Business —__

TheReview Wednesday, January 31,1990 — Cl

2

li’s Your Money

<A walk through RRSP planning

Take this RRSP business one
step at a time: That’s the way to a
smaller tax bill now and a larger
nest egg in future.-

e STEP ONE. What do you
want out of life and your money?
If you live totally for today and
plan to let the future take care of
itself, then spend away and forget
registered retirement savings plans.

Or if you are a successful inves-
tor — building your own business
or a real estate empire, for example
@— RRSPs might only slow you
down.

Perhaps you want to pay off
expensive debts, or save toward a
first or better home. If you are in
the lowest tax bracket, an RRSP
probably can’t help much; how-
ever, if you are in a higher bracket,
an RRSP strategy might be profita-
ble.

e STEP TWO. Understand
how an RRSP works.

An RRSP is an ordinary invest-
ment with extraordinary tax fea-
tures.

(a) When you put money into a
savings account, term deposit,
Canada Savings Bond, mutual
fund, stock and other qualifying
gp investment — and register that

investment as an RRSP — you

may deduct your contribution

(within limits) from your income.

That saves you tax.

(b) The money in your RRSP
can grow tax free.

(c) You must de-register your
RRSP by the end of the year in
which you turn 71, although you
may take out your money sooner.
As you get back your funds — ina
lump sum or spread over many
years — you must add that money
to your income the year you

mreceive it.

Ideally, you will be in a high tax
bracket when you put money into
an RRSP and in a lower tax
bracket when you get back the

3 money. That way, the tax you pay
back will be less than the tax you
saved. Aiso, the money will have

grown tax free in the meantime.

NOTE: Contribution limits for
both 1989 and 1990 are
unchanged: still 20 per cent of
your earned income — maximum
$7,500 if you donot belong to a
pension plan; $3,500 if you do,
minus any money you put into the
pension plan.

e STEP THREE. Choose the
RRSP strategies best suited to your
Situation. Talk to the RRSP
experts, those who specialize in
retirement income planning. Do
this now, well before the March 1
deadline for contributing for the
1989 tax year.

Strategy: the spousal payoff. If
you have a spouse likely to be ina
lower tax bracket than you when
you draw out the RRSP money,
contribute to a spousal plan.

You get the (high) tax break now,
your spouse pays (low). tax later.
You contribute according to your
limits, whether or not your spouse
contributes to his or her plan.

If you have a pension income,
check into the special $6,000
spousal rollover. Also check the
three-year rule, so you don’t inad-
vertently end up paying tax when
your spouse takes out the money.

Strategy: the last-chance pen-
sion break. Ottawa has said 1989
will be the last tax year in which
you may contribute to your own
RRSP up to the total amount of all
your pensions. You might choose
this “rollover’> but leave out
$6,000 for a spousal rollover. (You

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might also want to leave out
another $1,000 to benefit from the
pension income credit.) .

Strategy: the “bit of both”
approach. Contribute to an RRSP
and use your tax refund to pay
down debts, take a holiday, buy a
new bedroom suite and so on.

¢ STEP FOUR. Shop and
compare before you buy; review
what you have.

What sort of investor are you?
Willing to go for long-term growth
and take some risks, or satisfied
with guaranteed retums and no big
gains — or perhaps a combina-
tion?

Decide what’s right for you
(term deposits, mutual funds,
stocks, etc.), then find the place(s)
offering a competitive return, low
or at least reasonable costs, com-
fortable risk and good service.

Put new RRSP money into the
best plan(s) you can find and make
sure existing funds are sull among
the best. Remember, earning 12
instead of 10 per cent on annual
contributions of $3,500 for 25
years means 40 per cent more
money — an extra $151,000.

Thousands of words are being
written and spoken about RRSPs
during these first two months of
the year. You might like to clip this
column so you can refer to these
four basic steps.

They summarize the key points
about the RRSP, the most tax-
effective investment for most peo-
ple.

Investors, make
your choices

It’s important that client and adviser feel comfortable with each
other — whether you are talking to your banker, stockbroker,
mutual fund salesperson, accountant, insurance agent or other
adviser, say the CGAs.

Make sure you are dealing with somebody who can give you the
kind of help you need.

An accountant will probably be your first choice for tax advice,
a banker will help you with loans and a broker, investment
counselor, fund salesperson or perhaps teal estate agent could
assist you to develop and implement an effective investment
Strategy.

You could well rely on more than one jndividal — your
accountant would advise you on the tax aspects of your
investments, for example.

It helps if an individual or business person provides a brief
written summary of his or her financial situation — sort of a
snapshot of assets and liabilities, approximate income and
expenses, and the sort of help required.

Ask the adviser to feed back to you what he or she understands
your wants and needs to be, just to make sure you are both on the
same track.

You could also ask why the adviser feels qualified to provide the
advice and help you are after. Ask about professional qualifica-
tions, length of time in the business, special expertise and
references.

Ask how the individual gets paid — whether there’s a fee or
whether the money comes from commissions on the products sold,
or perhaps it’s a combination of the two, the CGA news release
says.

Disclosure is important, especially when the adviser stands to
benefit financially from the advice given.

Still, you do need both advice and help with implementation, so
make sure you get both, whether it’s from one individual or
several. When fees are involved, ask for an estimate of the total
cost so there won’t be any unpleasant surprises.

CGA
SRD

V6) 1T5

fl o reach their goals entrepreneurs on the
move consult with CGAs. They know they

can rely on their unique training and abilities to
analyze complex financial information and
provide the right answers.

CGAs are also highly skilled financial
managers. In fact, no professional qualification
is more contemporary or harder to achieve.
That’s why you'll find CGAs in the financial
driver’s seat in industry, commerce, government
and public practice — wherever sound financial
decisions are made.

So when you need the expert services of
a thoroughly qualified financial manager, an
experienced public practitioner or are interested
in putting your career in high gear, the route to
take is to look to CGA.

We can satisfy your driving ambition.

CGA

The Certified General Accountants
Association of British Columbia
1555 West 8th Ave., Vancouver, B.C.
(604) 732-1211

Opportunities call for CGA’s

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