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As the last days of 2015 wind down and we look forward to spending time with friends and family over the Holiday Season, our thoughts may not necessarily be focused on financial planning. The truth is that we should always be vigilant about our money matters. Will you use the countdown to 2016 to review your financial matters?
Review your Financial Matters: Are your Savings on Track for the New Year?
The end of the year is a good time to take stock of our current financial situation and make a plan to budget for our 2016 contributions to our savings plans: Tax-free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), and Registered Education Savings Plan (RESP).
Registered Retirement Savings Plan (RRSP)
The maximum RRSP limit for 2015 is $24,930.00.00. In addition to your allowable annual contribution amount you can carry forward any unused contribution from 1994-2014. Depending on your tax bracket, maximizing your total RRSP room can potentially create a sizeable tax rebate. Your blue Notice of Assessment mailed to you from Revenue Canada annually will indicate what you are able to contribute. If you can’t locate it, you can access it by signing into My Account at the CCRA website.
Tax-free Savings Account (TFSA)
The current annual limit for TFSAs is $10,000 per year. As of January 1, 2016, it will drop to $5,500.00 per year, but the government will leave the limit for 2015 untouched. As of next year, the Federal Finance Minister Bill Morneau has announced that the annual contribution limit will be indexed to inflation.
Contributions held in this account are not tax deductible, but they are also not taxed when they are withdrawn. Depending on your financial situation, this type of account can be used along with your RRSP or as your main retirement savings account. The TFSA is a flexible option that can hold cash, stocks, bonds, or mutual funds. A financial advisor can help you determine the right mix of investments for your needs.
Registered Education Savings Plan (RESP)
A parent or grandparent can start an RESP for a dependent child as a way to save money for post-secondary education expenses. To start a plan, you will need to apply for a Social Insurance Number (SIN) for the child. The money invested in the plan is not tax-deductible, but it grows on a tax-free basis until it is withdrawn.
The federal government encourages families to save for a child’s post-secondary education in this manner by providing the Canada Education Savings Grant. The basic amount is 20% of annual contributions to an annual maximum of $500.00. The lifetime limit for each recipient is $7,200.00.
Before you celebrate the start of the New Year with family and friends, why don’t you give yourself the gift of a financial plan?