RETIREMENT PLANNING Flashcards
OAS
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)
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.
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
OAS DETAILS
- 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%.
GIS
- income test
- NOT TAXABLE
Eligibility:
- 65 years old
- receiving OAS
- Cdn resident
- meet income requirements
ALLOWANCE AND ALLOWANCE FOR SURVIVOR
- 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
CPP
- 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%.
YMPE and AMPE
- 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
CPP Received Early or Delayed
If receive after 6 months cannot pause.
- 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.
CPP INCOME SPLITTING
- both must be 60 years old
CPP Income splitting = (Years living together / Contributory period) x Benefit
POST-RETIREMENT BENEFIT (PRB)
- 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.
Defined Benefit
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
PENSION ADJUSTMENT (PA)
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
ADVANCED LIFE DEFERRAL ANNUITY (ALDA)
- max $150K
- new life annuity where payments may be deferred until year-end of age 85.
EMPLOYEE BENEFIT PLANS
1) IPP
IPP
- Key employee DB plan
- 50 yrs old
- salary above $162,278
- allows past service contribution in plan
EMPLOYEE BENEFIT PLANS
2) DPSP
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.
EMPLOYEE BENEFIT PLANS
3) RCA (Retirement Compensation Arrangement)
RCA
- not a registered plan
- attract key senior employees but must meet service requirements = golden handcuffs
Earned Income is reduced by:
- 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
Acquisition or Retention of non-qualified Investments in RSPs
- one time special tax of 50% of th FMV
- unless the annuitant disposes from RSP by end of year; it is refundable
Spousal RSP: When Attribution rules do no apply
- when spouse resides in Canada
- contributor died in year of surrender
- divorce or separation
RSP Maturity options
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
HBP
- 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
LIFELONG LEARNING PLAN
- 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
RETIRING ALLOWANCE
- 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.
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
- 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
RESP
- 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% (
PENSION SPLITTING MAX
(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
RDSP
- must be resident
- 59 or younger
- taxes like RESP
- 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
10 YEAR REPAYMENT OF GRANTS AND BONDS
DAP (Disability Assistance Payment)
- all federal grants/bonds paid in previous 10 years will be returned
Federal age tax credit
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.
IPP
Differs from RSP; company pays of performance is low, can contribute 120 days of calendar year.
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.
DPSP (employers portion) like ESP
- LESSER of 18% of income or 50% of DC limit
LSVCC
- max contribution is $5K
- 15% tax credit Federal
- 15% to 20% tax credit provincial
- funds must remain for 8 years
Calculating PV; current income required to “preserve capital”
PV = current income required/ annual return.
