Your Guide to Lifelong Earning for Educators

STRATEGY #1: Open up a spousal Registered Retirement Savings Plan (RRSP)

The benefit you earn through your pension plan is linked to RRSP contribution room. The greater the value of your pension benefit, the less room you will have to contribute to an RRSP. However, a spousal RRSP can potentially be a tax planning tool you leverage to reduce household income in retirement.

How a spousal RRSP works:

• It would be set up in the name of the lower income-earning spouse
• You don’t have to be married to open a spousal RRSP, it also applies to common law partners
• You can make contributions to and receive tax deductions from a spousal RRSP, keeping in mind to stay within the contribution room for both.

Benefits to a spousal RRSP:

• Allows for income balancing for the higher income-earning spouse. Couples that have equal income basically receive double the tax deductions, i.e. income splitting.
• If you’re a first-time homebuyer or looking to fund additional post-secondary education, you can take money out of a spousal RRSP just as you would a regular RRSP—which means withdrawals would incur no penalties as long as the amount is paid back within the required timeframe.

Tip: Since an education member’s RRSP contribution room is dependent on factors such as salary level, whether you/your spouse started teaching earlier or later, or took a year off (i.e. ‘X over Y’ leave)—there are also other options beyond a spousal RRSP that can be explored. Click here to have one of our financial specialists contact you to discuss your options.

STRATEGY #2: Create an RRSP withdrawal strategy for retirement.

Being one of the fortunate Canadians who will receive a pension in retirement, you may consider leaving your RRSP to grow for as long as possible without being taxed. However, if you wait too long, you could inadvertently push yourself into a higher tax bracket.

That’s where developing a withdrawal strategy for your RRSPs before retirement can be your best way to plan for when to start withdrawing money and how much.

To develop a strategy that works best for you, you’ll need to answer the following questions:

• At what age will you be retiring?
• What is your projected annual pension income?
• At what age will you choose to start collecting CPP?

Once you have the numbers, you can sit down with your Financial Planner to discuss a proactive RRSP withdrawal strategy that ensures you won’t be left scrambling the year you turn 71—and are forced to convert your RRSP into a Registered Retirement Income Fund (RRIF).

STRATEGY #3: Take advantage of tax-loss selling on lower-performing investments when possible.

Although you are subject to capital gains on your investments, there is a strategy you can leverage to offset those gains against lower performing investments. This is called tax-loss selling.

If you hold an investment that has lost value at the year, selling it may be beneficial from a tax perspective (as the loss can reduce capital gains on other investments). This can be carried back up to three years or carried forward indefinitely.

STRATEGY #4: Minimize taxes on your estate by having a solid estate plan in place.

The key to tax efficiency at any stage in life, and in death, is good planning.

With that said, the most common fees and taxes associated with your estate upon your death are:

• Probate fees. ‘Probate’ is the process that provides court certification that your appointed executor is authorized to represent matters concerning your estate. In Ontario, this set of fees (officially called an Estate Administration Tax) amounts to $250 on the first $50,000 of your estate, and 1.5% on anything in excess of this.
• Tax on capital gains. Since disposing of all capital property at your death is automatic, your estate must cover the tax on any capital gains.
• Tax on tax-sheltered savings plans. Registered plans such as RRSPs (and RRIFs after you’ve turned 71) are fully taxable upon your death.

The simplest way to minimize estate taxes? Name beneficiaries for your registered plans.

By doing so, RRSPs and other registered plans can be transferred tax-free to your spouse’s plan—bypassing the estate process altogether. This means these funds are not subject to probate fees and there is no delay in your beneficiaries receiving the money.

STRATEGY #5: Maximize eligible government tax credits and deductions.

As you approach retirement, you’re most likely closer to the top of the pay grid, and therefore ineligible for most of the smaller tax credits and deductions offered by the CRA.

However, here are a few tax credits you could potentially leverage depending on your situation:

Canada caregiver credit

As one of the newest credits as of the 2017 tax year, it replaces the infirm dependant caregiver and family caregiver tax credits. If you find yourself in the position of caregiver to a relative (parent, sibling, adult child, or certain others), you can claim a 15% credit worth up to $1,032.45 on a base amount of $6,883. If you’re caring for a spouse, common-law partner, or minor child with physical or mental impairment, the credit is up to $322.50 on a base amount of $2,150 (for 2017). You don’t have to be living with the dependant to claim this credit.

Home accessibility expenses

If you’ve incurred certain expenses to improve the accessibility of a principal residence for a qualifying person (i.e. an aging parent/relative and those eligible for the disability tax credit), you may be entitled to a tax credit of 15% on up to $10,000 of eligible home renovation expenses. This amount can be claimed for each qualifying individual in each qualifying residence. So, you could potentially claim the credit on more than $10,000 overall.

Maximize your tax-savings and your financial path to retirement. We’ll show you how.

For over 40 years, Educators Financial Group has been providing financial planning advice exclusively to education members. Which means we have a unique understanding of everything from pay grids to pension plans. It’s the kind of insight that puts us in the perfect position to help you maximize every bit of tax savings so you can achieve your ultimate goals for retirement.

Let’s talk about making YOUR money work harder. Have an Educators financial specialist contact you.

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The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy.