February 29th is the final day to make a contribution to your Registered Retirement Savings Plan (RRSP). Like most Canadians you probably scramble at the last minute to find some extra cash, or even consider taking out an RRSP loan. You probably don’t even give much consideration to your overall investment plan – other than the nice tax refund! But do you really need to contribute to Your RRSP? Would the TFSA be a better option? Let’s look at the pros and cons of each plan before you rush to your bank for a RRSP Loan.

 Not only can you contribute to your RRSP, but you can also take advantage of the Tax Free Savings Account (TFSA) introduced by the government in 2009. Many Canadians are still unfamiliar with the TFSA and how it works, continuing to contribute to their RRSP. Both plans shelter your income tax-free, both plans have benefits, and both the TFSA and RRSP work in different ways. The biggest difference is the treatment of taxes in each plan. Let’s look at the basics!

 The RRSP

The RRSP (Registered Retirement Savings Plan) is what most Canadians are familiar with. This is a powerful investment and savings tool, which provides tax-free compounding growth, in addition to lowering your taxes. When you contribute to your RRSP, the contribution is deducted from your income. For most people this usually results in a tax refund. The higher your income the higher your refund! Sounds like a winning plan, doesn’t it?

However, a RRSP contribution is nothing more than a tax-deferral plan and this is the way you really need to view it. The string attached most people forget, is that you get taxed when you make withdrawals from your RRSP. That’s because RRSP withdrawals become taxable income. So the tax man cometh back for the refund he gave you! There’s no way around this – it’s about as absolute as gravity.

 RRSP withdrawals become taxable income.

Think of the tax refund from your RRSP contribution, as a loan from the government that you have to pay back. So when you make contributions to your RRSP think for the long term. Where will you be when you retire – will your income be higher or lower? Does an RRSP contribution really help you lower your taxes? Can you use the refund for investing or to help pay down your mortgage or consumer debts?

Here are the RRSP basics:

• A RRSP is not an investment. It is a registered plan for sheltering taxable income.
• A RRSP is not just for savings, you can hold mutual funds, stocks, or bonds in a RRSP.
• You can contribute a higher amount to an RRSP than a TFSA (see your tax assessment).
• You can carry forward any unused contributions.
• You get a tax deduction for contributing. For most Canadians this results in a tax refund.
• You pay taxes when you withdraw money from an RRSP.
• You cannot use your RRSP investments as collateral for a loan.
• You cannot write off the interest for an RRSP loan.
• You cannot hold your RRSP after age 71. It must be converted into a RRIF, an Annuity, or even worse withdrawn and declared as taxable income. That’s a bad thing!

 The TFSA

Many people haven’t utilized the full benefit of the TFSA (Tax Free Savings Account), which in many ways is a much better deal than the RRSP. The bottom line is, when you contribute to a TFSA you do not get a tax-deduction or a refund. But you can withdraw money from the TFSA tax free! This makes the TFSA an ideal investment plan to save for retirement. You can save tax-free, withdraw tax-free, and reduce the amount of taxes you pay at retirement. It won’t affect your government benefits in retirement, which income from your RRSP can. The only catch is that you are limited to $5K per year, and any withdrawals reduce your current annual contribution room. However you can contribute that amount back in the following year.

Here are the basics:

• The TFSA is not an investment. It is a registered plan for sheltering taxable income.
• A TFSA is not just for savings, you can hold mutual funds, stocks, or bonds in a TFSA.
• For 2012 your maximum contribution room is $20,000 (4 years x $5000 per year)
• You can carry forward any unused contributions.
• You do NOT get a tax deduction for contributing.
• You do NOT pay taxes when you withdraw money from a TFSA.
• You can use your TFSA investments as collateral for a loan or line of credit.
• You cannot write off the interest for a TFSA loan.
• There are NO age restrictions on the plan – you can hold it until your 99 (or 103 if you want)

 Which One is Right for you?

 For some Canadians the $5K per year limit on the TFSA is a drop in the bucket, and for most Canadians finding an extra 5K per year is virtually If you find yourself under the 50K to 60K salary mark, and have to choose one or the other, consider the TFSA over the RRSP. You won’t get that nice refund every year. But when you withdraw money from your TFSA, you won’t be paying any taxes either. You won’t owe the government anything! How sweet is that?

  Maximize The TFSA, and Forget The RRSP.

If you’re a higher income earner, you will benefit from RRSP contributions because the refund amount will be higher, as you are in a higher tax bracket. That leaves you two options. First, you can maximize your RRSP contributions and get the largest refund possible. That refund then can be reinvested again into the RRSP, a TFSA, or even used to pay down the mortgage.

 The second option is to optimize your RRSP. This means you only contribute to your RRSP what is necessary to reduce any taxes payable. You then maximize your TFSA contributions. Anything left over then goes into your RRSP.

By Rubina Haq Ahmed

Toronto

Bring up the topic of cable, internet or phone companies and you’ll inevitably have hours of conversations that range from, how someone got the best deal to how a customer feels totally ripped off by the high fees.

In my case I went from feeling totally valued by my communication provider, to completely duped in a matter of four months.

Here is My Story

On several occasions in December 2011 my Internet connection failed. Once, I was told, because of an area outage, another because of construction near by that knocked down a pole and a few more incidents that my Internet provider could not explain. After one lengthy outage, that lasted more than 24-hours, I was getting particularly frustrated because I work from home and having an Internet connection is key to my business.

I don’t believe in calling your Internet and cable provider to ask for a discount just because you want it, but I did want to be compensated for my inconvenience. I deserve to have the internet connection I’ve paid for, with no interruptions.

The Discount I Couldn’t Turn Down

At the time Customer Service at Rogers was great. As a way to say sorry, Rogers offered me a deep 70 per cent discount on my internet service with a guarantee that I would keep my internet service with them for two years. The kind representative went a step further to credit me back the days that I had no service. Really how could I say no. I was told how much my total bill would cost, including cable for the next 24 months.

I was over the moon at the rate I was getting. I tweeted about it, sent kudos to Rogers Help desk and made it known I was a happy customer.

When the Honeymoon Ended

Then in March 2012 I noticed my bill had gone up by $5. How could this be?! I had struck a 24 month deal with my provider in December. When I called to ask them why, they told me my cable package would now cost $5 dollar more every month and there was nothing I could do to change that. I then learned the deep discount I had on my internet service came with a stipulation, that I had to pay the cable TV service at the regular rate even if it went up. They added they could theoretically raise my cable TV rates and I could not negotiate or complain. I can’t leave and go to another cable provider either, if I did I would have to “pay back” the internet discount I was getting and pay an early cancellation fee. Even though I have been a Rogers’ customer for more than 10 years.

My Negotiating Skills are now Zero

I investigated what Bell was offering and found they had the same package for $35 dollars less, but Rogers told me they would not match it and I could do nothing about it. I’m still trying to leave the cable portion of my Rogers package, because it was never explained to me that the deal was so restrictive.

How can they Break a Promise with no Repercussion?!

This is the problem I have with Rogers, they made me a deal in December that I would get a certain rate on my internet for 24 months but never explained that it included me paying the full rate for cable and that they could raise that rate when they needed too. They also never explained that the two services were tied at the hip and I could not leave or negotiate the cable without affecting my internet deal.

I’ve never asked to break my internet deal, the one they were saying sorry for, I only want a fair price on my cable that other competitors are advertising or at the very least don’t raise the price if I don’t have the power to leave.

Lessons Learned

What I learned from this experience is keep your cell phone at one carrier, cable at another, Internet at a third and landline at a forth. There are enough service providers out there to make this happen.

The only service I have ever been able to negotiate effectively is my cell phone, which I have through Telus. It’s because it’s the only business I give them.

My main message is NEVER EVER bundle your Internet, cable, wireless and phone into one bill, keep the power of negotiation in your hands

http://www.ratesupermarket.ca/blog/author/rubina/

Nitesh Kumar

“A penny saved is a penny earned”… or so the old proverb goes. Of course, the value of a penny has changed somewhat from the time when your mother offered her wisdom on the value of keeping what you earn. Today, you could save thousands of dollars by simply making the right mortgage decision. If you’re like most Canadian homeowners, your mortgage is a goldmine of potential savings.

In the past few articles, we’ve talked about the importance of your mortgage as one of your most significant financial decisions. We’ve explored the value of seeking the advice of a mortgage professional – whether you’re buying a home or renewing an existing mortgage. Today, let’s take a look at the bottom line: the savings you can enjoy by making the right mortgage decisions.

It is the primary role of a mortgage broker to find you the right product for your personal situation. A mortgage broker is a financial professional and – like your investment advisor – he or she will want to understand your personal situation and payment preferences. Your mortgage broker has access to a broad spectrum of lending institutions, so you can do some valuable comparison shopping for the right combination of features, rates and mortgage options.

All these choices offer you substantial opportunities to save money over the life of your mortgage.

If you are like most homeowners, you are focused – for good reason – on finding the best possible rate for your mortgage. Your mortgage broker can offer you the best range of rate options and terms. If a mortgage broker can get you one per cent off the posted rate, that could translate into more than $13,000 in interest per $100,000 borrowed over a 25-year amortization schedule. If, however, you believe that most mortgage rates are basically the same from one institution to the next, then consider the fact that even an eighth of a point difference in the rate can offer significant savings over the duration of your mortgage.

But it’s also important to look beyond the rate. There are other ways to find savings in your mortgage. Your mortgage broker is up-to-date on market trends and new opportunities… as well as some of the tried-and-true ways to save money in a mortgage.

Do you get an annual bonus in your job? You may want to use that bonus to pay down the principal of your mortgage. If you pursue this strategy consistently over the life of your mortgage, you could save thousands of dollars in interest by paying your mortgage off sooner.

Are you paid bi-weekly or bi-monthly? Consider a change from the usual monthly mortgage payment. Set up your mortgage payment schedule to coincide with your pay period. Again, you can shave years off your mortgage, and enjoy thousands of dollars in savings.

In the coming weeks, we’ll look at some of these savings opportunities in more detail. In the meantime, consider the old penny proverb again. How much is your time worth? Time savings is one of the key, unexpected benefits that clients say they have enjoyed when they choose to work with a mortgage broker. Above all, a mortgage broker is an expert in customer service, and that means that your broker looks after every detail of your mortgage research and negotiations on your behalf.

Nitesh Kumar is a Mortgage Broker (FSCO lic.M08001411) with Mortgage Intelligence (FSCO lic. 10428). He can be reached be at 416-419-2566.