Chapter 5- Retirement Planning Flashcards
What can be excluded from CPP calculations
- Any month the person was collecting CPP/QPP disability
- 17% of the lowest income years during CPP contributory period before 65
- -> can result in up to 8 lowest income years - When the individual was taking care of children under 7
- Low income months after 65
Flat benefits plan
Career average plan
Final or best average plan
flat benefits plan: taking a flat dollar amount and multiply it by the number of years the employee was apart of the pension plan
–> separate from CPP and OAS
Career Average Plan: based on the plan holders average income over their entire career
–> integrated with CPP benefits
Final or Best Average Plan: based on the plan holders average income over the final x amount of years, or their best x number of years
- -> integrated with CPP benefits
- -> Provides better protection against inflation
Canada Disability Savings Grant (CDSG)
Canada Disability Savings Bond (CDSB)
Canada Disability Savings Grant (CDSG): federal government will provide matching grants on the amount contributed and the beneficiary family income
- maximum annual grant is $3500 and maximum lifetime grant is $70000
- to be eligible beneficiary must be under 49 and eligible for the disability tax credit
Canada Disability Savings Bond
- based on beneficiary age and net family income
- a contribution does not need to be made to recieve
maximimum amount of CDSB: $1000 annually and $20000 lifetime
RDSP
- contributions not tax deductible, investment growth is tax sheltered
- maximum contribution limit is $200000, no annual limit
- if anyone makes a contribution the money becomes property of the beneficiary
- principal is received tax free but withdrawals of investment income, grants, bonds taxed in beneficiary hand
- contributions can be done until 59, but the Canada disability savings grant is received until 49
RRIF Withdrawal Formula
Before 71:
1/(90-age)
After 71: withdrawals based on a percentage prescribed by CRA that increase every year levelling out at 20% at age 95
at 71 it is 5.3%
What happens when RRSP plan holder dies
Non Qualified Beneficiary: Full RRSP s deemed to be withdrawn by the deceased the minute before their death and will be added to the final tax return and fully taxed
Qualified Beneficiary
- Surviving Spouse
- 1. take the full amount and pay taxes
- 2. rollover to RRSP and pay tax when the funds are withdrawn - Grandchild/Child under 18
- 1. take the full amount and pay taxes
- 2. Buy a fixed income annuity to 18 and pay tax on each payment - Grandchild/Child who is financially dependent due to a physical/mental disability
- 1. take the full amount and pay taxes
- 2. rollover to RDSP if contribution room is available
RRSP Withholding taxes
up to $5000- 10%
$5001-$15000- 20%
$15000.- 30%
Non-Qualified Investment for RRSP
What are the penalties for Non-Qualified Investments
- Jewelry, gems, etc
- Future financial contracts
- Real Estate except REITS
- Personal use property such as art
- Shares and Debt obligations of a private corporation
A special one time 50% tax of the market value for the non-qualified investments apply
- -> tax is paid right away if something was not non-qualified and then becomes non-qualified than the tax is done when the investment becomes non-qualified
- -> if it was an honest mistake the tax will be refunded at the end of next year
When do attribution rules not apply for a Spousal RRSP?
- Withdrawals taking place after a marital breakdown
- Either spouse no longer lives in Canada at the time of the withdrawal
- The contributing spouse died in the year of the withdrawal
johnny is apart of a DPSP he is in a 43% MTR he can have $25000 in cash or shares that are worth $25000 with an adjusted cost base (ACB) of $15000, what would be the tax savings?
a) 10750
b) 6450
c) 2150
d) there would be no advantage
c)
taken as cash
$25000*43%= $10750
taken as stock $15000*43%=$6450 capital gain portion 25000-15000=10000/2=5000*43%=$2150 $2150+$6450=$8600
Tax savings
10750-8600= 2150
jim and carry have been married for 25 years and are about to retire. they have been contributing to cpp for 40 years, jim is entitled to $750/month and carry $450/month. if they decide to split their CPP what can each person recieve?
25/40= 0.6250 (62.5%)
jim can split $750 * 62.5%= 468.75 therefore he must keep $281.25
carry can split 450 * 62.5%= 281.25 therefore she must keep $168.75
total split= 468.75+281.25= $750
$750/2= $375
jim= 281.25+375= 656.25
carry= 168.75+375= $543.75
