Smart Room of Definitions
Welcome to the Gallery Wealth Management Smartroom featuring explanations of investment terminology. Are you amazed by all of the acronyms and jargon in the financial planning world? Here you'll find definitions for some of the more common terminology you may come across. Of course, we enjoy nothing better than hearing from you so please feel free to reach out to us directly here if you haven't found what you're looking for.
Definitions
Registered Retirement Savings Plan (RRSP)
An RRSP is a retirement savings plan that you establish, that is registered with the Canada Revenue Agency, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax.
Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan; you generally have to pay tax when you receive payments from the plan.
To learn all the facts, please contact us.
Tax-Free Savings Account (TFSA)
The Tax-Free Savings Account (TFSA) allows Canadians, age 18 and over, to set money aside tax-free throughout their lifetime. Each calendar year, you can contribute up to the TFSA dollar limit for the year, plus any unused TFSA contribution room from the previous year, and the amount you withdrew the year before.
The annual TFSA dollar limit for 2017 is $5,500.*
All income earned and withdrawals from a TFSA are generally tax-free. Plus, having a TFSA does not impact federal benefits and credits. It's a great way to save for short and long-term goals.
To learn all the facts, please contact us.
* For more information, please visit Canada Revenue Agency's TFSA website.
Registered Retirement Income Funds (RRIFs)
A registered retirement income fund (RRIF) is an arrangement between you and a carrier (e.g., an investment dealer, an insurance company, a mutual fund company or a bank) that is registered with the Canada Revenue Agency. You transfer property to the carrier from an RRSP, a PRPP, an RPP, an SPP, or from another RRIF, and the carrier makes payments to you.
Earnings in a RRIF are tax-free and amounts paid out of a RRIF are taxable on receipt. There is a minimum amount you must withdraw from a RRIF each year, and this amount generally depends on your age at the time.
For more information, please contact us.
What is a mutual fund?
A mutual fund is an arrangement under which shares or units are sold to raise capital.
Investors purchase units if the mutual fund is a trust or purchase shares if the fund is a corporation. When you invest in a mutual fund, your money is pooled with the money of other investors and invested on your behalf by the fund manager. Mutual fund trusts and corporations are also known as flow-through entities.
For tax purposes, a flow-through entity treats the taxable income earned inside the entity as if you held the investments directly, instead of through the fund. The income that is distributed, or flowed out to you, keeps its identity. For example, dividend income remains dividend income, and capital gains remain capital gains when they are flowed out (or distributed) to investors.
For more information, please contact me.
Source: Canada Revenue Agency
Registered Education Savings Plans (RESPs)
A Registered Education Savings Plan (RESP) is an investment vehicle primarily used by parents to save for their children's post-secondary education.
The primary benefits of using an RESP to save for your children's education include access to the Canadian Education Savings Grant (CESG) and the ability to shelter the RESP's growth from taxes until funds are withdrawn.
There's lots to know about RESPs and how they fit into your family's overall financial picture. For more information, please feel free to contact us.
Life Income Fund
A Life Income Fund (LIF) is a type of registered retirement income fund that is used to hold pension funds, and eventually payout retirement income. The life income fund (LIF) cannot be withdrawn in a lump sum; rather, owners must use the fund in a manner that supports retirement income for their lifetime. Each year's Income Tax Act specifies the minimum and maximum withdrawal amounts for LIF owners, which takes into consideration the LIF fund balance and the owner's annuity factor.
For more information on Life Income Funds, please contact us.
What is an Annuity?
An annuity is a plan that makes payments to you on a regular basis. It might be a general annuity, a payment from a registered retirement income fund (RRIF), or a variable pension payment. These payments are part of your total income and are reported on your tax return.
To learn all the facts, please contact me.
Source: Canada Revenue Agency