Are you married and share everything with your loved one, even your finances? Assess your respective incomes and have the spouse with the highest tax rate contribute (METR)1, as they will benefit from the biggest tax savings. In which RRSP account should this contribution go? It should go into the account of the spouse who will have the lowest income during retirement (RRSP or spousal RRSP). Plan well today for a brighter future.
How? You can immediately invest an amount equivalent to your tax savings by borrowing that same amount. You will then apply your eventual reimbursement to the balance of the loan.
Consider making an RRSP contribution to go into a lower tax bracket. The last tax bracket costs most. Calculate the amount you would have to contribute to avoid it and maximize profits. Your effort will quickly be rewarded by paying less tax and getting more money for your retirement.
Consider registering for the Home Buyers’ Plan (HBP) if you plan to purchase your first home in 2020. Make an RRSP contribution (at least 90 days before your purchase) to also benefit from tax savings that will help you with your project.
Do you have non-registered investments (not RRSP or TFSA) and consumer debt? Consider reorganizing your finances to make all or part of the interest on your loans tax deductible. For example, let’s say Francis has a car loan and non-registered savings. The interest on his car loan is not deductible, because he borrowed to buy a car. But he can choose to pay his car loan with his non-registered savings and take a new loan to invest it. The loan is then used to earn income and the interest on this loan is tax deductible. There are risks with that strategy, but it can be very beneficial. What experts like Marie Kondo say is true: organizing can be rewarding.
A financial health assessment is the first step to better manage your personal finances. It helps paint a clear picture of your financial situation, define and prioritize your objectives, and suggest what you should do. Take your first step now and meet with your advisor.
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