Business TheReview Wednesday, July 10,1991 — All '~ Answers about recent RRSP and pension changes _ What questions are people ask- | ing about the recent pension and RRSP tule changes? And what are the answers? Peat Marwick Thome, chartered accountants, has taken on several private contracts to answer ques- tions about pension/RRSP reform. ~ We have been getting as many as 150 calls a day,” said Judy Rothwell, director of personal advisory services. Here are some of the typical questions — and answers. “I belong to a pension plan at work. How much can I put into my RRSP this year and when can I contribute?” he: Your RRSP contribution for 7 ~ 1991 is based on 18 per cent of your eared income in 1990 (to a maximum of $11,500) minus your 1990 pension adjustment. The PA should be indicated on your 1990 T4 slip — you have a copy with your tax papers. (To calculate earned income, add gross employment income including taxable benefits, self- employed income, business or partnership income, rental income, alimony and maintenance received, and royalties and research grants. (Then subtract self- employment, business or partner- ship and rental losses, alimony and maintenance paid and employ- ment related expenses like union dues and deductible travel expenses.) ee _ Let’s say your earned income in 1990 was $50,000 and your PA was $5,250. Subtract the $5,250 PA from (18 per cent of $50,000) $9,000 and you may put $3,750 into an RRSP. Contribute between now and March 1, 1992, if you want to claim the deduction for the 1991 tax year. “Thad a good job in 1990 so in January of this year, I put $11,500 into my RRSP for 1991. But then I lost my job and it looks like I might not have a taxable income this year. So my RRSP contribu- tion will be wasted. What can | do?” Under the new rules, you do not | have to claim an RRSP contribu- = tion in the year you make it. You may carry it forward as long as you have RRSP contribution room available. So even though you have already put the money into your RRSP for 1991 — based on your earned income last year — you don’t need to claim this contribution for the 1991 tax year Instead, you could carry forward this deduction and use it in a year when your income is back up to its normal level. Let’s say you do end up with a Sg Are you | managing your money or | just AN ABINE | “- to get by: Call me today to find out how Investors can help you start building your financial future ( Buildinelanueeseince 1940: \ 734 Broughton St. job later this year. But your taxable income totals less than $29,000. If you claim your RRSP deduction, you will save tax in the lowest tax bracket. Instead, if you are back up in a higher tax bracket in 1992, you would save more tax by delaying your claim until the 1992 tax year. Note that carrying forward your claim won't affect your deduction for 1992. So you could deduct the $11,500 and also make another contribution for 1992 based on the eared income you did have in 1991. “I have just changed jobs and must decide what to do with the pension from my old job — either take a pension when I eventually retire or transfer the value to a locked-in RRSP. What is a locked- in RRSP?” The money in a locked-in RRSP may be taken out to buy only a life annuity contract. In effect, that’s the same as taking a pension, but you may shop around to find the most competitive and appropriate annuity. Also, depending on the terms of pension and so the locked-in RRSP, the money might not be paid out before the normal retire- ment date. However, you could delay taking the money until age 71 (if you didn’t need the extra income, for example, or were wait- ing for higher rates). In the meantime, you can man- age and invest the money in your locked-in RRSP just as you can in a normal plan. “With the new rules allowing higher RRSP contributions, should I join the pension plan at work?” For younger individuals (20 to 45 years old), especially those likely to change jobs several times, an RRSP is probably a better choice than a defined benefit pen- sion plan (one whose pension is paid according to length of service and earnings) — provided the employee will indeed put the money into an RRSP. Joining a defined benefit plan restricts RRSP contributions. And if the employee doesn’t stay long, he or she receives little or no benefit from the plan — and has given up the chance to make larger RRSP contributions. On the other hand, a “money purchase” pension plan simply Pays a pension based on the funds in the plan at retirement. These funds can be transferred if the employee changes jobs. Mike Grenby is a Vancouver- based columnist and independent financial adviser who works with individuals; he will answer your questions as space allows in his column — write to him clo The Review, 9726-First St., Sidney, B.C, V8L 3C9. STRAIGHT TALK — ABOUT eee ttl Pay rn | SLE CUE ETE | PED tear GURNEY SMITH & ASSOCIATES LTD. FINANCIAL CONSULTANTS ¢ LIFE UNDERWRITERS SUITE 6 - 9843 2nd St., SIDNEY (In Marino Court) 656-2411 1205 C€ Verdier Ave, (Brentwood Bay Shopping Centre) 652-1482 474-2700 A luxurious Cinema located in the heart of Langford at 7/7 Goldstream. 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