Stories of intergenerational wealth transfers fraught with the disasters of family infighting and squandering of family fortunes tend to dominate and darkly shadow those where families were successful, albeit quietly, in transitioning wealth from one generation to the next.

Those families who enjoyed success understood proactive and intentional planning, which was mindful in preparing the family and the assets for transition, was critical to that success. In addition, attention to the wants and needs of both the owning generation and the successor generation(s) highlighted critical factors embodied in winning outcomes.

Understanding family culture and the value, vision, and mission of the family wealth

It’s not all about the cash, but rather how the family came to be where they are and the vision for wealth created. The family history shared through storytelling chronicles the family’s experiences creating and managing wealth. These stories bring to life the hard work and sacrifice expended, not only of those who engaged in the work but also recognition that the entire family participated in that work and sacrifice. This storytelling has added value as it allows all family members to share their perspectives on what it was like living during that time and through the same experience. Understanding differing views of the experience may shed more light on family members’ attitudes toward money and wealth. Discussing wealth, and the attitudes towards it, opens the forum for further discussions on what wealth means, its vision and mission — for both the family and the communities important to them. Conversations about the family’s goals, what they seek to achieve, and what they need to do to succeed are also important. This understanding of where the family came from (its history), where it is now (its culture), and what it aspires to (its vision, such as legacy and philanthropy) may then lead to the development of wealth transition plans that meet the needs and reflect the shared values of all who are impacted by those plans. ‘People support what they help to create’— successful families realize that buy-in of transition plans by those who live the results is necessary for successful outcomes.

Generational differences are opportunities and challenges

How often have we heard or said ourselves, “They just don’t get it,” “How can they like that music,” or “They don’t work like I do.” It’s no surprise that generations differ since generational perspectives are formed over time. How we see the world and what we value is collectively impacted by life experiences — the era in which we grew up, prevailing attitudes, world events, technology and other influences. Recognizing these differences and talking about the opportunities and challenges they might invite allows each generation to understand the other better and the unique value each brings to the family. Successful families realize planning needs to work across generations and not strictly for just one.

Preparing the next generation for success

The capabilities required to receive and manage wealth are acquired over time through education, managing and protecting the family’s wealth, and through real-life experiences — both successes and failures — managing money and other forms of wealth. Therefore, understanding what is to be inherited (components of wealth) and how to manage that wealth is essential.

Skill development is a form of self-defence. Educating the next generation, arming them with the competencies necessary to manage wealth, such as:

• financial literacy and strategic intelligence,
• communication,
• decision-making, and
• forging meaningful relationships will build confidence and independence to manage and maintain their own life, the wealth they may create, and that they may inherit.

Exposing and engaging the next generation in the activities required to manage the family’s wealth can create a connection to that wealth, promoting a sense of pride in ownership. For example, scrubbing the family boat, sweeping the floor of the family’s store or helping repair a broken door or window of the family’s rental properties builds practical life skills and interaction with assets that require care and attention to continue to support the family.

Gaining relevant experience in the activities required to manage wealth, such as following a budget (allowance), planning for saving and spending (personal and charitable), working with an advisor, and joining in conversations about the family’s wealth promotes learning moments in times of success and failure, both of which are important.

Sharing details of what will be transitioned and how it will be transitioned and subsequently held allows the next generation to understand the components of wealth and the intentions of transition plans. With this understanding comes an appreciation for the required skills, their roles, and the responsibilities of wealth.

Successful families realize that preparing, educating and mentoring the next generation to be successful recipients and owners of wealth is critical for successful transitions and ongoing continuity of wealth.

Forums for communication

The value and importance of communication within the family and with external stakeholders and advisors shouldn’t be overestimated when building and maintaining a thriving intergenerational legacy. Communication not only informs and educates, but it also serves to build trust within a family. Trust breeds goodwill which may be accessed and relied upon when difficulties arise.

Communication takes all forms in families; a chat in the car, over a Sunday dinner or other family gathering. Some families have more established practices, such as a family meeting, particularly when discussing matters of high importance to the family. These meetings belong to the family and take whatever form works best for them. Some formality lends to success, such as scheduled meetings, predetermined agendas, assignment of roles (note taker, timekeeper, meeting organizer, etc.) and a fun factor. An important issue to consider: who will be invited to the meeting, only the nuclear family or will an invitation be extended to in-laws?

Many families find great benefits in family meetings as they support:

• transparency, which is essential to avoid assumptions
• a shared understanding
• articulating family goals and values, which may create unity of purpose and vision
• curiosity and inspired leadership, and
• strengthening relationships and building connection

Family harmony, perceived fairness, and no messes left behind are often the primary goals of a successful wealth transition and continuity plan. Preparing the next generation, sharing details and intentions, and ongoing open and frequent communication have served successful families well.

source https://rosenbergdri.ca/generational-wealth-planning-engaging-and-preparing-the-next-generation/

For many of us, retirement is a finish line. After you cross it, you can relinquish your responsibilities and relax. But too much relaxation and not enough responsibility can soon translate into feelings of boredom and a lack of purpose.

To combat this, more and more new retirees are taking stock and reprioritizing what they find meaningful in life. One of the best ways to do this is through introspection.

Mindfulness and purpose

As with any new life chapter, retirement lets us reflect on who we are and who we want to be. This regularly happens throughout our careers as we change roles or employers based on our skills. But there is no reason this should stop once we hit retirement.

How we define ourselves in retirement may look a bit different. For this, New York Times columnist David Brooks suggests using an analogy of “resume virtues” and “eulogy virtues” by imagining what you would like said about you during a eulogy instead of what you would say about yourself during an interview. When looking ahead, picture the legacy you want to leave and the memories you want to share with others.¹ Try asking yourself:

• Who are the people I care about?
• What do I want them to see when they think of me?
• What makes me happy? What makes them happy?
• Which memories do I often come back to? How have they shaped who I am?

These can be daunting questions that require a lot of reflection, but asking them is an important first step. If it helps, imagine your life as a book where you are the main character. Think about the qualities that define your actions.

Activities and hobbies with meaning

Once you uncover who and what adds meaning to your life, you’ll have an easier time pinpointing the activities that offer the most value to your life. Think of them as the moments that make up the story. Where do these stories take place, and what are you doing in them? Here are some questions to help you identify the activities you gravitate to:

• Which activities do I engage in, and which have I been involved in before? Are there new or more profound ways I can pursue them?
• Which activities have I always wanted to do, if only I could? Are they still things I can/would like to pursue?
• Do these activities align with my renewed sense of self?

Once you are able to identify some activities, imagine how they would fit in your schedule. Ask yourself more concrete questions like “What does a typical Tuesday look like?”. Being more precise about how you wish to spend your time will help shape your idea of purpose and understand how to achieve it.

Maintaining a purposeful community

When we think about what we find meaningful, it’s easy to focus on ourselves. But our sense of purpose may be just as reliant on the other people in our lives. The chances are that a significant part of your retirement will be spent with people with whom you have spent your life cultivating a relationship.

When thinking about what you want to accomplish, ask yourself who else plays a role in your story.

• Do my activities involve or help the people and communities I care about?
• Are there ways of expanding their impact?
• Can I leverage them to build or strengthen communities?

For example, let’s say you always wanted to spend your retirement travelling the world, but as the years go by, you find greater meaning in spending time with your kids and grandkids. You can shift your priorities to spend quality time or travel with them and create memories together.

As another example, perhaps you have spent much of your recreational time playing hockey and want to maintain an active connection to it. Consider offering lessons to less experienced players or helping local hockey programs flourish.

Creating your retirement legacy

Retirement shouldn’t be a passive experience. It’s another chapter to discover yourself and create or redefine your purpose. Unlike our ideas of a “good job” or a “good education,” it is hard to determine what exactly defines a “good retirement.” But if you take the time to step back from the page before diving in, you give yourself more control over the masterpiece that is your life.

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¹ https://www.nytimes.com/2015/04/12/opinion/sunday/david-brooks-the-moral-bucket-list.html

source https://rosenbergdri.ca/preparing-for-a-purpose-driven-retirement/

When it comes to saving for retirement, planning ahead for health-related expenses may be key to financial stability and success.

By 2030, it is predicted that close to one in four Canadians will be a senior,¹ and chronic conditions will be prevalent in more than 90% of the population over age 65. While we enjoy the privilege of a strong, publicly funded healthcare system here in Canada, longer life expectancies, the need for long-term care, and additional health-related costs can significantly impact your retirement savings and lifestyle.

Here are some tips on anticipating health-related expenses and ensuring your financial plan does not underestimate them. Planning ahead to cover these costs will allow you to balance your health and financial priorities in retirement.

Start with a strong foundation for your retirement plan

At its core, proper planning can ensure that your transition into retirement is a positive one without financial stress. Creating a Total Wealth Plan requires you to be realistic about estimating your income and expenses across all stages of your retirement.

During your retirement, income typically comes from these primary sources:

1. Government benefits, including the Canada/Quebec Pension Plan and Old Age Security;
2. Employer-sponsored pension plans, group RRSPs and/or stock option plans;
3. Individual savings and investments, including RRSP/RRIFs, TFSAs, real estate, non-registered investments, and savings; and
4. Self-employment or employment income from an encore career or passion project.

Income projections usually anticipate changes in your spending as you age, with assumptions for inflation and investment returns.

Unfortunately, too many plans overlook your retirement goals. Meaningful discussions should take place about your vision for your lifestyle as a senior and any related health considerations—all of which will impact your expenses. A Total Wealth Plan considers your vision of retirement, including health considerations and potential costs relating to health care.

Recognize the real impact on women

Women face unique challenges in our aging population. Female seniors require more resources over retirement as they are likely to live longer. Furthermore, impacting their capacity for savings is the gender wage gap and the fact that females often take temporary unpaid or reduced pay leave from the workforce to assume responsibility for child-rearing or senior caregiving. Women’s wealth accumulation may also be affected as women have lower financial literacy scores and less confidence in making financial decisions.³ This literacy gap is more pronounced among seniors who may become responsible for financial matters for the first time upon the death of their spouse.

Lastly, women at any age are more likely to develop Alzheimer’s disease,⁴ and Multiple Sclerosis is three times more common in women.⁵ Living with a critical illness can also result in higher healthcare costs.

Anticipate healthcare-related expenses

No matter your age or lifestyle, everyone has out-of-pocket healthcare expenses. Healthy lifestyles, age and genetics, can impact these costs, and these expenditures can become significant throughout a lifetime.

Assuming provincial health care plans will fully pay health-related costs, these programs may only cover some of the costs for prescription drugs and long-term care facilities. Provincial coverage varies widely for prescription drugs and restricts the types of medications that will be covered. Consequently, it should be assumed that the government will not reimburse certain drug costs. More likely, specialized treatments, private nursing or specialized residential care facilities will be out-of-pocket expenses. Examples of costs that should ideally be planned for include health insurance premiums, dental services, naturopathic treatments, wheelchairs or other transportation devices, hearing aids, home renovations required to accommodate a disability, in-home companionship or care, and specialized vehicles.

Retirees who are increasingly concerned with funding the cost of care may have good reason to be worried. Healthcare costs are predicted to double from 2011 by 2031,⁶ making it essential to contemplate their impact on your retirement plan.

Investigate insurance options early

Workplace health and dental coverage typically end at retirement. However, some retirees have ongoing coverage paid by their employer or the option of continuing coverage at their own expense.
It is important to understand the available coverage to make an informed decision on health insurance. Prescriptions, paramedical services, vision care, and dental care are often options, but there may be limits to annual or lifetime coverage. In addition, pre-existing conditions before purchasing the coverage may be exempt entirely from the benefits.

Critical illness insurance is a type of coverage that can protect your financial health. A typical policy will cover a range of illnesses outlined in the contract; if the insured is diagnosed with one of the conditions covered, the policy will pay a lump sum, tax-free benefit after a prescribed waiting period. Having critical illness insurance ensures that, if you do fall ill, your medical concerns will not be compounded by financial ones.

When long-term care is required, the costs can be high. The average cost for a long-term care facility in Canada can range from $800 to $8,000 a month, depending on the location and type of care. Over an extended period, these costs could threaten the financial security you’ve worked hard to achieve. Long-term care insurance provides a regular benefit that can be used to pay for the care required in your home or a care facility. A benefit would become payable when the insured cannot perform a certain number of activities of daily living (ADLs) outlined in the contract. This type of protection can ensure quality care without financial stress.

Explore tax credits and deductions

Tax credits and deductions are available for individuals with disabilities, their supporting family members and caregivers. The purpose of these credits and deductions is to provide some relief for healthcare costs. Being eligible for these programs can also open the door to other federal or provincial programs, which could alleviate the pressure of expenses on your retirement savings.

Plan a successful retirement

When your transition to retirement is well planned out, it can be the most rewarding time of your life. Creating a new social network, maintaining physical activity, exploring creative discoveries and enrolling in ongoing learning all contribute to a successful evolution. But none of those endeavours will be enjoyable if you’re not feeling well. So, a retirement plan built to accommodate any healthcare and comfort measures you may need down the road can reduce stress.

Considering appropriate legal documentation, including your Will, Power of Attorney and Personal Directive for Health Care, is essential to protect you in the event of an unfortunate change in circumstances. It’s wise to work with a coordinated team of professionals who know your big picture and can ensure your wishes are articulated, documented—and honoured.

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¹ Seniors, Statistics Canada Publications 11-402-X https://www150.statcan.gc.ca/n1/pub/11-402-x/2011000/chap/seniors-aines/seniors-aines-eng.htm
² Annual Report on State Public Health Canada 2010 Chapter 3 Chronic Conditions and Infectious Disease https://www.canada.ca/en/public-health/corporate/publications/chief-public-health-officer-reports-state-public-health-canada/annual-report-on-state-public-health-canada-2010/chapter-3.html
³ https://www.canada.ca/en/financial-consumer-agency/news/canadas-financial-literacy-blog/empowering-women.html
⁴ https://www.statnews.com/2019/07/16/new-clues-women-alzheimers-risk-differs-from-men
⁵ https://www.nationalmssociety.org/What-is-MS/Who-Gets-MS
⁶ Manuel, Douglas & Garner, Rochelle & Finès, Philippe & Bancej, Christina & Flanagan, William & Tu, Karen & Reimer, Kim & Chambers, Larry & Bernier, Julie. (2016) https://pubmed.ncbi.nlm.nih.gov/27822143/

source https://rosenbergdri.ca/anticipating-health-related-expenses-in-retirement/

As life goes on, achieving happiness and wellbeing can get increasingly difficult as our list of priorities like work, school, family, finances, and more become harder to balance. How do you know if you are on track?

One effective measure, our quality of life, tallies the influences that impact our physical and mental wellbeing on a daily basis. It can include wide-ranging factors, from material living conditions to social supports and access to fundamental rights. Our list of priorities differs from person to person, but one of the pillars supporting our quality of life that we all share is health.

Measuring quality of life through indicators

Income is frequently used as the primary indicator of quality of life, and governments often consider it when making policies (particularly GDP, since employment and income are traditionally tied to standard of living).¹ But taken alone, it does not paint a complete picture.

A large majority (82%) of Canadians believe that indicators like health and safety are very important measures of happiness in their lives.² To promote a holistic way of thinking about what determines quality of life, the Department of Finance Canada developed the Quality of Life Framework for Canada that divides indicators into five domains: Prosperity, Environment, Society, Good Governance, and perhaps most importantly, Health.

Health’s vital role in quality of life

We may take it for granted, but health plays a particularly large role because of how it ties into all the other aspects of our lives.

Whether at work or play, what we do and how we do it depends on the status of our health. Changes such as chronic anxiety or back pain can create significant barriers in our work and social spheres and hinder how we participate in activities. Likewise, our work and play can be the cause of health status changes. For example, harmful repetitive movements or a sudden workplace injury may lead to declining health. Interactions from any aspect of our lives have the potential to cause us undue stress or lead us to make poor health trade-offs. It’s a cyclical process.

It’s easy to see why maintaining healthy practices is so vital to living our best – it allows us the opportunity to put our time and energy into the things we value most. What isn’t always clear, however, is how to make sense of all the healthy practices out there. In the Quality of Life Framework for Canada, health indicators are divided into two categories: individual health (Healthy People) and healthcare systems (Healthy Care Systems).

Navigating individual health practices

Individual health encompasses our objective health as it appears on paper and an individual’s self-rated health. How we feel, whether in general or at any given moment, influences the activities we participate in and the enjoyment and satisfaction we receive from them. A healthy quality of life goes beyond a clean bill of health.

By the same token, we can still feel healthy even with health problems, so long as we have the energy and tools to live the way we want. For example, a physical disability may change how we perform day-to-day tasks, but access to devices and services designed to help us overcome associated barriers may alleviate the negative impacts we face.

As individuals, our health relies on the healthy choices we make that keep us feeling at our best. Consistently exercising healthy practices grants us the physical and mental capabilities to do the things that enrich our lives and give us purpose. But we can’t do it all on our own.

Navigating healthcare systems

Access to healthcare and support is essential for managing good health. For someone with clinical depression, for instance, the ability to access an array of supports and tools – counselling, therapy, medication, and effective management strategies – may significantly help combat the challenges they otherwise find impossible to manage on their own.

Healthcare systems also foster education about practices that promote good health and wellbeing and those that do not. In turn, we can share the knowledge with others and form communities, which can further strengthen our quality of life.

Trade-offs

Reaching a high quality of life involves trade-offs, regardless of which indicators you consider. Health is no exception. We often make poor health decisions for the benefit of other aspects of our lives, such as taking a high-paying but stressful job, engaging in riskier activities we enjoy, or sacrificing sleep to get ahead on a project. Trade-offs may pose little risk in moderation, but long-term health sacrifices can cause big problems down the line.

Even though maintaining optimum health can seem overwhelming, it’s okay to start out small. Replacing a sugary snack or adding evening walks to your routine may seem insignificant at first. But over time, simple decisions lead to significant improvements in our mental and physical state. And these improvements allow us to put more energy into the things that matter to us.

To realize your best quality of life, reflect on the indicators that are important to you and your happiness, and consider how your health fits in with them. Finding a stable balance can take time, but your health is a worthwhile investment that can help you live your best life for as long as possible.

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¹ https://www.canada.ca/en/department-finance/services/publications/measuring-what-matters-toward-quality-life-strategy-canada.html

² https://www.canada.ca/en/department-finance/services/publications/measuring-what-matters-toward-quality-life-strategy-canada.html

source https://rosenbergdri.ca/maximizing-your-quality-of-life-through-optimal-health/

Your RRSP is the key to beating inflation, saving taxes and ensuring a financially healthy retirement. However, unless you maximize your RRSP contributions every year, you will likely cheat yourself out of significant benefits at retirement.

To take advantage of tax-free compounding over time, it is vital to contribute as much money every year you can and as early as possible. If you’re among the many Canadians who have trouble coming up with your maximum contributions every year, the following are some strategies to help you increase the overall amount of your contribution.

Know your contribution limit

If you are not a pension plan member, your limit is 18% of your previous year’s earned income to a maximum of $31,560 in 2024. If you are a member of a pension plan, your limit is 18% of your previous year’s earned income to a maximum of $30,780 in 2023, less your pension adjustment (PA) and your past service pension adjustment (PSPA). Your RRSP contribution limit can be found on the Canada Revenue Agency (CRA) assessment from your previous year’s tax return.

Carry forward

You are allowed to carry forward any unused contribution room from 1991 onwards. This means that if you had one or more years when you did not make your maximum contribution, you can carry forward this amount indefinitely and add it to your contribution amount. So, for example, if in 2023 your maximum contribution level was $30,780, but you contributed $20,000, the extra $10,780 that you could have contributed that year is carried forward to your amount for your 2024 contribution.

So, if your 2024 contribution is $31,560, you could contribute as much as $42,340.

The $2,000 over-contribution

Current legislation allows for amounts of up to $2,000 over and above your contribution limits to be contributed to your RRSP. While this legislation is in place to enable contributors to freely contribute without worrying about going over their yearly contribution amount, many investors have taken advantage of this extra room. As a result, they have purposely over-contributed to their plan. The benefit is the number of years of compounding that the extra money will have in the RRSP.

The over-contribution can also be a good strategy for parents or grandparents who wish to contribute to an RRSP for a grandchild who is 18 and over and has sufficient earned income to set up an RRSP. Because the RRSP is in the grandchild’s name, income attribution rules are not applicable. Assuming the funds are invested at 5% over 40 years, this $2,000 can grow to over $14,000.

RRSP loans

Consider borrowing the necessary funds for a contribution. Although interest on loans used to make RRSP contributions is not tax-deductible, the taxes saved on the RRSP contribution and earnings in the RRSP will usually more than compensate for the interest paid.

Contributing “in-kind”

One of the benefits of a self-directed RRSP is the ability to make non-cash contributions or contributions in-kind. For example, if you presently own Canada Savings Bonds outside your RRSP, you can deposit them as a contribution to your RRSP. Certain equities, bonds and mutual funds are also available. When you make a contribution in-kind, CRA considers that you have sold the asset at its fair market value (although you haven’t), and any resulting capital gain will be subject to tax. Any loss from a contribution in-kind will be denied for tax purposes.

Contribute early

Another way to maximize your RRSP contribution is to contribute as early as possible in a calendar year. By making your annual contribution in January of each year rather than waiting until the end of February of the following year, your RRSP assets will enjoy an extra 14 months of tax-deferred growth every year. This can mean a difference of thousands of dollars over time.

Contribute often

If you can’t make your contribution in a lump sum at the beginning of the year, consider a Pre-Authorized Contribution (PAC) plan. A PAC plan allows you to make monthly contributions to your RRSP, which will significantly increase the growth of your RRSP over time. The minimum monthly investment required for ScotiaMcLeod’s personally tailored PAC Plan is $100 per month. These contributions can be invested in any options available with your self-directed RRSP, including your choice of mutual funds. Remember that when it comes to RRSP investing, the effect of tax-deferred compounding over time cannot be underestimated, and the sooner you get those funds working for you, the better off you will be.

source https://rosenbergdri.ca/maximizing-your-rrsp-contributions/

Financial planning insights for approaching or living in retirement.

By the time you are approaching retirement, and if everything has progressed according to plan, you will likely have paid off a significant portion of your mortgage. Your children may be heading off to post-secondary education. Better yet, you will probably be earning the highest income of your career.

Unlike other stages in your life, this one comes with a dramatic shift in your saving and investing mindset as you embrace the reality of retirement. First, you must know what you want and what matters most—and make sure your Total Wealth Plan reflects this reality.

Ramp up your savings

Now more than ever, contributing as much of your income as possible will help boost your retirement savings. If you follow the “50/30/20” guideline, at least 20% of your income should go towards savings (the remaining 50% towards necessities and 30% towards discretionary items). If you are catching up on your savings, the more income you can direct towards your savings, the better. The good news is that you should earn more than in your earlier years.

Review your asset mix

Asset allocation is widely considered the most significant driver of investment returns and should be adjusted as you age. One commonly cited guideline to getting the right mix is holding a percentage of stocks equal to 100 minus your age. For example, a 55-year-old could hold a mix of 45% equities and 55% fixed income. This is simply a suggestion to consider, as each person’s and family’s financial situation is unique.

Do not depend on your house for income

Many Canadians expect to rely on their homes for retirement income. Not surprisingly, a home is one of the most significant assets many Canadians own. While the last decade has seen home prices rise steadily across Canada, which has likely increased the value of your home, if there is a correction when you choose to sell, this could put a significant dent in your expected nest egg. Many who decide to downsize may wish to remain in the community where they have established roots. But moving to a smaller home or condo in the same area may free up less home equity than anticipated, particularly if you do not want to sacrifice your lifestyle. It is also easy to forget all the costs associated with moving, which can add up.

Discuss retirement with your spouse

Holding investments at various financial institutions may seem like an effective way to diversify investments, but it could keep you from reaching long-term financial goals. Combining investments at a single institution can have many benefits, including greater clarity in achieving your financial goals. Consolidating your assets can make investing more convenient by reducing the number of tax slips and statements you receive, making investments more cost-effective by saving on fees, achieving effective diversification and maximizing tax efficiency. By simplifying your investments and executing a fully integrated plan, you are well poised to stay on track.

Take stock of income sources

Many Canadians have been accumulating savings their entire life. However, in your pre-retirement life stage, the tables turn. Therefore, it is important to determine your income sources when you are no longer working. These income sources include government pensions, workplace pensions, registered and non-registered accounts, and Tax-Free Savings Accounts (TFSAs). Taking stock of your income sources will help you to prepare for retirement and determine the lifestyle you can lead within retirement.

Conserve your retirement savings

Saving enough for retirement is important, but so is drawing from it at an appropriate pace in retirement. Published research indicates that individuals aged 50 and over reported saving a proper amount of income (an average of 20% annually) but planned to withdraw 15% of their retirement savings annually—three to four times the rate recommended.¹ The sustainable withdrawal rate is the estimated percentage of savings you can withdraw each year throughout retirement without running out of money. As a rule of thumb, aim to withdraw no more than 4% to 5% of your savings in the first year of retirement, then adjust that amount every year for inflation.

Talk about your estate

While it can be an emotional conversation, speaking with your family about estate issues now can help avoid conflict between loved ones down the road. It is unnecessary to provide all the details, but understanding your wishes and the legacy you want to leave can go a long way. It is common to choose a family member to be the executor. However, select the family member carefully as this is a role with significant responsibilities, and both parties should be comfortable with the decision.

Conclusion

Over the past few decades, Canadians’ pre-retirement and retirement years have switched from being a quiet time to one of the best times of their lives as empty nesters rediscover their passions—and have the income to enjoy them to the fullest. To ensure you are prepared for this important stage, a Total Wealth Plan and disciplined spending and investing will help you live life to the fullest in your retirement years.

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¹ Survey: Canadians nearing retirement need help for the future; Morneau Shepell, July 2016.

source https://rosenbergdri.ca/approach-retirement-with-confidence/

Given market conditions, you may occasionally find investments in your non-registered investment portfolio that are in an inherent loss position. These losses can represent an opportunity to use a tax-loss selling strategy.

Here are some tips and traps to avoid when actioning a tax-loss selling strategy.

Why you may want to trigger a loss

Sometimes certain conditions or priorities make realizing an investment loss the best choice. For example, you may not feel the underlying investment will likely recover, you may want to reallocate the funds to an alternative investment and rebalance your portfolio, or you may require cash to fund your lifestyle.

Regardless of the reasoning, once realized, the loss can be an opportunity to offset gains. A capital loss must first be used against capital gains, if any, in the current year. If there are no net capital gains in the current year, the capital loss can either be carried back and applied against capital gains in any of the three preceding years or carried forward to apply against capital gains in any future year.

How you may trigger a loss

The easiest way to trigger a capital loss would be to sell the investment on the exchange on which it is traded.

If you want to start transferring wealth to your adult children, consider transferring the investment as a gift or a sale for fair market value (FMV) consideration to an adult child. However, as discussed below, you cannot transfer the investment to your spouse and realize the capital loss.

Watch out for the superficial loss rules

Initially, you may think you can dispose of the investment, realize the capital loss and immediately reacquire the same investment, all while taking advantage of the capital loss to offset past, current, or future capital gains.

The superficial loss rules look 30 days in the past and 30 days in the future. If an identical property is acquired during this 61-day period, which includes the sale date, and you continue to hold the repurchased investment on the 30th day following the sale, the capital loss will be denied. The superficial loss rules apply not only to your actions; your capital loss may be denied if any affiliated individual repurchases the same investment. An affiliated person includes your spouse or common-law partner (partner), a company controlled by you and/or your partner, and a trust in which you or your partner are a majority interest beneficiary.

If the superficial loss rules apply, the denied capital loss is added to the repurchased investment’s adjusted cost base (ACB). It is, therefore, not available to offset capital gains.

What is an identical property?

The concept of identical property is important to understand before you begin realizing capital losses in your non-registered investment portfolio. So, what is an identical property? They are properties that are the same in all material respects so that a prospective buyer would not have a preference for one as opposed to another. To determine whether properties are identical, it is necessary to compare the inherent qualities or elements which give each property its identity, which must be decided based on the relevant details of your particular situation.

The most basic example is shares of the same corporation: shares of ABC Inc. are identical to shares of the same class of ABC Inc. A more complex example relates to mutual fund trust units, as the underlying asset mix of various investments can be identical despite having a different fund name.

The moral of the identical property story is to always check with your tax advisor to ensure that your efforts to realize a capital loss on a particular property will not be thwarted by the unintentional acquisition of an identical property within the superficial loss rules time period.

Efficient capital loss selling planning for married and common-law couples

The ways the superficial loss rules can potentially have a negative impact on an intended tax-loss selling transaction were discussed above; however, these rules can also be used to the advantage of your overall household tax liability.

For example, Mr. Y and Mr. X are common-law partners planning a big vacation, which they will require funds to pay for. Mr. Y has shares of GHI Inc. that he has held for many years with an FMV of $10,000 and an ACB of $5,000, resulting in an unrealized capital gain of $5,000. Mr. X has shares of DEF Inc. that he bought earlier in the year for $20,000 that have declined in value and are now worth $15,000, resulting in an unrealized capital loss of $5,000. Mr. X’s portfolio has pervasively declined in value, so he does not have any unrealized capital gains that he may realize to offset the inherent capital loss in DEF Inc., nor does he have any realized capital gains in any of the three previous years.

If Mr. X sells his shares of DEF Inc. to Mr. Y for FMV, he will receive $15,000, either in cash or as a promissory note receivable, carrying an interest rate of at least the prescribed rate, as set by the Canada Revenue Agency. As Mr. X and Mr. Y are common-law partners, they are affiliated; therefore, the superficial loss rules will deny the capital loss to Mr. X and add it to the ACB of the DEF Inc. shares now owned by Mr. Y as long as Mr. Y continues to hold the DEF Inc. shares for at least 30 days after they are acquired from Mr. X. Mr. Y now has shares with an ACB of $20,000 and an FMV of $15,000 and may sell the shares on the open market to realize the inherent capital loss. Mr. Y may then utilize the capital loss against the inherent capital gain when he sells his GHI Inc. shares in a tax-neutral transaction to obtain the necessary funds to pay for the vacation.

Verify your adjusted cost base

Before finalizing your trade in hopes of realizing a capital loss, it is advisable to verify the ACB of the securities you intend to dispose of. You may think your ACB is simply the amount you paid for the securities in question; however, many factors may impact your ACB.

If you purchased the security over time, note that your ACB needs to be calculated as a weighted average ACB. You cannot select specific securities you bought at a higher price and sell those under the assumption that their ACB is the same as the amount you paid to purchase those securities. This also applies to securities held in separate non-registered accounts – you must calculate your weighted average ACB for a security across all non-registered accounts you own.

You also need to be aware of any corporate reorganizations that may have taken place, as these can significantly impact your securities’ ACB. Another item to watch out for is return of capital received, which will reduce your securities’ ACB. On the other hand, if you own securities set up for dividend reinvestment, this will generally increase your securities’ ACB.

Be mindful of the trading deadline

You may be planning to offset losses very near the end of the year. While this generally does not pose any issues, you must be mindful of the delay in trade settlement after the trade order has been placed. The trade settlement date, not the trade order date, is relevant for tax purposes. Generally, it takes two business days from the trade date to settle a trade on Canadian and U.S. securities exchanges.

The last day to place a trade order varies by year. Consult our tax due date calendar or your Scotia Wealth Management wealth advisor for this year’s trading deadline.

Watch the currency impact

The U.S. currency can fluctuate significantly. Therefore, an investment in U.S. dollars that may look like it is in a capital loss position may not be. For example, assume Ms. Z purchased shares in a U.S. company for USD$1,000 on January 3 when the Canada / U.S. exchange rate was $1.2751. At this exchange rate, the ACB of the U.S. company shares is CAD$1,275. Ms. Z decided she would look at tax-loss selling, and on November 1, she sold the shares of the U.S. company, which had decreased in value to USD$960. On November 1, the Canada / U.S. exchange rate was 1.3609, which would result in proceeds in Canadian dollars of CAD$1,307. While there is a capital loss of USD$40 ($960-$1,000) before the shares’ cost and proceeds are converted to Canadian currency, once the ACB and the proceeds are converted at the appropriate exchange rates, there is actually a capital gain of $32 ($1,307-$1,275).

While this example is for illustrative purposes, it highlights the importance of converting both the ACB and the potential proceeds of a disposition at the relevant spot rate on the day of acquisition and disposition, respectively, to ensure that once converted, a capital loss will indeed be realized.

Summary

Everyone’s situation is unique, and not all general tax planning opportunities may benefit every person. Speak with your own tax advisor for further discussion and analysis and before implementing any tax planning strategies.

source https://rosenbergdri.ca/tax-loss-selling-planning-considerations-turning-a-negative-into-a-positive/

Market volatility can be unsettling, for even the savviest of investors. In this article, we provide you with some tips on how to manage—and potentially benefit from—market volatility.

The notion of investing in the stock market without volatility is as illusory as a car without an engine. Yet, like it or not, the two concepts invariably go hand-in-hand. But does that mean you should avoid volatility—and investing—altogether? Market uncertainty can cause panic and lead to poor investment decisions, yet by recognizing short-term market uncertainty for what it is, you can help ensure that it doesn’t derail your long-term goals. Here are five tried and tested principles that can help you gain needed perspective.

Investing is most intelligent when it is most businesslike.

— Benjamin Graham

Keep calm and carry on

Investors generally feel a financial loss about two and a half times more than a gain of the same magnitude^*. Understandably, many of us experience a roller coaster of emotions when investing (as the diagram below illustrates), translating into poor buy and sell decisions. Being aware of these emotions during periods of increased volatility can help you stay focused on reaching your long-term goals.

A cycle of market emotions

 

^*Daniel Kahneman and Amos Tversky, “Prospect Theory: An Analysis of Decisions Under Risk,” Econometrica, 47,2, pp. 263–91

It’s time, not timing

Why shouldn’t you automatically sell your investments when market uncertainty sets in? Because trying to time the ups and downs of the market is a bit like rolling the dice.

As the illustration below shows, sitting on the sidelines can cost you. Over a 10-year period, if you’re out of the market for even a small number of days when the market is outperforming, you can substantially reduce your return potential. Conversely, while not always easy, staying invested can potentially translate into a better outcome.

Sitting on the sidelines can cost you

The impact of missing the best performing days from November 2009 to 2019 on a $10,000 investment.

 

Bloomberg. S&P/TSX Composite Total Return Index, November 30, 2009, to November 29, 2019. It is not possible to invest directly in an index. Assumes reinvestment of all income and no transaction costs or taxes. Value of investment calculated using compounded daily returns. Missing 10, 20 and 30 best days excludes the top respective return days.

Manage risk, don’t avoid it

Risk can be a loaded term when it comes to investing—and is often misunderstood. Often seen as synonymous with risk, volatility measures how much the return of an investment or the broader market fluctuates. While some may fixate on these fluctuations, the permanent loss of capital should be of greater concern. Reducing exposure to securities that are perceived as ‘risky’ will certainly lower market risk, but by doing so, long-term investors can be unduly exposed to inflation and longevity risk (the risk that you’ll outlive your savings)

Whether we like it or not, investing in the stock market and risk are a package deal. The key to long-term success is to manage your exposure to risk by using time and diversification to your advantage.

Diversification’s impact on three-year returns

While the performance of any portfolio can swing significantly each year, a balanced portfolio has historically resulted in fewer negative returns when compared to an all stock portfolio over the long term.

 

¹ Based on 3-year annualized returns ending December 31 of the S&P/TSX Composite Total Return Index from 1960 to 2019. ² Based on 3-year annualized returns ending December 31 of a portfolio of 50% the S&P/TSX Composite Total Return Index and 50% Canadian Fixed Income Composite from 1960 to 2019. Canadian fixed income composite consists of 80% FTSE Canada LT Bond & 20% FTSE Canada Residential Mortgage Index from 1960 to 1979; 100% FTSE Canada Universe Bond Index from 1980 to 2019. Source: Morningstar. Returns are calculated in Canadian currency. Assumes reinvestment of all income and no transaction costs or taxes. Best and Worst year rate of returns based on each period specified. The portfolios are hypothetical and for illustrative purposes only. It is not possible to invest directly in an index.

Put diversification to work

Often equated to not putting all your eggs in one basket, diversification is a tried and tested technique that mixes different types of investments in a portfolio to lower risk.

By including investments that are less correlated to one another—or react differently to economic and market events—gains in some can help offset losses in others. As the chart below illustrates, a diversified portfolio of different asset classes provides the opportunity to participate in potential gains of each year’s top winner while aiming to lessen the negative impact of those at the bottom.

 

Take advantage of dollar-cost averaging

Dollar-cost averaging is an investment method used to help reduce the risk of timing a lump-sum investment. By regularly investing a fixed dollar amount, the “dollar-cost averaging” process helps control the effect of market volatility by smoothing out the average cost per unit of mutual funds purchased. Over time, and in certain market conditions, it could result in a lower average cost and a higher return. The accompanying chart simulates a dollar-cost averaging strategy with a lump sum purchase from September 2007 to September 2009, a period punctuated by extreme market volatility and a significant correction.

While it’s important to note that dollar-cost averaging doesn’t always produce a better result than a lump sum purchase, the systematic approach makes investing easy. It takes the guesswork out of deciding when to invest.

Staying the course in times of turmoil

 

Source: 1832 Asset Management LP and Morningstar Direct. The illustration is based on a hypothetical investment in the S&P/TSX Composite Total Return Index. It is not possible to invest directly in an index. 1 Dollar-Cost Averaging illustration assumes 25 contributions of $400/month made between September 2007 to September 2009, totalling $10,000 in contributions. 2 Lump Sum illustration assumes a one-time $10,000 contribution was made in September 2007.

The value of advice

Short-term market ups and downs can cause even the most experienced investors to lose sight of the big picture. An advisor can help you develop a financial plan, recommend suitable investments and navigate rough waters. In fact, research on the value of advice has shown that investors find they have better savings and investment habits and almost four times the wealth of those who don’t have an advisor.

With the help of your advisor, understanding your initial reactions to market ups and downs can help you make better investment choices and view your portfolio more objectively.

 

¹ The Gamma Factor and the Value of Financial Advice, CIRANO (2016) | ² Consumer Voice Survey, Advocis & FAAC (2015) | 3 The Value of Financial Planning (Comprehensive Financial Plan), FPSC (2012)

source https://rosenbergdri.ca/five-timeless-tips-to-manage-market-ups-and-downs/

To escape from the colder winters, Canadian “snowbirds” are accustomed to spending time in the United States. However, the U.S. and Canadian governments have an Entry/Exit Information System to track and share entry/exit data with one another.

This tracking puts snowbirds or frequent visitors to the U.S. at risk of being subject to the U.S. income tax system by simply staying in the U.S. for a significant number of days.

The U.S. uses a Substantial Presence Test (SPT) to determine an individual’s U.S. tax residency for a particular year based on physical days present in the U.S. As a result, it is important to monitor your days in the U.S. and have a good understanding of the U.S. SPT to ensure you are compliant with any U.S. tax and information return filings and resulting tax liabilities that may arise due to meeting the SPT.

U.S. Substantial Presence Test

The requirement to file a U.S. individual income tax return is generally based on citizenship but can also be based on U.S. green card status or the number of days you are present in the U.S. You may be considered a U.S. tax resident if you meet the SPT for a given calendar year, and, if so, may be required to file a U.S. income tax return to report your worldwide income. This test considers the number of days present in the U.S. in a 3-year period, and it counts any day physically present in the U.S., at any time during the day and for any amount of time. For example, a partial day spent in the U.S. would count unless waiting at an airport for a connecting flight.

You would meet the SPT if you were physically present in the U.S. on at least:

• 31 days during the current year, and
• a total of 183 days during the 3-year period that includes the current year and the two years immediately preceding, counting:
  • All the days present in the current year, and
  • 1/3 of the days present in the first year preceding the current year, and
  • 1/6 of the days present in the second year preceding the current year.

An illustrative example of the SPT

This illustrative example does not meet the SPT, as the formulative result is less than 183 days. Hence, you may not be considered a U.S. tax resident for 2023.

Implications of meeting the SPT

If you meet the SPT and are considered a U.S. tax resident, you may be required to file a U.S. individual income tax return with the U.S. Internal Revenue Service (IRS) and be subject to U.S. income tax on your worldwide income. However, even if you meet the SPT, there are two exceptions to exclude you from being considered a U.S. tax resident:

1. The closer connection exception

This exception is only available if time spent in the U.S. is less than 183 days in the current year and you have a home in another country (i.e., Canada) where you have more significant ties. In these circumstances, you may file U.S. Form 8840 “Closer Connection Exception Statement for Aliens” with the IRS, which discloses information indicating a closer connection with Canada. This information includes but is not limited to your home’s location, family members, business activities, and jurisdiction where you vote and hold a driver’s license. U.S. Form 8840 must be filed on or before June 15 in the year after the SPT is met to maintain non-resident status for U.S. tax residency purposes.

2. The Treaty “tie-breaker” rules exemption

This exception is applicable if time spent in the U.S. is 183 days or more in the current year. If you are a Canadian tax resident, you must refer to the “tie-breaker” rules in the Canada-U.S. Tax Convention (Treaty), which outlines the various tests that must be satisfied in sequence to determine your country of residence. If the Treaty determines you are a Canadian tax resident by tie-breaking to Canada, you must still file U.S. Form 1040-NR “U.S. Nonresident Alien Income Tax Return,” along with U.S. Form 8833 “Treaty-Based Return Position Disclosure,” to make a treaty election to claim tax residency in Canada. Compared to the closer connection exception, additional information must be disclosed; generally, the process is more comprehensive. Both forms are due on or before June 15 in the year after the SPT is met.

Substantial Presence Test decision tree

Failure to file the forms mentioned above within the specified time frame could lead to the following implications:

• You will be considered a U.S. resident for tax purposes,
• You will be subject to U.S. income tax on your worldwide income,
• You may be required to file a U.S. individual income tax return and applicable U.S. foreign disclosure forms,
• You may be subject to penalties if you do not comply with the filing obligations outlined above.

Summary

It is essential to track your days in the U.S. closely to understand your U.S. tax requirements and comply with your tax filing obligations. Even with two exceptions to mitigate your U.S. income tax exposure and filing obligations, there are possible penalties and implications if the required forms are not filed or filed on time.

Everyone’s situation is unique, and not all general tax planning opportunities may benefit every person. Speak with your own tax advisor for further discussion and analysis and before implementing any tax planning strategies.

source https://rosenbergdri.ca/u-s-tax-planning-considerations-for-canadian-snowbirds/

The tax-free First Home Savings Account (FHSA) is a new registered plan that allows qualifying prospective first-time home buyers the ability to save $40,000 on a tax-free basis toward the purchase of a first home in Canada.

The FHSA can remain open for up to 15 years or until the end of the year in which you turn 71 years old. The FHSA must be closed by December 31 of the year following the year of the first qualifying withdrawal, and thereafter you are not permitted to have another FHSA in your lifetime.

Qualifications

You may qualify to open an FHSA if you are resident in Canada, you are at least 18 years old, and you are a first-time home buyer. For the purposes of opening an FHSA, a first-time home buyer is defined as someone who has not inhabited, in the current or any of the four prior calendar years, a qualifying home that was owned by the individual or a person who is the spouse or common law partner (partner) of the individual. This mirrors the definition of a first-time home buyer for the purposes of the Home Buyers’ Plan (HBP).

Contribution limits and rules

You may contribute up to $8,000 annually, subject to any available carryforward room, and up to a $40,000 lifetime contribution limit to an FHSA. Like a Registered Retirement Savings Plan (RRSP), contributions to an FHSA will be tax deductible, but all withdrawals to purchase a first home would be non-taxable, like a Tax-Free Savings Account (TFSA). Indeed, an FHSA essentially combines the benefits of an RRSP and a TFSA in one account. Unlike an RRSP, contributions you make within the first 60 days of a subsequent year cannot be deducted against your income in the previous tax year, as FHSA contributions are deductible on a calendar year basis.

Like RRSP contributions, you will not be required to claim the FHSA deduction in the tax year in which a contribution is made. The amount can be carried forward indefinitely and deducted in a later tax year, which may be beneficial if you expect to be in a higher marginal tax bracket in a future year.

The maximum amount of unused FHSA contribution room that can be carried forward to a subsequent year is $8,000, which means that for any year after the year in which you open an FHSA, the maximum FHSA contribution room may be upwards of $16,000 ($8,000 carried forward contribution room plus $8,000 current year contribution room).

An FHSA is permitted to hold the same types of qualified investments that are currently allowed in an RRSP and TFSA, including mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates.

You may open multiple FHSAs, but the total amount you can contribute to all your FHSAs cannot be more than your FHSA contribution room for the year.

Unlike RRSPs, you cannot contribute to your partner’s FHSA and claim a deduction. However, you can give your partner the funds to make their own FHSA contribution without the normal spousal income attribution rules applying.

Over-contributions

A 1% penalty tax on over-contributions to an FHSA will apply for each month (or part of a month) to the highest amount of such excess that exists in that month.

When your annual contribution room is reset at the beginning of each calendar year, over-contributions from a previous year may cease to be an over-contribution. You would be allowed to deduct an over-contributed amount for a given year in the tax year in which it ceases to be an over-contribution, but not earlier. However, if a qualifying withdrawal is made before an over-contribution ceases to be an over-contribution, no tax deduction would be allowed for the over-contributed amount.

To ensure you do not overcontribute to your FHSA, you may find the details about your FHSA contribution room on your Canada Revenue Agency (CRA) notice of assessment or reassessment.

Withdraws and transfers

Funds withdrawn to make a qualifying home purchase are not subject to tax if certain conditions are met. First, you must be a first-time home buyer at the time of withdrawal.

Interestingly, the definition of a first-time home buyer for withdrawal purposes does not take into consideration your partner’s home ownership, which is different from the definition for the purposes of opening an FHSA, as explained above. So, even if you lived in your partner’s home before your FHSA withdrawal, you may be considered a first-time home buyer and benefit from the tax-free withdrawal to help purchase your new home.

You must also have a written agreement to buy or build a qualifying home before October 1 of the year following the year of withdrawal, and you must intend to occupy that home as your principal place of residence within one year after buying or building it. The home must be in Canada.

If you meet these conditions, the entire balance in the FHSA can be withdrawn on a tax-free basis in a single withdrawal or a series of withdrawals. The FHSA must be closed by December 31 of the year following the year of the first qualifying withdrawal, and you are not permitted to have another FHSA in your lifetime.

Any funds not used toward a home purchase can be transferred to an RRSP or Registered Retirement Income Fund (RRIF) penalty-free and tax-deferred. These transfers will not affect your RRSP contribution room, nor will they reinstate your $40,000 FHSA lifetime contribution limit. Funds transferred to an RRSP or RRIF become subject to the rules applicable to those plans. Funds can also be withdrawn from an FHSA on a taxable basis if not required for a first home purchase.

You will also be permitted to transfer funds from an RRSP to an FHSA on a tax-free basis, subject to the FHSA annual and lifetime contribution limits. These transfers would not be tax deductible and will not reinstate your RRSP contribution room.

Other important considerations

You may be able to use both the FHSA and the HBP toward the same qualifying home purchase. The HBP allows qualifying individuals to withdraw up to $35,000 from their RRSP to buy a first home. Combining the two programs, you may be able to access up to $75,000, plus growth in the FHSA, for use as a down payment on a qualifying home purchase.

Like RRSPs and TFSAs, interest on money borrowed to invest in an FHSA will not be tax deductible, and you cannot pledge FHSA assets as collateral for a loan without punitive income tax implications. In addition, FHSAs will not be given creditor protection under the Bankruptcy and Insolvency Act.

Death of an FHSA holder

As with TFSAs, you can designate your partner as the successor account holder, in which case the FHSA can maintain its tax-exempt status after death. The surviving partner would then become the new holder of the FHSA following the death of the original holder. The surviving partner must meet the eligibility requirements to open an FHSA. The surviving partner may also transfer the FHSA on a tax-deferred basis to their RRSP or RRIF or receive the assets in the FHSA as a taxable distribution.

If the surviving partner has been designated as a beneficiary (not the successor holder) of the FHSA, they cannot become the new holder of the FHSA. They may either make a direct transfer of the FHSA on a tax-deferred basis to their FHSA, RRSP, or RRIF or receive the assets in the FHSA as a taxable distribution.

Alternatively, if anyone other than the surviving partner is designated as the beneficiary, they must include any funds received from the FHSA in their income. Finally, where there are no designated beneficiaries, the amounts from the FHSA will be distributed and taxed as income to the deceased’s estate.

Inheriting an FHSA will not generally affect the surviving partner’s FHSA contribution room. There is an exception if the deceased taxpayer was in an overcontributed position at the time of passing. In this case, the surviving partner is deemed to have contributed to the deceased’s FHSA, thereby reducing their contribution room and potentially putting the surviving partner in an overcontributed position. If the beneficiary of an FHSA is not the deceased account holder’s partner, the funds would need to be withdrawn, paid to the beneficiary and be taxable to them.

Summary comparison: FHSA vs. HBP (RRSP)

Planning

If you are eligible to contribute to an FHSA and an RRSP, you may consider contributing to an FHSA first, up to the annual contribution room of $8,000. Even if you have no intention of purchasing a home in the future, contributing to an FHSA rather than an RRSP maintains your RRSP room for future use. If you decide not to buy a first home in the future, you may transfer your FHSA contributions plus growth to your RRSP without affecting your RRSP contribution room. Alternatively, if you contribute to your RRSP first, you can only transfer the RRSP contributions to an FHSA up to your available FHSA contribution room, and you do not get that RRSP contribution room back in the future. The FHSA may be the preferred savings vehicle if you are eligible, even if you do not plan on purchasing a first home.

If you do plan on purchasing a first home, you may consider waiting before opening an FHSA since the 15-year time limit begins upon opening the account, which may put you in a position in the future where you are required to close your FHSA before finding your first home. Notably, the maximum annual contribution you can make to your FHSA is $16,000 if you have available carryforward room. So, if you plan to one day become a homeowner, carefully considering the account’s 15-year time limit should be factored into your home-buying planning.

In conclusion

Everyone’s situation is unique, and not all general tax planning opportunities may benefit every person. Speak with your own tax advisor about the FHSA for further discussion and analysis and prior to implementing any tax planning strategies.

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¹ Please refer to the most recent version of Scotia Wealth Management’s Financial planning facts and figures on Enriched Thinking for the current year’s annual maximum RRSP contribution limit.

source https://advisor.scotiawealthmanagement.com/rosenberg-dri-financial-group/first-home-savings-account-2/