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CFP > RETIREMENT PLANNING > Flashcards

RETIREMENT PLANNING Flashcards

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1
Q

OAS

A

OAS = #yrs Resident / 40

Category 1: Full pension if lived in Canada for 40 years from after age 18

Category 2: Lived in Canada for 10 yr immediately before
- born on or after July 1, 1952 (dad’s age)

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2
Q

OAS Eligibility - Absence from Canada

Fine if resided in Canada for at least 20 years after age18.
- if not, only 6 months pay max until return to Canada.

A

DOES NOT IMPACT OAS are absences that

  • do not exceed ONE YEAR are not associated with residence
  • were employed outside of Canada by federal/provincial government
  • attending a school or university
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3
Q

OAS DETAILS

A
  • Application 6 months prior
  • If resided in Canada for at least 20 years after age 18; payments resume if return to Canada
  • For 2021, Net income > $79,845 = 15% clawback of benefit
  • For 2021, Net Income > $129,075 = 100% clawback of benefit

E.g. (Income - minimum threshold ($79,845)) x 15% clawback

  • Deferring OAS to age 70: monthly pension payment will be increased by 0.6% for every month to a max. 36%.
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4
Q

GIS

A
  • income test
  • NOT TAXABLE

Eligibility:

  • 65 years old
  • receiving OAS
  • Cdn resident
  • meet income requirements
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5
Q

ALLOWANCE AND ALLOWANCE FOR SURVIVOR

A
  • age 60-64 and has low income
  • has a spouse or common-law partner who receives OAS and GIS
  • income-tested
    must have lived in Canada, since age 18 for a minimum of 10 years.
  • Allowance is not taxable

Clawback rates:
OAS Portion repayment: $4 earned - $3 repayment
GIS Portion repayment: $2 earned - $1 repayment (single) / $4 earned - $1 repayment

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6
Q

CPP

A
  • Employer and employee must contribute 10.9% of contributory earnings for 2021.
  • i.e. 5.45% each for 2021
  • contributions are made if the individual is 18 years old and older
  • Self-employed individuals pay 10.9%.
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7
Q

YMPE and AMPE

A
  • annual earnings is at least $3500 (Floor)
  • YMPE for 2021 was $61,200

Contributory earnings = (Lower of Annual earnings OR YMPE - $3500)

YMPE FOR 2021 = $61,600
YMPE (BASIC EXEMPTION/FLOOR) = $3500
**Contributions by employee/employer - 5.45% each
** Self-employed pays full 10.90%

YMPE FOR 2021 = $4815 based on max contributions over the last 5 years

  • **Monthly Retirement at age 65 = 25% of YMPE over the last 5 years
  • ** For surviving spouse 65 and older = (60% of retirement benefit)
  • ** for surviving spouse (under 64 years) = Flat rate + 35%
  • ** If no children and not dsiableds, reduces by 10% each year under age 45 to nil at age 35
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8
Q

CPP Received Early or Delayed

If receive after 6 months cannot pause.

A
  • Receive earliest at 60 years old
  • 0.60% per month
  • Delayed latest at 70 years old
  • 0.70% per month more

Post retirement benefits CPP
- additional benefits will be earned at a maximum rate of 2.5% of the retirement pension amount if individuals working Are collecting CPP and contributing. (If under 65)

  • If still working at 65-70, will be able to elect not to continue to contribute if already taking CPP.
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9
Q

CPP INCOME SPLITTING

A
  • both must be 60 years old

CPP Income splitting = (Years living together / Contributory period) x Benefit

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10
Q

POST-RETIREMENT BENEFIT (PRB)

A
  • for people who receive CPP and still ontinue to work; and contribute to CPP are entitled to PRB.
  • age dependent
  • maximum is 1/40th (2.5%) of the retirement pension amount.
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11
Q

Defined Benefit

A

DB Career Average Formula

  • pension benefit is based on career average earning up to a maximum of 2% per year of service
  • ** 2% x career average salary x #years in plan

DB Final Earnings Formula
- based on average final years or best years of pensional earnings

  • ** MAX PENSION ENTITLEMENT FOR 2021 = $3245.56 (1/9TH OF $29,210)
  • ** MAX DC LIMIT IS $29,210

MAXIMUM EARNINGS AMOUNT FOR DB = 2% OF $162,278
MAXIMUM EARNINGS AMOUNT FOR DC = $162,278/18% = $29,210

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12
Q

PENSION ADJUSTMENT (PA)

A

DB:
PA = (9 x Annual Benefit Entitlement) - $600

BENEFIT Entitlement max is $3245.56 which is 2% of max. $162,278 earnings
PSPA (past service pension adjustment): Difference b/n new PA and old PA

DC:
PA = Contributions made by both employee and employer

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13
Q

ADVANCED LIFE DEFERRAL ANNUITY (ALDA)

- max $150K

A
  • new life annuity where payments may be deferred until year-end of age 85.
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14
Q

EMPLOYEE BENEFIT PLANS

1) IPP

A

IPP

  • Key employee DB plan
  • 50 yrs old
  • salary above $162,278
  • allows past service contribution in plan
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15
Q

EMPLOYEE BENEFIT PLANS

2) DPSP

A

DPSP

  • employer’s portion of profit-sharing program
  • vesting period of 2 yrs
  • owners or non-arm’s length cannot belong to DPSP
  • max limit is LESSER of 18% salary or 50% of RPP DC limit for “current” year.
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16
Q

EMPLOYEE BENEFIT PLANS

3) RCA (Retirement Compensation Arrangement)

A

RCA

  • not a registered plan
  • attract key senior employees but must meet service requirements = golden handcuffs
17
Q

Earned Income is reduced by:

A
  • deductible spousal support and child support paid out
  • dectible employment reeated expenses such as professional due, union dues, travel expenses
  • rental losses/business losses

*** Reminder: not to use inv. income to count RSP room

18
Q

Acquisition or Retention of non-qualified Investments in RSPs

A
  • one time special tax of 50% of th FMV

- unless the annuitant disposes from RSP by end of year; it is refundable

19
Q

Spousal RSP: When Attribution rules do no apply

A
  • when spouse resides in Canada
  • contributor died in year of surrender
  • divorce or separation
20
Q

RSP Maturity options

A

1) Lump sum payout
2) Life Annuity: RSP rolled into life annuity; fixed payments for life (straight or joint last to die)
3) Term Certain Annuity: expires at end of term
4) ALDA (Advanced Life Deferred Annuity): taxes sheltered and payments deferred until age 85; fixed payments, lump sum to beneficiary does not exceed premium paid for annuity minus payments already made, $150K lifetime dollar limit.

5) RIF:
Minimum = 1/(90-age) x RIF balance at year-end
- amount increases until age 95 based on formula

21
Q

HBP

A
  • requirement to repay begins in the second year following the withdrawal
  • home purchase must be BEFORE OCT 1st of follwing year
  • if you contribute into RSP and funds are withdrawn within 90 days; cannot deduct RSP contribution.
  • can choose to make payment up to 60 days after year-end (first 60 days of year Jan/Feb)
  • spouse can take over HBP RSP loan if account holder dies
  • if home is purchased first, 30 days after can withdraw from RSP
22
Q

LIFELONG LEARNING PLAN

A
  • limit is $20K
  • max. withdrawal is $10K/year: for a period of 4 years
  • 10 years to repay. First repayment due 60 days after the 5th year
23
Q

RETIRING ALLOWANCE

A
  • is paid to an emploee either upon retirement, in rocognition of long service or loss of job.
  • can transfer to RSP w/o impacting room a prescribed rate of
    $2K/year prior to 1996 (not inclusive)
    PLUS $1500/year prior to 1989.
24
Q

TAXES ON DEATH FOR RSP
*** if executor is authorized, spousal RSP contribution can be made in year of death.
Mr. Expired dies. He has RSP w/ a FMV of $1MM

A
  • his spouse: spousal RSP rollover
  • his child (age 10); term annuity to age 18. Child pays tax when income is rec’d
  • his child (age 19) who is financially independent. Lump sum payment and Child pays tax.
  • his friend: Deceased pays tax; friend receives $1MM
  • disabled child (age 25); RDSP or RSP
  • charity: Deaceased pays tax: $1MM to charity at FMV; receive donation tax credit for $1MM
25
Q

RESP

A
  • lifetime max of $50K
  • contributions to age 31 / age 35 (disability)
  • must be terminated at end of age 35 / 40 (disability)
  • Max. $50K can be transferred to RSP if plan is open for at least 10 yrs and if RSP room.
  • If not tranferred but simply withdrawn; penalty tax of 20%.

ENHANCEMENTS
- if family income is in one of two lowest federal tax brackets:
First $500 contribution will get 40% grant instead of standard 20% (

26
Q

PENSION SPLITTING MAX

A

(50% of pension x #months married) / 12 months

  • tax savings on pension tax credit is 15% of $2000
  • if living apart for more than 90 days because of marriage breakdown; not eligible to Split income
27
Q

RDSP

  • must be resident
  • 59 or younger
  • taxes like RESP
A
  • Lifetime contribution of $200K
  • Grant and bond available until age 49
  • If under 19; use family income. If older than 19; use beneficiary’s income
  • Max CDSG = $3500/year to limit of $70,000

CDSG
If family income $97K then, CDSG = $1000

CLB: $1000 ONLY if family income

Max CDSB is $20K

28
Q

10 YEAR REPAYMENT OF GRANTS AND BONDS

A

DAP (Disability Assistance Payment)

- all federal grants/bonds paid in previous 10 years will be returned

29
Q

Federal age tax credit

A

The federal age tax credit is 15% of $7713.

  • The credit is phased out if income exceeds $38,893.
  • The clawback rate is 15% and it’s fully phased out at $90,313.
30
Q

IPP

Differs from RSP; company pays of performance is low, can contribute 120 days of calendar year.

A

2 types

1)
Shareholder pension plan for owners owning more than 10% of the companies voting shares.

2) executive pension plan for non-shareholders own less than 10% of the companies only shares; non-connected person.

31
Q

DPSP (employers portion) like ESP

A
  • LESSER of 18% of income or 50% of DC limit
32
Q

LSVCC

A
  • max contribution is $5K
  • 15% tax credit Federal
  • 15% to 20% tax credit provincial
  • funds must remain for 8 years
33
Q

Calculating PV; current income required to “preserve capital”

A

PV = current income required/ annual return.

CFP (6 decks)

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