We all like to learn about tips and tricks to get ahead financially, but not all of them are widely known. Here’s a collection of lesser-known wealth management strategies for everyone, from students to seniors.
A WIN-WIN FOR CRITICAL ILLNESS INSURANCE
Did you know you can purchase critical illness insurance and get back all of your premium dollars if you don’t make a claim? The return-of-premium feature is offered by several Canadian insurance companies, at an extra cost. So, if you suffer a heart attack, stroke, cancer or other covered illness, you receive a lump sum to help you cope financially. If you don’t suffer a covered illness, you get your money back. Your premiums are returned after a specific term or age, for example, after 20 years or at age 65.
USING THE MEDICAL EXPENSE TAX CREDIT
Tax preparation companies often name the medical expense tax credit as one of Canadians’ most underused credits. If you go to the dentist and your group plan covers all but $80 of the visit, that $80 is an eligible medical expense. So is any portion you pay of the premiums for your group health benefits. Many Canadians don’t know that eyeglasses, laser eye surgery, crutches and orthopedic inserts are all eligible expenses. You can see which expenses you can claim in the RC4065 Medical Expenses guide on the canada.ca website. The credit usually has the greatest impact when the lower-income spouse claims the couple’s or family’s combined medical expenses.
WHEN YOU WANT TO CONTROL AN INHERITANCE
When leaving an inheritance, there are many reasons someone may prefer that a beneficiary receive gradual payments instead of one lump sum. The most well-known method for doing so is establishing a trust. But there’s another way to do it without all the complexity and cost. It’s called an annuity settlement option, and it’s available through a life insurance policy, segregated funds or guaranteed investment funds. You decide whether your heir receives payments for a specified number of years or for life, and you choose the frequency of the distributions, from monthly to annually.
IF ONE SPOUSE WAS A STAY-AT-HOME PARENT
The Canada Pension Plan (CPP) offers an enhancement for parents who stopped working or reduced their work hours to raise young children. The “child-rearing provision” is based on each year a child is under 7 while the parent is the primary caregiver. A calculation is made that takes the parent’s average earnings during the five-year period before the child’s birth or adoption, then applies pension credits to the caregiving period – increasing the pension amount.
CREATE A MINI-RRIF TO SAVE TAX
This tip is implemented in the year you turn 65 and takes advantage of the pension income tax credit. It’s a 15% federal credit on up to $2,000 of eligible pension income, which includes Registered Retirement Income Fund (RRIF) withdrawals. From ages 65 to 71, you create a mini-RRIF. Just convert enough funds from your Registered Retirement Savings Plan (RRSP) to a RRIF that enables you to withdraw $2,000 from your RRIF each year. That triggers the tax credit. When you convert your RRSP to your RRIF by the end of the year you turn 71, the strategy is no longer needed.
Please get in touch with us, your insurance advisor or tax expert if you’d like more information on any specific strategy.