How to take money from your RRSP without paying tax

This post is a sponsored post written by Sun Life Financial. See my disclosure policy here.

Sometimes, you CAN take money out of your RRSP without penalty. But you have to pay your RRSP back – or pay the tax.

Sometimes, you CAN take money out of your RRSP without penalty. But you have to pay your RRSP back – or pay the tax.

Are you looking at a major expense you didn’t see coming? Short of available cash? Perhaps you’re thinking about tapping your registered retirement savings plan (RRSP). It’s your money, after all, so why not?

Here are three good reasons why not.

1. You’ll owe tax

The first is the tax bill. Since you used pre-tax income when you put money in your RRSP, you’ll have to pay tax when you take it out. And while there’s no tax on investment growth inside your RRSP, you’re taxed when it comes out. RRSPs make sense because you’ll typically cash them in after you retire. That’s when your income and your tax bracket will likely be lower. You’ll still pay tax, but you’ll pay less. If you take the money now, while you’re working, you’ll face more in taxes.

2. You’ll miss out on investment growth

The second reason is lost investment growth. Every dollar you take from your RRSP is a dollar less to build up through compounding. So that little nibble from your plan today could mean a big bite missing from your savings come retirement.

3. You’ll use up contribution room

And the third reason: When you take money from your RRSP, putting it back generally uses up your contribution room. What’s contribution room?  Each year you can put as much as 18% of your earned income from the previous year into your RRSP, up to an annual maximum. The difference between your limit and what you actually put in your RRSP is the unused contribution room. You can carry that forward to use another year. Unused contribution room plus your annual maximum becomes your total contribution room. But whatever you put in your RRSP – replacing a temporary withdrawal or making a brand-new contribution – can use up contribution room. Let’s say you take $5,000 out of your RRSP this year and plan to pay your RRSP back next year. That repayment will reduce your contribution room by $5,000.

There are two ways to avoid paying tax on RRSP withdrawals, without using up contribution room:

  1. Use your RRSP to help buy your first home, or
  2. Use it to go back to school.

What’s the RRSP Home Buyers’ Plan (HBP)?

Are you a first-time homebuyer living in Canada? If so, you can borrow up to $35,000 from your RRSP to put towards a down payment. If you and your spouse are buying together, that’s $70,000 you could use for your home.

The HBP lets you take out the money tax-free. But there’s a catch: You have to pay it back in equal installments over 15 years. Any year you don’t pay the full installment, you have to pay income tax on the outstanding balance. You’ll also lose the chance for that money to grow within your RRSP.

Thinking of using the HBP? When you’re crunching the numbers, be sure to include the RRSP repayments along with your mortgage payments.

What’s the Lifelong Learning Plan (LLP)?

This is another way to take tax-free money from your RRSP:

  • Take out up to $10,000 a year, for a total of $20,000.
  • You can spread those withdrawals over a maximum of four years.
  • Use that money for full-time education or training for yourself, your spouse or partner. 
  • As with the HBP, you need to repay your RRSP or pay income tax on your withdrawal.
  • With the LLP, you have 10 years to repay your RRSP in equal installments.

What about the tax-free savings account (TFSA)?

You might need money for anything at all – not only buying a home or going to school. An option is your TFSA. You don’t pay tax on TFSA withdrawals for any purpose. You’ll still lose potential investment growth while your money is out of the account. But your contribution limit will grow back. Whatever you take out gets added to what you can put in the following year. You can pay your TFSA back according to your own schedule.

The Amazing Benefits of Budgeting

The Amazing Benefits of Budgeting

Today, I’m going to start out with a few points about the benefits of budgeting.  For those of you that already have a budget set up, this may be confirmation that it is a good thing, but for those of you that don’t have a budget, it may present some points that will give you the push to get started.

A Budget Will Help Identify Where your Money is Going

First and foremost, a budget will allow you to identify where exactly your money is going.  You’ll see just how much is going towards bills, clothing, entertainment and everything else you spend your money on.  This is important to know if you want to gain any sense of control over your finances.

A Budget Will Help you to Control Your Money

Once you have identified where your money is going and you make a budget, you may be some hard choices to make at first. Maybe you realize you need to move to a more affordable house. Or maybe you discover that drinking a Starbucks latte everyday is keeping you from taking your dream vacation.  It can be hard to accept that you can’t have it all. But once you get past that point and realize that by cutting a few expenses here, can allow you to spend more over there, budgeting doesn’t seem so bad. It allows you to prioritize what is important to you, and then live by those priorities.

A Budget Will Help Guide you in Planning Financial Goals

A budget is a plan.  A plan for where you want your money to go.  Say you want to do a bathroom renovation next winter.  Unless you plan to set aside money every month, you won’t be doing that renovation. (Unless of course, you take on debt.)  Without a plan, the money can too easily be spent on $100 trips to the mall.  Having a budget helps you to plan and stick to your financial goals you hope to achieve.

A Budget Will Help you Prepare for Emergency Expenses

Having a budget will allow you to allocate money to an emergency fund for those unexpected situations that are bound to arise in your lifetime.  A broken furnace, vehicle repairs, or an unexpected trip to visit an ill relative, to name a few.  When you don’t have a budget, it’s easy to forget about those extra expenses that will most likely arise at some point in the year.

A Budget Will Help Give you Peace of Mind

Having a budget is what ensures you’ll have enough to pay your expenses.  Since you’ve set aside money for your day to day expenses, annual property taxes, income tax, emergencies and what ever else you know is necessary in your life, there’s no need to stress or loose sleep.

A Budget Will Help you Feel Less Guilty about Spending Money

Once you start budgeting and tracking your finances you might find that you feel less guilty about spending money. Knowing that you have set aside $75 a month for clothing, for example, you don’t have to feel badly about spending it all or a portion on a pair of shoes that you fell in love with.  When every dollar has a purpose, you can feel much better about spending in general.

Having a budget is freeing, because you make the plan. It’s customized to your needs and wants. It’s also not set in stone. If you find that you miscalculated when you set the food budget, readjust. That’s the beauty of it. It’s your budget. Your money, working for you!

What are some other benefits of budgeting?  Do you have any stories to share about how budgeting “saved” you?

How to Choose the Right Retirement Savings Account

This post is a sponsored post by Sun Life Financial written By Brenda Spiering. See my disclosure policy here.

Saving for retirement is likely one of your top financial priorities. But did you know that how you save can be nearly as important as how much you save?  Choosing the right retirement savings account can have a huge impact both on how much money you save and how much tax you pay. So, how do you choose the best type of account?

How to choose the right retirement savings account

Here is how to choose the best type of savings account for retirement in Canada. #retirement #canada #rrsp #tfsa #retirementsavings

 When to choose an RRSP

When it comes to saving for retirement, RRSPs (Registered Retirement Savings Plans) are pretty hard to beat. Contributions are tax-deductible, investments grow on a tax-free basis within the plan, and RRSP  funds aren’t subject to tax till they’re withdrawn from the plan.

If you expect your current income is going to be greater than your income in retirement, an RRSP is a great option. It will provide you with a tax deduction that can help reduce your current income taxes. Plus, if you’re in a lower tax bracket when you draw the money out, it can help reduce the overall amount of income tax you pay.

When to choose a TFSA

TFSAs (Tax-Free Savings Accounts) are a great retirement savings account option if you’ve maxed out your RRSP. While you won’t get to claim your contributions as a tax deduction, the investment growth is tax-sheltered and there’s no tax payable on withdrawals.

The fact that withdrawals from a TFSA are not subject to income tax also provides an advantage if you expect your income in retirement to be greater than your current income, since TFSA withdrawals do not reduce income-tested benefits like old age security benefits. Also, unlike RRSPs that you can no longer contribute to after Dec. 31 of the year in which you turn age 71 (or, in the case of a spousal RRSP, the year in which your spouse turns age 71), you can continue to contribute to a TFSA as long as you wish.

How much can you contribute?

Both RRSPs and TFSAs have contribution limits. In the case of RRSPs, you can contribute up to 18% of your previous year’s earned income up to the maximum limit set each year by the Canada Revenue Agency (CRA) ($26,230 for 2018), plus any unused contribution room carried forward from prior years.

Since 2016, the annual maximum contribution limit for TFSAs has been $5,500, however, you can also contribute for any past years in which you didn’t contribute, back to 2009 when TFSAs were first introduced. If you’ve never contributed before, you’re currently eligible to contribute a maximum of $57,500.

A great way to determine how much you need to save for retirement is to use a Retirement Savings Calculator. It can help you set an annual savings goal based on your current age, expected retirement age and desired income in retirement. Plus, it can show you the impact of contributing to different types of retirement savings accounts.

To learn more about smart ways to save for retirement, sign up for the Sun Life Saving for Retirement email series.

How to Teach Kids to Budget and Save

Kids are not immune to money talks and they can understand finances and the value of money at a much younger age than many parents realize. Some experts even think that a child’s views on money is set by the time they are 10 years old, some as young as five or six. How you talk about money in front of them, and how you set the example for budgeting and saving is very important to how your child will form their own opinions about money.

This means if you want to start teaching your kids to budget and save, it’s never too early. There are some steps you can take when they are still very small, and then the money lessons can grow with them as they get older. We’re going to look at a few ways to help kids understand budgeting and saving.

Here are some ways you can teach kids to budget and save

How to Teach Kids to Budget and Save. Here are some great ideas to help kids understand budgeting and saving. #budget #budgeting

Use a Piggy Bank

For younger children, use a money jar or piggy bank. Let them see the money they are saving and have a visual of it as it’s growing. Since many people do nearly all their finances digitally now, it may be difficult for a child growing up in this generation to really understand money that they never see.

Set an Example

You know those little eyes are always watching so show them how you budget and save. If you’re not already doing it, create a plan and get started. If you’re already doing it, but they just don’t see it, let them be involved in the process. Talk to them about the household budget. Explain what you’re doing when you go shopping together for groceries. Make talking about money, budgets and saving with your children an ongoing conversation in your household. This is how they learn.

Show Comparison Costs

For older kids, you can start showing comparison costs. “That video game costs as much as a new pair of sneakers”, for example. Or you can give them a commission, rather than a typical allowance. Pay them based on chores they do around the house and increase it based on the number and complexity of the chores they do. This will also teach the value of a dollar, the importance of working for and saving for what they want.

Teach them about Credit Cards

Explain how credit cards work. In addition to explaining that credit cards aren’t just “free money”, you also need to explain how easy it is to get in debt and why credit cards are dangerous. Explain what responsible use is long before they are old enough to have their own. Also, show by example.

Now that you have these ideas on how to teach kids to budget and save, you’re ready to start applying them. If some or all of them don’t work for your family or your kids, that’s okay. Just use the ones that do work, or make modifications to these suggestions so that they do work for you! If you’re looking for even more tips and advice, check out Money Smart Kids by Gail Vaz-Oxlade or Smart Money, Smart Kids by Dave Ramsey. Both books are highly rated!

What are some ideas that you have successfully used with your kids? Let us know in the comments below!

How to Create and Keep a Spending Journal

We journal our thoughts and feelings, we journal what we eat, but how many of us journal what we spend? A spending journal is a great way to track where our money is going and get a clear financial picture of our circumstances. It can help us spend smarter, spend less, and make more informed buying decisions. And the best part is, keeping a spending journal only takes minutes a day! Take a look at these helpful tips on How to Create and Keep a Spending Journal, so you can take better control of your financial situation starting today.

How to Create and Keep a Spending Journal

How to create and keep a spending journal to control your finances.

1. Find a journal.

You can’t create a spending journal without a journal, right? Any simple notebook or journal will do! Head to your local Dollar store if you wish and grab a durable notebook. These notebooks from Amazon will also do the trick. Label it as you wish, and you now officially have a spending journal!

2. Decide on the layout.

There are several ways to layout the journal. You can create a page for each day, or create sections using notebook dividers. Use a layout that works for you. If you want to avoid flipping around, it may just be easier to use a new page each day.

3. Track these expenses.

You have your journal, you have your layout, now it is time to decide WHAT should be going in your journal. You want to be sure you include these items each and every day in your journal:

– Outgoing money/expenses
– Incoming money/income
– Essential spending should be written in GREEN
– Non essentials should be written in RED

Basically if you spend a single dime, it gets recorded in the journal. If you earn a single dime, it gets recorded in the journal. It may be ideal to make two columns on each page, one for outgoing and one for incoming. Then, use colored pens (red and green) to decipher spending and record the information in each.

4. Analyze your journal entries each week.

Once you have accumulated a week’s worth of entries, it is time to analyze them. Do your red entries outweigh the green? That could be an issue. You want to see where you might be wasting money. Fast food, coffee shop stops, entertainment, and dry cleaning may be some of the items popping up in red. The gas bill, groceries, and electric bill may be some of the items showing up in green. The idea is to cut the red column down so you can pay off more of the essential expenses.

5. After a month, add a purple column.

After you have the chance to analyze your spending for the month, add one more column. The purple column is where you will put money you SAVED. If you add any money to savings or use a coupon to save on an item, write the savings in the purple column. It will be fun to see that amount grow!

6. Keep the journal handy.

It is best to keep your journal in a purse or handbag where you can write your expenses down as they happen. If you put it off until the end of the day you might forget and info may not get recorded. Keep the journal handy and you are more likely to use it and keep information up to date.

As you can see, a journal like this can really help you gain financial freedom. Consider creating a Spending Journal to see if it can help you!

Have you heard of a spending journal before? Will you give it a try?

How to Create a Budget Binder

budget binder

(Note: The links in this post may be affiliate links. Read the disclosure policy here.)

A Budget Binder for your financial success

Setting up a Budget Binder in your home is a terrific strategy for staying on top of your finances.  It should not only be a record of what is spent, but it should include your estimations for what will likely be spent in the coming year(s).  This binder or manual should be a go-to for all of your questions regarding what you can afford and how long it will take to reach your financial goals.

Here’s how to create a Budget Binder:

1. Find a binder that works for you. I really like this binder, but any binder will work. I would choose one that has at least a 1″ spine width.

2. You will also want to have some tabbed dividers so that you can separate your budget binder into sections. These Removable Index Tabs are perfect to add to each section. The tabs are writable and repositionable so you can move them around or use the same one if you need to refresh the page.

3. I like to divide my Budget Binder up by months. (One section for each month of the year, January – December) In each section/month, I include a Monthly expense tracker, a Monthly budget and bill tracker, a Monthly debt payoff tracker, a Monthly reflection sheet and Month at a glance calendar sheets. In the back, I have a yearly finance goal worksheet and spending trackers.

These pages can be found in The Budget Planner:

printable budget planner

The Budget Planner

I have created an easy to follow printable budget planner that takes the overwhelm out of budgeting! Use this planner to dream about yearly financial goals, track your bills and spending, discover what you did well, what you need to improve on and so much more! This planner will help keep you focused and ensure nothing is missed.

Get the Budget Planner here!

4. Also in the back, create a section for account information and include names of financial institutions, addresses, contact information, passwords and any other details that would be worth having at a glance.

5. You can also add pouches to hold receipts, a page to record prices on your favorite items, or anything else that might be useful in keeping your family in the black!

how to create a budget binder

There you have it! It’s that easy to set up a budget binder. Do you keep a Budget Binder? What pages do you keep handy in your family budget binder?