 

So, let’s get started. Give me a call at (519) 279-0186, email me at [email protected], or visit my website at www.bjkfinancialgroup.ca. I look forward to chatting with you.

 

Brian Kettles at 8:52 AM
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RSP Contribution Deadline - February 29, 2024

RSP Contribution Deadline

 

As you may know, February 29, 2024, is this year’s deadline for contributing to an RRSP.  Your RRSP contribution limit is the lesser of 18% of your income from the previous year or the annual limit set by the CRA (up to a maximum of $30,780 for tax year 2023).

Whether you wish to make a new contribution, renew a matured investment, or set up a pre-authorized debit program in your account, I will be glad to assist you and discuss your investment strategies.

 

2024 TFSA Contribution amount.

 

As you may already know, Canadians over the age of 18 may contribute up to $7,000 in 2024 to a Tax-Free Savings Account (“TFSA”). This new limit means that an investor who has never contributed to a TFSA and has been eligible for one since its inception will have a cumulative contribution room of $95,000.

The advantage of the TFSA is that it lets you grow your savings tax free. With the TFSA, your money can be deposited and withdrawn at any time depending on the terms and conditions of the investment option chosen. In addition, unused contribution may be carried forward from one year to the next for added flexibility.

A TFSA would be a great way for you to save for your short-, medium- or long-term goals.

 

 

Make the Most of RRSPs and TFSAs

 

Saving for retirement is typically the biggest and most important of our long-term goals. Who doesn’t want to spend retirement enjoying their preferred lifestyle? Two popular vehicles to help Canadians save for retirement are the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). Let’s look at the basics of each savings vehicle. For more information, click here.

 

Benefit from professional advice

 

Deciding which savings plan to prioritize and what investments to put into your plan(s) can be difficult. Both plans are effective at helping you save for retirement and generate the income you’ll need. Your advisor can help create a retirement savings strategy that reflects your preferences and financial circumstances.

 

Book an Appointment today if you’re ready to start investing for your financial future.

Brian Kettles at 11:47 AM
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Happy Holidays & Make the Most of RRSPs and TFSAs

As we approach the holiday season, I would like to wish you all a Merry Christmas and a joyful New Year.

 

This time of year, we are thinking more of family gatherings, presents under the tree and the inevitable January credit card bill that investing. But I know your savings are never far from mind.

 

The one piece of advice I would like to give before you consider investment contributions, is to first pay off that Christmas credit card bills.  It also prudent financial advice to pay off your high credit cards, Lines of credit first and foremost.

 

Once the Christmas bills are paid, I want to remind everyone that January also is the start of, what we have all come to know and love as, RRSP season.  Therefore, thought this would be a good time to review just what are RRSPs and TFSAs.

 

Make the Most of RRSPs and TFSAs

 

Saving for retirement is typically the biggest and most important of our long-term goals. Who doesn’t want to spend retirement enjoying their preferred lifestyle? Two popular vehicles to help Canadians save for retirement are the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). Let’s look at the basics of each savings vehicle.

 

RRSPs

 

The RRSP generates retirement income to supplement personal savings and company/government pension plans. You may open an RRSP once you begin earning taxable employment-related income. For each calendar year, the maximum contribution is 18% of earned income, to an upper limit set by the federal government. If you don’t make your maximum allowable contribution in a given year, you may carry forward unused contribution room to future years.

 

Your maximum annual limit is reduced if your employer makes contributions for you to a registered pension plan (RPP) or deferred profit-sharing plan (DPSP). Check your income tax return statement for the next year’s RRSP contribution limit, and your annual T4 tax slip for how much your employer has contributed to your RPP and DPSP.

 

RRSP contributions are tax deductible, reducing income tax payable. Investments you may hold in an RRSP are wide ranging, from mutual funds and stocks to bonds, GICs and more. If your investments earn capital gains, dividends, or interest, that growth is not taxed until you begin withdrawing assets (you may convert your RRSP to a Registered Retirement Income Fund or annuity no later than December 31 of the year you turn 71). Tax-deferred growth allows you to build wealth more effectively than paying tax on growth as it’s earned.

 

TFSAs

 

This savings vehicle started in 2009. You may open a TFSA once you turn 18, and contribution limits are set by the federal government rather than being a percentage of earned income. The government occasionally increases the annual contribution limit based on inflation rates.

 

Similar to RRSPs, a TFSA can hold different investment products, and any growth won’t be taxed when earned. In fact, you’re never taxed on TFSA withdrawals since you’ve made contributions using after-tax dollars, while RRSP contributions are made with pre-tax dollars. As with any investment, the value of your holdings may decline. Historically, investments have tended to rise over time, but it’s not guaranteed, and you’ll likely experience periods of volatility where your investments rise and fall based on economic/market conditions.

 

There’s no mandatory age limit to begin TFSA withdrawals, and if you do withdraw some money, you may recontribute this amount later (just not the same calendar year) without penalty or impact on subsequent annual contribution limits.

 

RRSP or TFSA?

 

If possible, it’s valuable to maximize contributions to both plans. But if you’re not in a position to do so, consider your financial situation to help determine the better plan to focus on.

 

For instance, an RRSP is often suitable if you’re in a high tax bracket but expect your income to be lower in retirement. That’s because the tax deduction from RRSP contributions and the savings from tax-deferred growth will be relatively high. If you’re in a lower tax bracket in retirement, your withdrawals won’t attract as much tax as they would have during your higher-income years.

 

Conversely, if you’re in a lower tax bracket and are less impacted by income tax – on a relative basis – than a high-income earner, consider prioritizing TFSA contributions since upfront RRSP tax deductions won’t be as advantageous. Also, if you’re saving for a large purchase, such as a vehicle, home or vacation, a TFSA helps build your savings on a tax-free basis. When it’s time to make your purchase, you can withdraw the funds without tax consequences and will maintain contribution room for future years.

 

Benefit from professional advice

 

Deciding which savings plan to prioritize and what investments to put into your plan(s) can be difficult. Both plans are effective at helping you save for retirement and generate the income you’ll need. Your advisor can help create a retirement savings strategy that reflects your preferences and financial circumstances.

 

Book an Appointment today if you’re ready to start investing for your financial future.

 

Brian Kettles at 3:40 PM
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As 2023 Draws to a Close

Here we are witnessing the end of another year. It seems like a good time to look back and try to make sense of what we have seen and what it could mean for the future. There are three topics that have been catching and keeping my attention throughout the year. They are:

  • Inflation and interest rates
  • The ongoing environmental crisis
  • A deepening political chaos

Inflation and interest rates

 

One of the biggest stories in Canadian politics and economic policy this year has been the ongoing issue of inflation and its impact on interest rates.  There was even a recent story on the CBC website whose title seems to say it all: Inflation is cooling. The cost of living crisis is not.   

 

The article describes how the decline in inflation should allow the Bank of Canada to maintain interest rates or even drop them, but it also means that the Canadian economy is also “clearly weakening”.

 

We’ll have to see how things unfold as 2023 rolls into 2024.

 

Carbon Tax and Climate Change

 

A recent poll released by Angus Reid shows that most people oppose the current Carbon Tax, with over 40% wanting to abolish it completely. This goes along with a belief that while the decision to exempt heating oil from the tax is a good idea, that the real motivation for this is political not economic or environmental.

 

At the same time the CBC reports that, “7 in 10 Canadians worried about climate change, poll suggests.” But at the same time, most Canadians also “say pocketbook issues like inflation are their top concern.”

 

None of this is especially surprising. While Canadians generally agree that while we need to tackle climate change, there isn’t a great deal of agreement about how to do that.

 

Something else for us to watch for in the months and years to come.

 

Chaos in Congress and Around the World

 

As I sit down to write this column, it is hard to know just what the US Congress is going to be doing by the time you get to read this. The saga of George Santos and his use of campaign funds for botox, OnlyFans and high end men’s clothing is only a side show in the general chaos within the Republican caucus.

 

And their ongoing difficulties in selecting and keeping a Speaker of the House would be funny if it wasn’t so unnerving. Let’s remember that they were only able to agree on Mike Johnson to fill that role at the end of October, October 25 to be exact, not all that long ago. And even now he is on a very short leash, as far as some of his colleagues are concerned.

 

But the biggest challenge I see with this congress is how they cannot seem to agree on any way to move forward on the simple task of maintaining a functioning federal government.  Although Congress was able to recently pass a piece of legislation called a continuing resolution, they still have major portions of the federal government to pay for, let alone offering assistance to either Ukraine or Israel.

 

Whatever goes on out there, I hope that things are good for you

 

After all of this challenging news and the perspective it offers on the world around us, I hope and trust that things on the home front for each of you are good.

With that, I want to close by offering you and yours best wishes as we approach the end of another “adventurous” year. And I wish you the best for 2024 and beyond.

Brian Kettles at 11:57 AM
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Canadians are Pessimistic About the Future – It’s Hard to Ignore

Last week, I read an article on Bloomberg.ca that reported Canadians' pessimism about their financial status in today’s economy. The article described a report about the latest MNP Consumer Debt Index.  I was not surprised that Canadians are having trouble, considering the battering that the Canadian and world economies have gone through since the COVID outbreak three and a half years ago, in the spring of 2020. And the wars in both Ukraine and Gaza are also going to have an ongoing impact, as well.

 

Many of the details were still quite shocking

 

While the causes of this economic crisis are well documented, their impact has never been seen before on the Debt Index. The story in Bloomberg states, “The report shows Canadians are the most pessimistic about their financial situation than they’ve been in the five-year history of the survey.”

 

I think we can call this depressing but not surprising.

 

For instance, more than half of Canadians report that they are “$200 away or less from not being able to meet all their financial obligations,” while many of the people answering the survey said that they are worse off than they were one year (20%) and five years (25%) ago. And even higher numbers don’t see the potential for any kind of improvement in the next five years (35%).

 

Credit card debts grow in this difficult economy

 

The article goes on to describe a recent report from Equifax Canada that describes the high levels of credit card and overall consumer debt in Canada right now. “(C)redit card balances hit an all-time high of $107.4 billion as total Canadian consumer debt reached $2.4 trillion.”

 

Equifax referred to this as “a sign financial stress continued to build in the face of inflation and rising interest rates”. Are we surprised?

 

But where does it end?

 

Well, it’s easy (I use that term loosely) to describe how things are right now. We can all see the impact that inflation and high interest rates are having on the Canadian economy. It’s obvious every time any of us walks into the supermarket. And it gets really scary if you have to think about renegotiating your mortgage.

 

But the causes of these conditions, like recurring COVID outbreaks, the ongoing war in Ukraine, and now the conflict in Gaza, are still there.

 

At the same time, we’ve been here before

 

 

As scary as things are for so many Canadians, this is not the first time that world events have had an impact on economic and business cycles. After all, this is actually why they call them cycles, right?

 

For those of us who remember that far back, we witnessed the Gulf War and war in Croatia and Bosnia. And how about 9/11? To top it off, this is not the first time Israel and its neighbours have been at war.

 

 And if we go back a bit further, North America had even higher interests during the ‘80s.

 

This is why it is important to set your investment timeline to handle these bumps in the road and get past them.

 

Even so, times like these often need a closer examination of your financial situation. If you want my help looking at things over, reach out to me at (519) 279-0186 or email me at [email protected]. You don’t need to go through this alone.

Brian Kettles at 11:35 AM
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Brian Kettles
Name: Brian Kettles
Posts: 33
Last Post: February 27, 2024

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The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This Blog was written, designed, and produced by Todd Race Copywriting for the benefit of Brian Kettles who is a investment fund advisor at BJK Financial Group a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this article comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities.

 

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