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Retirement Planning- FIP > UNIT 4- DPSP's, RRSP's, TFSA's > Flashcards

UNIT 4- DPSP's, RRSP's, TFSA's Flashcards

1
Q

Deferred Profit Sharing Plans (DPSP’s)

A

-employer makes all contributions
-based on:
~profits
~employee earnings
~fixed amount per employee

-Contributions held by trustee in account that designates employee as beneficiary

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2
Q

DPSP contribution limit

A

-Contribution limit based on income level of employee

  • Contribution Limit lesser of:
    1. 18% employee salary
    2. 1/2 money purchase limit for year

2017 limit- $13,115
-limit reduced by employer contribution to RPP

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3
Q

DPSP contribution

A

[lesser of (DPSP limit - RPP contribution) and employee share of profits

-contributions deductible for empoyer

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4
Q

DPSP distribution options

A
  • employer contributions not taxable to employee until pmts rec’d from plan
  • amounts vested to employee are payable no later than 90 days after earliest of:
    1. day ceases to be employee at company
    2. day becomes 71 years old
    3. day plan terminates
    4. day they die
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5
Q

DPSP Direct distribution

A

??

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6
Q

DPSP Beneficiary

A

person entitled to benefits from DPSP incl:
~employee former employee who employer contributed amount to plan
OR
~ If dies- to estate or person designated as beneficiary by employee/former employee

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7
Q

DPSP Lump sum trf

A
  • can elect to trf all/some of funds directly to RRSP, RRIF, another DPSP if they are named annuitant
  • Lump sum must be directly trf to receiving registered plan to defer tax- if paid to employee 1st, no tax deferral
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8
Q

DPSP lump sum trf to spouse

A

If spouse entitled to DPSP lump sum b/c of death,
may trf all/some of pmt directly to own:
-RPP for own benefit
-own RRSP
-Own RRIF
-another DPSP established for their own benefit provided it can be reasonably expected that DPSP receives funds that will have at least 5 beneficiaries in year trf made

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9
Q

Shares of Corporate employer

A

If all/part of pmt in shares OR did not deal at arms length:
-can trf shares direct to RRSP/RPP at FMV
-can choose to receive shares directly
Shares must be received as single receipt that signifies complete termination of beneficiaries interest in DPSP

if taxpayer later disposes shares= CG to extent that FMV- ACB

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10
Q

Registered Retirement Savings Plan (RRSP)

A
  • a trust set up and registered withthe Canada Revenue Agency, in accordance with the Income Tax Act, to hold certain investment assets intended for retirement
  • is not a type of investment but rather, an investment vehicle.—, it isa trust that holds eligible investments.
  • Contributions are deductible fromthe net income of the individual(within limits); payments out of the plan are taxed upon distribution
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11
Q

RRSP Comparison with other Registered Plan- verify with text later

A
  • contributions to an RRSP are left entirely to the discretion of the taxpayer.
  • Contributions to his or her RRSP (again within limits) are tax deductible (ITA 146(5)) and tax is also deferred on any investment income that is earned on those funds while they are within the RRSP
  • Unlike a registered pension plan, the taxpayeris free to make withdrawals from his or her RRSP at any time, although the withdrawals will be subject to taxation at his or her marginal tax rate in the year in which they are withdrawn.
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12
Q

RRSP Eligibility

A

• all taxpayers with eligible income (earned income) can invest in RRSP
○ Incudes: employees, self-employed, certain non-residents that have income subject to tax in cda

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13
Q

RRSP age restrictions

A
  • No min. Age req to establish RRSP

MAX AGE TO CONTRIBUTE: end of year annuitant turns 71

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14
Q

Types of RRSP’s

A

3 types:
• Basic plan
• Self-directed plan
• Group plan

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15
Q

RRSP- Basic Plan

A

Common investment products available incl:
○ GIC
○ Compound Canada Savings Bonds
○ Mutual Funds

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16
Q

Self Directed RRSP

A

Some issuers not able to make arrangements for certain investment products to be held in basic RRSP
○ taxpayer can set up a self-directed RRSP, may hold any eligible investment.- INCL: c/s of public corp, mortgages, mutual funds, Regular CSB’s

• Variations of a brokerage account in which investor can place only securities traded by brokerage firm
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17
Q

Issues with Self Directed RRSP’s

A

Must Consider Many factors:

  • Monitoring Investments
  • Fees
  • Investment advice
  • Knowledge
  • Time
  • Confidence
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18
Q

Group RRSP

A
  • sponsored by an employer, union, or professional association, and is administered by a financial institution, securities dealer, or insurance company on behalf of the group
  • tend to offer limited choice of investments, common choices are GIC’s, Bond Fund, Equity Fund
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19
Q

Group RRSP advantages

A
  • immediate tax savings b/c making contributions through payroll
  • can trf group RRSP to another RRSP if leave company
  • Less costly and time consuming for employer to administer than traditional Pension plan
  • employer contributes to plan
  • Contributions/withdrawals can be made anytime- unless restricted by employer
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20
Q

RRSP contribution room

A

Contribution Room: Amount individual can contribute to RRSP in any year
-Contributions deductible for contributor

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21
Q

Contribution Room Calculation

A

Contribution room is new contribution rooms rising in current year

Current contribution limit
+any pension adjustment reversals
-any pension adjustments
-any past service

=Cont. room for yr.

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22
Q

Total RRSP contributions room

A

RRSP contribution room
+ any carry forward contribution room from previous year

= total RRSP contribution room

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23
Q

Timing of contributions

A

• Contributions can be made at any time of year

To be deductible- must be made within 60 days of end of taxation year (march 1)

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24
Q

Current Contribution Limits

A

RRSP contribution limit calculated as lesser of:
-18% earned income for previous year
AND
- The maximum contribution limit for current year

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25
Q

RRSP contribution Limit calculation

A

[lesser of (previous yr. earned income X 18%) and RRSP contribution limit]

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26
Q

Earned Income

A

Includes but not limited to:

  • net income from employment or an office, before deductions for registered pension plan contributions
  • self-employment income for individuals operating their own businesses, or working as active partners in business partnerships
  • taxable alimony and maintenance receipts
  • royalties for works (books, music) or inventions
  • ETC….–SEE BOOK
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27
Q

Deductions from earned Income

A
  • Refund of salary, wages, research grants
  • Current year net rental losses on real property
  • Current year business losses
  • Deductible alimony and maintenance pmts
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28
Q

NOT incl in earned income

A

· property income, other than rental income

  • taxable capital gains
  • scholarships or bursaries
  • business income earned as a limited partner
  • RRSP, RRIF, OAS, and CPP pension income
  • death benefits
  • EI benefits
  • Workers’ Compensation benefits
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29
Q

RRSP Qualified Investments

A
  • guaranteed investment certificates issued by a Canadian trust company
  • money or deposits of money in Canadian funds in a bank, trust company or credit union
  • certain bonds (including Canada Savings Bonds), debentures and similar obligations issued by the Government of Canada, a province, a municipality or a Crown corporation
  • shares listed on a prescribed stock exchange in Canada
  • bond, debenture, note or similar obligation of a corporation whose shares are traded on a prescribed Canadian stock exchange
  • a mortgage secured by real property located in Canada, provided certain conditions are met
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30
Q

RRSP NON qualified Investments

A
  • property acquired after 1971 that is not a qualified investment to be held in RRSP
-Common non-qualified investments:
○ Shares in private corp
○ Commodity futures contracts
○ Listed personal property- i.e. works of art, antiques
○ Gems, precious stones
○ Real estate
31
Q

RRSP contributions of property

A

may be in form of property

-If contributed - in kind- to RRSP
○ Amount of RRSP contribution is FMV of property at time of contribution

-In-kind trf to RRSP is deemed disposition based on FMV of property at time of transfer

32
Q

Pension Adjustments (PA’s)

A

-RPP or DPSP- ITA required that new RRSP contribution room be reduced to reflect contributions made to RPP and DPSP

  • calculation of pension adjustment (PA)
    = Value of RPP/ DPSP benefits that have been earned during calendar year????

-rough estimate of retirement funding req

33
Q

Pension adjustment calculation

A

FOR 1997 AND LATER:
(9 X Benefit Entitlement) -$600

FOR YEARS PRIOR TO 1997:
(9 X Benefit ENTITLEMENT) - $1000

34
Q

PA- Benefit Entitlement

A

current pensionable earnings X Defined unit %

35
Q

Integrated Plans w/ Stepped benefits Benefit Entitlement

A

[((lesser of (pensionable earnings and YMPE)) X Defined Unit % up to YMPE)

+ (( Greater of ($0 and (pensionable earnings - YMPE))) X Deferred unit % in excess of YMPE)}

36
Q

Conversion Factor of 9

A

-Conversion factor of 9 in PA formula intended to transform benefit entitlement earned under defined benefit plan into value comparable to contribution to a defined contribution plan

37
Q

Connected Person

A

if at any time after 1989 they:
- owned, directly or indirectly, at least 10% of any of the shares issued by employer or corp related to employer

  • did not deal at arms length with employer (in some way related to employer)
  • performed services for his or her corporate employer that could be considered to be a personal services business
38
Q

Calculating Contribtion Room for connected Individual

A

[lesser of (18% of earned income from 1990) and $11,500] will apply if:
-become member of employer RPP in current year
OR
-Begins to earn lifetime retirement retirement benefits in current year under defined benefit provision of employers RPP following period they didn’t earn such benefits

AND

  • RPP deduction limit not previously reduced to nil by this rule at some other time between 1991 and current year
  • Did not have 1990 PA
39
Q

PA for Defined CONTRIBUTION plan

A

RPP contributions made by employee

+ RPP contributions made by employer

40
Q

PA for Deferred PROFIT SHARING plans

A
  • no longer permitted to make contributions to DPSP

- adjustment for deferred profit sharing plan = contributions made to the plan by employer

41
Q

Past Service Event

A

-something that increases the pension benefits of the member for their service before event, BUT after 1989

42
Q

Pension Adjustment Reversals (PAR’s)

A

Increases RRSP deduction limit by amt by which PA’s and PSPA’s exceed termination benefit

  • individuals who leave RPP and DPSP’s before retirement- PAR restores lost RRSP contribution room
  • also calculated if Defined Benefit plan converted to Defined Contribution plan
43
Q

PAR’s for Defined CONTRIBUTION plans or DPSPs

A

DCP OR DPSP cannot benefit from Past Service events, therefore can’t incur PSPA

44
Q

Calculation of PAR for DBP

A

??

45
Q

RRSP carry forward Contribution limits

A
  • if didn’t max out contribution limit to RRSP:

CAN CARRY FWD UNUSED AMTS

46
Q

RRSP carry fwd of DEDUCTIONS

A
  • If make eligible contributions, can choose to CARRY DEDUCTION FWD
  • Will be applied against RRSP contribution room if individual in year contribution made

still deferred

47
Q

Retiring Allowance

A

Any amount received by individual (or by estate or beneficiary after death):
○ On/after retirement, in recognition of long service with employer or related employer OR
○ After termination of employment, as severance pay

48
Q

Retiring Allowance Roll over

A

-can roll over w/o taking in to income part/all in to RRSP, limits:
~$2000/ each yr/part yr of service before 1996
~ additional $1500/yr or partial year of service before 1989 that earned no vested pension or DOSP benefits

in addition to normal RRSP contribution limits

49
Q

Retiring allowance calculation (if recd after 1996)

A

[($2000 X greater of (0 and (1995 - year 1 + 1)))
+
($1500 X greater of (0 and ((1988 - year1 + 1) - (1988 - year2 + 1)))]

50
Q

RRSP over contribtions

A
  • cannot claim over contributed amt in current year

- over contributions above $2000 subject to penalty tax of 1% per month

51
Q

RRSP excess amt calculation

A

undeducted RRSP contribution made after 1990 (incl current yr) - Taxable amounts rec’d from RRSP OR RRIF

  • amts rec’d from RRSP/RRIF incl in taxable income
  • accumulated RRSP contribution room at end of current tax year
  • over contribution limit of $2000 (unless individual under 18 any time in year)
52
Q

RRSP options at maturity

A
  • buy annuity–only report amt when receive pmts

- trf to RRIF– tax implications only n amounts withdrawn from plan

53
Q

Define RRSP contribution FACTOR

A

1 + (1 - MTRc)

54
Q

Contribution (??)

A

after tax savings X RRSP contribution factor

55
Q

Before Tax investment return on RRSP

A

i X RRSP contribution factor

i= return on assets in the RRSP

56
Q

After tax investment return on RRSP contribution

A

i at= ((i bt X (1-MTRw)) + (1-MTRc))

57
Q

Spousal RRSP

A
  • Any RRSP established for benefits of taxpayer spouse where any contribution have been made and deducted by taxpayer
  • Can contribute to RRSP for spouse, while claiming contribution under own name
  • contribution room based on contribution room of contributor, not annuitant
  • annuitant can have own RRSP , contribtin room of annuitant not not affected by any contribution to spousal RRSP
  • spuses can split income at retirement– saves on tax
58
Q

Spousal RRSP attribution rules

A

withdrawals from spousal RRSP taxable in hands of:

contributor if made contribution in year of withdrawal or previous 2 calendar years

59
Q

Home Buyers Plan

A

each spouse can withdraw up to $25000 from RRSP to buy/build qualifying home

for first time homebuyers

-qualifying withdrawals not incl in income

BUT
- has to be repaid within 15 years

-

60
Q

HBP BALANCE CALCULATION

A

Total amts designated as HBP repayment OR if incl in income b.c failed to repay req amounts to RRSP previous years

61
Q

First time home buyer

A

HAS NOT OWNED A HOME THAT THEY HAVE OCCUPIED AS PRINCIPAL RES AT ANY TIME DURING PERIOD BEGINGING Jan1 of 4th yrs. before year of withdrawal, ending 32 days before withdrawal

62
Q

Home buyers plan for disabled person

A

Since 1999- don’t have to meet 1st time home buyers plan condition if home for disabled person and to make home more accessible for them

incl withdrawals from RRSP to:

  • acquire home for themselves if they are disabled
  • acquire home for disabled person related to them
  • to GIVE the money to a disabled person related to them
63
Q

Conditions that allow participation in HBP more than once

A

since 1999:

  • HBP balance is 0 jan.1st of year making another HBP withdrawal
  • meets all other HBO conditions
  • assisting disabled relative with purchase of qualifying home
64
Q

when payments must be made sooner than 15 yrs

A

if participant:

  1. dies
  2. becomes non resident
  3. Year turns 71
65
Q

Only 2 situations HBP can be cancelled

A
  1. Didn’t buy/build qualifying home
  2. Becomes non res before buying/building home/replacement property

if met all conditions, cannot cancel participation*

66
Q

Tax Free Savings Account (TFSA)

A

TFSA contribution room calculated as:
○ TFSA dollar limit for the year
○ Unused contribution room for previous year
○ PLUS eligible withdrawals made from TFSA in previous year

67
Q

over contributions to TFSA

A

-based on 1% highest excess amount each month situation applies

68
Q

TFSA withdrawals

A
  • not taxed
  • can be withdrawn anytime
  • amount of ELIGIBLE withdrawals added back to contribution room following year

-for seniors-doesn’t affect eligibility of income tested benefits

69
Q

TFSA qualifying trfs

A
  • not considered eligible withdrawal + doesn’t restore contribution room
70
Q

Taxable events with TFSA

A
  • contribution in excess of holders TFSA contribution room
  • non resident makes contribution
  • ineligible investment help within TFSA
  • trusteed TFSA- income earned in acct and paid to beneficiary in exempt period included in beneficiary income
71
Q

Death of TFSA holder

A

holder of TFSA considered to have rec’d immediately before or after death amt equal to FMV of all property held in TFSA at time of death

72
Q

Common uses of TFSA

A
  • Rainy day fund
  • For low income earners
  • Where RRSP contributions maxed
  • Parents helping adult children
  • Parents savings pool for child education
  • Saving for large expense
  • Spouses with disparate levels of income
  • To cover taxes and final expenses at death
73
Q

TFSA compared to RRSP

A

-Account holder must be 18 yrs old, but no max age
-Contributions based on indexed amt that applies to everyone
-TFSA dollar limit only $5000 till 2012
○ Max RRSP contribution room much higher
-Unused contribution carried forward
-Contributions to RRSP/RPP doesnr affect TFSA contribution room
-Eligible withdrawals added to contribution room for the following year
-Not subject to tax
-Not available as spousal plan- but can set up TFSA for spouse without attribution rules
- Can be used as collateral for loan

Retirement Planning- FIP (5 decks)

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