Winnipeg Free Press

Winnipeg Free Press (Newspaper) - October 05, 2008, Winnipeg, Manitoba C m y k Page 6b6 Money matters editor Steve Pona 697 7264 business free press. My. Ca i Winnipeg repress. Com sunday october 5, 2008 b 6 i tvs getting financial planners and accountants across the nation hot and bothered. They Are hailing it As the most dramatic change to the Way we save since rasps were introduced in 1957. Now if Only it would Only arouse As much enthusiasm amongst the general Public. Its name alone should Send Shivers of Good vibrations up your spine but maybe you a vent heard or have simply forgotten about the announcement in this years Federal budget tax free savings account the name says it All says James Kraemer a certified financial planner and chartered accountant with Tai financial services in Winnipeg. You can accumulate Money in there tax free and you dont need to worry about it in the Short term because you can invest it a savings account or interest bearing account thatus liquid. It does not have to be a Long term investment. Beginning in 2009, Canadian citizens 18 years and older can invest up to $ 5,000 a year in this registered account and grow that Money any Way they see fit in Bonds gics Mutual or Stock without having to worry about any tax consequences at All. Unlike an resp which allows you to invest Money before taxes for a tax refund the tax free savings account Ofsa is an after tax contribution. Its not tax deductible but because youve already paid income tax on the Money invested in the account it wont count As income when you withdraw it. An resp May grow tax free but when you withdraw it its taxed As income. Penalties also apply if you withdraw it before retirement exceptions Are for a Home or education. A Ofsa can grow tax free can be withdrawn tax free and can be used at any time for any reason. Whats neat about it is that if you Are unable to put the $ 5,000 in that amount will accumulate like an resp says Kent Haugen also a chartered accountant and certified financial planner. If you did not take advantage of the plan for a couple of years for instance you could invest $ 15,000 in the third year. Conversely if you withdraw your contributions you can put them Back in at a later Date without any consequences says Haugen a partner with Winnipeg based accounting firm Haugen Morrish angers. This Means if you withdraw $ 2,000, you can contribute an additional $ 2,000 later on to replace it. While both accountants would recommend to most clients that they first maximize their contributions to rasps they advise anyone with non registered savings move them into a Ofsa. The ones that attract the highest interest Are the ones that you want to do first Kraemer says. Interest earned from savings accounts and Bonds for example Are 100 per cent taxable whereas Only half of a capital gain increase in value of a Stock or Mutual fund is taxable. A Bond with five per cent interest returns when taxed at a marginal income tax rate of 40 per cent really Only has a three per cent return. Figure in the inflation rate say about three per cent and you re not even making Money. In a Ofsa of course All that interest income is yours to do with As you please. Though it May seem like this is yet another tax break for Middle and upper tax bracket individuals it also has some advantages for Low income earners. Colin Busby a policy analyst for the cd Howe Institute in Toronto says its a better retirement savings vehicle for them because unlike rasps it does not affect income tested benefits. Low income earners Are not going to have much Money to save so whatever they do save in the future for retirement theress a High Chance their benefits will be clawed Back says Busby whose organization published a report in 2001 on the need for a savings plan similar to the Ofsa. The gis guaranteed income supplement is clawed Back with Asp withdrawals so if you have Small amounts of retirement savings and you withdraw them you Are penalized harshly. T he Ofsa would also be beneficial for families receiving the Canada child tax Benefit also income tested should they need to withdraw from it to make a Large Purchase like a car or a Down payment on a Home. Then again a family on a tight budget might not have the income available to invest in savings at All and might this tax break further erode government revenues and the social programs they fund think tax cuts and economic slowdown equal possible deficit at first its an unlikely scenario Busby says because its estimated by the Federal government that tax savings to canadians will Only be about $ 5 million in 2008 2009. Its really a Long term government Revenue Impact he says adding its difficult to predict what that May be several years from now. The 2008 Federal budget however does offer some hint of How much Ofsa will save canadians Over the Long run $ 3 billion. No wonder it gets the accountants and planners excited. They just need to work on their clients a bit. Kraemer says he met the other Day with a Man who like Many of his clients is Well educated fervently saving for retirement but completely unaware of what May soon become a Basic building Block of every ones investment strategy. He either did not hear about it or maybe forgot about it because the announcement was made so Long ago but it should be at the top of Peoples minds at this time of year and certainly in the new year. Gigantic mile email. Com Joel Schlesinger $ 5,000 worry free investing wow. Crosstown civic. My. Ca the annual percentage rate apr is equivalent to the annual interest rate and assumes that no fee s Are required As part of the application processing any fee s would increase your apr. Home purchases or mortgage transfers can qualify. Rates subject to change without notice. Deposits guaranteed 100% by the credit Union Deposit guarantee corporation. 171 Donald St 947 1243 1200 Henderson Hwy 338 0365 433 main St 942 5149 1250 Portage ave 783 7081 1536 Regent ave. W 654 9307 515 St. Annes re 954 9820 937 St. James St 988 4600 Winnipeg Square 944 8290 non registered deposits & All Loans qualify for patronage dividends 3.15 % Premium savings 4.90 % 5 year Gic 5.00 % 5 year resp Trif 4.25 % mortgages As Low As Quick facts tax free savings account Ofsa announced in the 2008 Federal budget it allows Canadian citizens 18 years and older to Deposit $ 5,000 every year into a registered tax free account. Savings grow tax free. Savings can be withdrawn anytime without penalties. Savings can be withdrawn without triggering taxes. Unused balance accumulates from year to year. Savings can be withdrawn and replaced at a later Date without affecting limit. Death taxes and beneficiaries when you die any Money accumulated in the account afterwards becomes taxable. Its important that you appoint a successor account Holder while you Are alive says chartered accountant James Kraemer. This allows you to Roll your account into the beneficial yes Ofsa account so the Money continues to grow tax free. Attribution free if you have More than $ 5,000 to invest in a year you can invest the Money in your spouses account if theress room available. You could also open accounts for your children if they Are Over the age of 18 and Deposit Money in their accounts. It does not matter where the Money comes from so Long As it does not exceed the Cap amount Kraemer says. Ofsa savings Over a non registered account a person contributes $ 200 a month to a no registered account for 20 years and $ 200 a month to a Ofsa for 20 years. The rate of return is 5.5 per cent. Account Revenue distribution is 40 per cent from interest 30 per cent from dividends and 30 per cent from capital gains. Account Holder is a Middle income earner non registered contributions $ 48,000 investment income $ 28,480 total amount $ 76,480 Ofsa contributions $ 48,000 investment income $ 39,525 total amount $ 87,525 Ofsa tax savings Over non registered account $ 11,045 2008 Federal budget save big new tax free savings accounts help you retire Rich it should be at the top of Peoples minds at this time of year and certainly in the new year James Kraemer certified financial planner and chartered accountant b _ 06_ oct 05 08_ Smyk. Ind b6 1 0/ 3/ 08 2 49 01 pm ;