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JAMES

Hi everyone. Welcome to our MD Management Limited webinar on RRSPs and TFSAs.

My name is James Pitruniak and I’m an Early Career Specialist here at MD.

That means that I have the pleasure of meeting medical students and residents and helping them with their finances as they start on the path to a career in medicine.

I also help ensure that they are well prepared for the transition into medical practice.

I’m joined here today by one of our very knowledgeable and talented advisors, Mr. Marc Ranger.

While Early Career Specialists like me are typically one of the first MD contact points for medical students and physicians early in their careers, Marc and his team of advisors become the primary resource to help clients with a whole range of financial management services throughout their careers.

MARC

Hello all, and thanks for the introduction, James.

As James mentioned, my name is Marc Ranger and I’m an MD senior financial consultant for the MD MedEd Counsel™.

I’ve been with MD for almost 10 years, and my role is to help early career physicians to find their personal and financial goals, and develop tailored strategies to help ensure their goals are met.

I hold designations as a Certified Financial Planner, Chartered Investment Manager and Fellow of the Canadian Securities Institute.

JAMES

That’s great – thanks Marc.

As a side note for those of you who may not know, there are MD Advisors and Early Career Specialists like Marc and myself who join together to form MD MedEd Counsel™.

Together, we provide financial counsel to medical students and residents across the country.

To learn more about MD MedEd Counsel™, check us out on the MD website.

All right – now that you know a little bit more about us, let’s dive into the agenda and some logistics.

Today, as you know, we’re going to look at registered retirement savings plans (or RRSPs) and tax-free savings accounts (or TFSAs): what they are, how they work, and how you can put them to work for you.

I’m going to go over the fundamentals of each, and then I’ll pass the mic over to Marc, who’s going to go over some of the finer details and how you can work them into your financial plan.

At that point, we’ll open up the floor for a Q&A period, where we’ll do our best to answer as many of your questions as possible.

Speaking of questions, you may notice that on the right side of your WebEx console there’s a Q&A box, where you can post questions to the group.

Please feel free to post your questions here; we’ll answer them in the second half of our session, and follow up by email as well.

Also, at several points throughout today’s session, we’ll open polls to the group, which will show up in that area as well.

The polls will remain anonymous, but will help us get a better idea of the group and how we can help.

We encourage everyone to participate, and we look forward to seeing your questions and thoughts.

Now one thing I’ve found is that registered retirement savings plans and tax-free savings accounts are commonly mistaken for “products” or “investments,” but really, the best way to think of them is as “accounts you hold investments in.”

Both allow you to make deposits up to a yearly maximum, and if you don’t make the maximum deposit in one year, what’s left over can then be carried forward to increase your maximum the next year.

Once you’ve decided to deposit money into an RRSP or TFSA, you can then decide how you want the money invested.

You can choose from a wide range of investment options, including stocks, bonds, exchange-traded funds (or ETFs) and mutual funds.

What really differentiates RRSPs from TFSAs are the different tax advantage that each account offers.

First, let’s take look at RRSPs.

When you contribute money to an RRSP – provided you have the contribution room – you can deduct that amount from your taxable income for that year.

You are essentially postponing – or deferring – income tax on the amounts deposited, as well as on the investment growth those funds earn when invested until a time in the future when you withdraw those funds.

In the calendar year in which you turn 71, you are required to transfer your RRSP into either a registered retirement income fund (or a RRIF) or an annuity.

From this point on, you are required to withdraw set minimum amounts, include your withdrawals in your taxable income – and pay tax on those withdrawal amounts.

There is no upper limit to what you can withdraw in any year, as long as you withdraw the minimum amount required.

Now the idea here is to reduce the income tax you pay now, and instead be taxed on that income later in retirement when you may fall into a lower tax bracket.

The other plus is that once your money is invested inside your RRSP, it grows tax-deferred, dramatically accelerating your savings.

Take note that this isn’t the case for everyone – there are certainly physicians who do not fall into a lower tax bracket at retirement – so it’s always best to work with your advisor on the best strategy for you.

Here at MD, our team of advisors can help you make each financial decision with the big picture and your best interest at heart.

Now let’s take a look at TFSAs.

Contrary to RRSPs, TFSAs provide no income tax deduction when you deposit money.

However, money in a TFSA can be invested, and any income and investment growth you earn on these investments is tax-free.

In other words, because you’re depositing after-tax income in a TFSA and any earnings on those deposits are tax-free, no tax is owed when you withdraw.

To recap, with an RRSP, you can defer tax now and pay in the future, potentially at a lower rate.

With a TFSA, you can’t reduce your income tax today, but you can earn tax-free income and investment growth with absolutely no tax consequences in the future.

At this point, let’s open up a poll to see where everyone is at and then hand things over to Marc.

For our first poll, we’d like to know – do you currently have an RRSP? And there are a number of options there.

I’ll repeat the question – for our first poll, do you currently have an RRSP?

Great – and for our second question, I’ll ask, do you currently have a TFSA?

We’ll give you a couple of minutes to respond before we share the results, but before that, I’ll turn it over to Marc.

MARC

Thanks James – that’s an excellent overview of each investment account, and I’m looking forward to seeing the results of our first poll.

There’s no question that physicians have unique situations to consider when deciding whether to invest in an RRSP or a TFSA.

Since RRSPs and TFSAs have different features and benefits, each works well for different goals.

Often the best solution is to have both types of accounts, and be strategic about the deposits to each.

Let’s say you are a physician in your first few years of practice.

At this point, you’re likely going to be close to paying off the last of your student debt, and you can start to think about other financial goals.

In the short term, you may be planning to buy your first home.

In the long term, you know that one day you’ll retire.

And in between, you may be thinking about making a few other major purchases and saving for a rainy day.

We see here that 71% of you already have an RRSP and that about 54% of you already have a TFSA – a great start.

Now let’s go ahead and open poll #2.

At what point do you expect to have paid off your student debt, and you can see here there’s a number of options.

Secondly, how about when you plan on purchasing a home? Again, there are several options for you to choose from here.

And lastly, when do you expect to retire?

Now we’ll give you a few minutes to respond, and then again we’ll broadcast the results.

Now an RRSP is a great way to save for retirement, but it can also be a big help when purchasing a home.

That’s because the home buyers’ plan allows you to withdraw up to $25,000 from an RRSP toward the purchase of your first home.

No income tax is withheld from a qualifying home buyers’ plan withdrawal, and it functions like an interest-free loan from your RRSP.

Generally, you have to pay back the money over 15 years to your RRSP, or include the withdrawal or the balance remaining from your withdrawal in your taxable income.

There are some RRSP withdrawal conditions that have to be considered, and we’d be pleased to discuss these further with you.

An RRSP and the home buyers’ plan may be a great option for you, as we see that many of you have already or are close to paying off your student debt, and that again many of you are planning to purchase a home in the near future.

A TFSA, on the other hand, does not provide this benefit, but is very flexible: you can make withdrawals at any time, and then re-deposit those funds at a later date.

This makes it a great way to save for large purchases or to set money aside that you might need at any time.

In addition to your goals, you will, of course, have specific circumstances to consider.

Let’s say you live in Nova Scotia and you just completed your first year of practice, during which you made about $80,000.

Under current tax rates and rules, you would be allowed to contribute 18% of that earned income, or $14,400, to an RRSP the following year, which would create tax savings of about $5,500.

But what if you expected your income to rise to $200,000 the next year?

In that case, if you have enough TFSA contribution room, you could park the $14,400 in a TFSA and wait.

Then, when you’re in a higher tax bracket, you could transfer the money from your TFSA to your RRSP and realize a much higher tax savings—about $7,200 in this case.

You could also defer taking a deduction, which may be a better strategy if you have limited contribution room in each.

For example, despite the tax advantages of RRSPs and TFSAs, things may look different if you have medical school debt.

You might be better off paying off your debt first, depending on your personal financial goals.

Also, depending on your income and cash needs, incorporating your medical practice can offer tax advantages that you may want to talk to us about.

That said, let’s take this opportunity to open our third poll:

Are you planning to eventually incorporate your practice?

Now we’ll keep this open for a couple of minutes before sharing these results.

And that said - whatever your situation, please keep in mind that your MD Advisor will look at all scenarios and strategies to help you make the decisions that are right for you.

JAMES

Awesome – thank you, Marc – that’s a lot of, I think, really important and helpful information.

Also – thanks to all of you guys who participated in our polls.

I’m really interested to see where we land on the incorporation poll, as I’m sure you’ll agree that this decision about whether or not to incorporate is highly impactful when it comes to the overall financial plan.

This brings us down to the ultimate question: are you better to invest in an RRSP or in a TFSA?

When I talk to clients early in their careers, I tell them that their MD Advisor will work through this question with them by looking at their goals, needs and objectives.

Their advisor will help them determine the appropriate balance between paying down debt, investing in an RRSP and putting money into a TFSA.

How do you tackle the RRSP vs. TFSA question with your clients, Marc?

MARC

Well, the answer is really different for each person, but the main idea is to have one overall strategy that makes the most of each type of investment account.

To create your personal strategy, an MD Advisor will help you define your immediate goals – the ones that you can see today – and help you consider those that might come into focus down the road.

We help our clients balance RRSPs and TFSAs with many of the other financial strategies that are available to physicians; and we help design a portfolio with their specific situation in mind.

And, we provide the sound advice needed to invest wisely every step of the way.

JAMES

Okay, great – so I think what we’re going to do now is open the floor to questions. We’ve got a great audience assembled tonight, and we’d love to hear what questions you have about RRSPs and TFSAs.

Okay – now we’ve got a question here:

“I’ve been told that if you’re going to incorporate, your best option is to invest through that corporation and you will do much better than through any RRSP or TFSA. Will you be addressing this during the session?”

That’s a great question.

Marc – I know that this is one that many senior residents and early practice physicians struggle to understand. Where does it make the most sense to keep their investments once they’ve incorporated?

MARC

That’s a great question – and thanks for posing that – and to be honest, that question and the answer really relies on many different factors.

There are many physicians out there who typically invest just in their corporation and certainly won’t withdraw extra money to fund an RRSP or TFSA.

But on the contrary, there’s other physicians who would rather have buckets of money available in addition to their corporate assets when they retire.

Whether that be RRSP assets, TFSA assets, or even Canada Pension Plan and some of the other government assistance throughout retirement.

It’s a great question, but really what it comes down to is each specific physician and their circumstances, and also preferences in many cases.

Without being too general, it really comes down to goals, objectives and tolerance with regards to different types of investments and how to build your plan overall.

JAMES

Okay – great. Thanks Marc! We’ve got another question here.

“Are there any penalties regarding money withdrawals from a TFSA?”

Great question – we talked about money going into a TFSA being after tax, money coming out of a TFSA being tax-free, and that’s just the way TFSAs are constructed.

They are designed to be a very tax favourable investment account, so no – when you’re pulling money out of the tax-free savings account, there are no tax consequences.

However – within the tax-free savings account, if you’re making investment decisions, you still might be required to pay transaction fees and other costs.

There’s also the issue of over-contributions, which Marc and I will probably touch on in a few minutes.

Again, you have a set contribution limit every year with respect to TFSAs. You just want to make sure that you’re always within that contribution limit and you’re not over-contributing.

If you go over your contribution amount, you may be penalized – and that’s something you’ll certainly want to closely work with your advisor to ensure that in any given year you’re not over-contributing to your TFSA or your RRSP.

MARC

Great – thanks James.

We see here that there’s another great question here:

“After reaching a limit on a TFSA, where do you recommend investing if you’re incorporated?”

A TFSA is one option; an RRSP is certainly another option.

Within the corporation itself, though, there is a limit on how much you can leave inside of the corporation to be taxed at the small business rate (which in Ontario is currently at 15.5%).

For any physician that leaves more than that inside their corporation, which they certainly can do, the tax rates are a little bit higher than what you leave in over and above $500,000, and in Ontario that rate’s about 26% currently.

But beyond that, sky’s the limit; you can leave as much in over and above $500,000 per year and be taxed at that higher small business tax rate.

Outside of corporations, there’s still a non-registered personal investment account that you can choose to invest in as well, but just like corporate assets, there would be investment tax on any of the investment income earned inside of a non-registered corporate or personal investment account.

Those would typically be some of the other options available to physicians.

JAMES

Interesting question there about RRSPs and individual pension plans.

I think what we might do with respect to that question because of the complexity is shelf it for now and perhaps respond in an email follow-up or transition into another webinar that’s maybe a little bit more specific to the realm of incorporation.

And for the person who posed that question, if you’d like to follow up individually by email, we can certainly have an advisor get in touch with you in the next couple of days.

For the question around multiple RRSPs or TFSAs, you certainly can have different RRSPs and TFSAs at different institutions.

The only issue is that you are still limited by the overall contribution limits – so you don’t have multiple $5,500/year annual contribution limits at different institutions for different TFSAs.

Rather, you would have one overall RRSP contribution limit that would affect all of your accounts accumulatively both for RRSPs and TFSAs.

The next question there about spousal contributions – absolutely. Great question.

With RRSPs, you have the potential to split incomes in retirement using spousal RRSPs, and to make maximum use of contribution room if, for instance, you have a higher earning spouse than the other.

And certainly, you can split those contributions.

One of those things that you want to look closely at with your MD Advisor to make sure that it does make sense for you as a family unit and you are getting the bang for your buck.

With TFSAs – certainly some splitting potential there as well.

For instance, a husband could make a contribution to his spouse’s tax-free savings account and certainly beneficially make optimal use of that contribution room as a family.

MARC

Alright – I’ll grab the next question. Thanks James!

“Based on current low interest rates, is it better to focus on RRSP and TFSA contributions than on paying down a mortgage?”

The first thing I’d say about this is that interest income is only one type of investment income that you can earn.

That’s typically on certain types of investments that you would earn that type of investment income, but there’s other types as well.

I think really what we want to focus on in regards to this question is talking to our clients about what are their short-term, medium-term and longer term goals, and certainly for any of the medium-term or longer term goals, there would be an opportunity to invest in addition to paying down debt.

A lot of times, when we’re dealing with very short-term goals, a lot of times – yes – the capacity for risk is very low, and therefore the rate of return that you would expect on an investment portfolio might be the same or even a little less than what you owe on your debt.

Therefore, it might make a bit more sense to focus on debt relative to short-term goals when it comes to investing.

JAMES

We’ve got a question here about spousal RRSPs.

We just spoke about them a second ago; basically the way it works is if you have a higher income earning spouse, they are going to be generating a lot more RRSP contribution room annually than their lower earning partner.

What they could do is use some of that contribution room to deposit money into a spousal RRSP, and then in retirement, the spouse would withdraw the funds and claim the income as their own.

What you’ve essentially done is split incomes to avoid paying higher marginal rates later on in retirement, so it works very well where you’ve got a higher earning spouse and a lower earning spouse – the higher earning spouse generating a lot more RRSP contribution room.

In those cases, it may make sense, again – it may make sense – for that couple to setup a spousal RRSP.

MARC

Okay – and the next question here is:

“Do you suggest certain investments in each type of account, including non-registered accounts? In terms of higher risk investments versus safer investments that maximize your tax savings.”

Great question – this is around what we call “asset location,” and this has to do with any physician that has fully maximized TFSA and RRSP contributions, where we would look to place different investments that are taxed a little less aggressively in non-registered accounts and investments that otherwise would be taxed more aggressively in registered accounts to maximize your after-tax rate of return.

Absolutely – we would do this.

This doesn’t necessarily make a lot of sense for a lot of earlier career physicians that haven’t yet maximized their TFSA and RRSP contribution limits, but certainly well into practice, once you’ve fully maximized those limits, it would really make sense to look at it, in addition to asset allocation, asset location.

“Is your RRSP amount taken from your gross income or net income after taxes?”

RRSP contribution room is calculated based on one’s gross, taxable income – and it’s 18% of your gross income until you’ve hit – currently – about $135,000 to $140,000 of annual, gross, taxable income, which then would trigger the annual maximum.

It’s the less of the two: 18% of your income, or that annual maximum which is currently a little shy of $25,000.

JAMES

Next question around the TFSA being used as an emergency fund.

Sorry – I’ll read the question:

“Should the TFSA be used as an emergency fund (i.e., short-term), or is it best used as a long-term savings vehicle?”

A great question, again – and it really depends on your own individual needs, your family situation, your risk tolerance, your goals, objectives, etc.

There are certainly situations for a young resident starting out, where they want to setup an emergency fund or a savings vehicle to save for a future auto purchase or vacation.

Certainly, if you’re new to savings, a tax-free savings account might be the best place to keep the money.

If you are, as we mentioned in the webinar earlier, looking to make maximum use of RRSP contribution room, and make a contribution in a couple of years when you’re going to be in a more preferable tax situation because of a higher marginal tax rate, a TFSA could be a great place to kind of keep the money there in a lower risk vehicle.

But again, because of the tax benefits of a TFSA, it might be a great place to house higher risk equities that could offer you higher returns, and thus when you realize those gains in the future you’re saving a lot of tax money.

It really just depends on your goals, your objectives, your preferences, your own unique financial situation.

MARC

Now we have a question about the corporate tax rate in Alberta, and the small business deduction limit.

I don’t have it on the top of my head right now, but certainly that’s another question that we can take offline and we can get that for you.

We do actually have a physician incorporation handbook that has actually all of the tax rates and all the different facts and figures for each province, countrywide.

That will be one that we’ll take offline and we’ll follow up with all that information for you.

JAMES

Next question; we’ve already answered a question about spousal RRSPs, but we’ve got a question there about real estate – investing in either personal or corporate accounts.

Any insights you can share there, Marc?

MARC

Yeah – so typically here we would want to look at adding what’s called a “holding company” to your medical practice corporation.

Typically, you’d be holding more of your “business use” real estate inside that corporation.

In regards to personal real estate, my understanding is, again, that it would have to be used for business purposes for it to be held inside the holding company.

JAMES

Yeah – I mean a general comment on personal real estate; with your primary residence, you’re generally not facing any major tax consequences if you, say, want to sell your house residence to realize a gain.

Beyond your personal residence, if you owned an investment property – any rewards of that sale could potentially be subject to capital gains taxes, and if you were in the business of buying and selling homes and that was your primary business as a real estate investor, then you could be subject to other kind of business income taxes.

I hope that kind of answers the question around personal investing in real estate, but certainly feel free to follow up.

A question there around, “if you make a maximum transfer to a TFSA, and it’s earning interest, and then you withdraw all of your TFSA money in a couple of years – if you want to put money back into the TFSA, can you put back all the money that you took out, or only the maximum annual contribution?”

That’s a great question.

If you were to max out in your TFSAs this year, and the investments were to grow, let’s say by 25%, you could withdraw the entire amount, plus the appreciation, and then next year you’d be able to recontribute all of the amounts you withdrew plus the appreciated amounts.

You regain not only your contribution amounts, but the appreciation as well.

MARC

Next question: “If you expect that within one or two years your income would go up to a higher tax bracket, is it better to wait to make an RRSP contribution once you’re making a higher income?”

James touched on this a little bit during the actual webinar; it doesn’t mean you necessarily have to wait to make the contribution, but it might be a better idea to actually use the deduction from the contribution in a later year when you’re making a higher income.

I’ve put a few figures to that: let’s just say that as a third year resident, your marginal tax bracket is approximately 30%.

For every dollar that you contribute into an RRSP and deduct as a third year resident in that tax bracket, you’ll get back about $0.30 on every $1.00.

If you defer using that deduction until, say, you’re making $250,000 a year, you’re now in the top marginal tax bracket and that same contribution, if you deducted it when you’re making that money, you’d essentially earn back about $0.50 on every $1.00.

And we know now that the Liberal government is in power, they’re actually looking to increase the highest marginal tax bracket to about 53%, so that would even emphasize that point even more.

JAMES

Okay – we’ve got a question around what the current TFSA limit is.

Great question – very timely, actually.

When TFSAs were first introduced in 2009, the contribution limit was $5,000 per year.

A few years later in 2013, as of tax year 2013, the amount was increased to $5,500 per year.

In this past year, the Conservative government increased the annual contribution limit to $10,000 per year – and all of those amounts are accumulative.

As of today, as long as you were 18 years old and a resident of Canada in 2009 when TFSAs were created, if you never made a TFSA contribution, you would have about $41,000 in TFSA contribution limit as of today.

The TFSA limit in 2015 is $10,000.

However, there’s a good chance, according to the Liberal government’s campaign platforms, that that $10,000 will be rolled back to the previous $5,500.

We can’t say with any degree of certainty what’s going to happen over the next few months, but it’s probably wise to prepare for that eventuality.

Most experts agree if that does occur, the $10,000 amount from this year won’t be called back, so it will basically exist as an anomaly.

To answer your question, you have cumulative contribution room.

Your contribution room as of today depends on your contribution room in the past, and when you turned 18 and fulfilled those residency requirements.

But going forward, stay tuned to md.cma.ca for any updates on tax changes with respect to legislation affecting your investments.

MARC

Alright – so we have another question around whether it makes sense to contribute to RRSPs and TFSAs, or to pay down your debt.

I’ll quickly summarize the previous question’s response: it really does truly depend on your goals and objectives for why you’d be saving versus paying down debt.

Typically with some of the shorter term goals, it may make sense to focus a bit more heavily on paying down debt, whereas for many of our physician clients with medium term or longer term goals, it doesn’t mean you neglect the debt; it just means now you introduce the concept of also contributing to RRSPs and TFSAs, which hopefully – your expected rate of return on your investment portfolio will be higher than what you owe on your debt.

JAMES

Okay – we’ve got a question here around integrated taxation for corporations:

“If investment income, capital gains or fixed income is taxed in a corporation, is it true that remaining investment income passes out of the corporation to the shareholder tax-free?”

Marc – you want to field that one?

MARC

Sure!

As far as integration goes, really what that essentially means is that if a physician is not incorporated and earns, say, $300,000 a year and takes that income personally, versus a physician that earns $300,000 and runs that through their corporation – if the physician that’s incorporated withdraws that $300,000 from the corporation, whether it be a salary or a dividend, they will be taxed the same exact amount if they weren’t incorporated.

Essentially the term “integration” refers to the fact that you’d be paying the same amount of tax whether you’re incorporated or not, if you need all of the money you’ve earned.

There’s really no benefit to incorporation until either leaving money inside your corporation exists, or splitting some income with a shareholder, whether that be a spouse, a parent or adult-children in Ontario’s case.

JAMES

Okay – the question here around spousal RRSPs:

“Who gets taxed when a spouse withdraws from a spousal RRSP?”

I think I answered that earlier; basically how the spousal RRSP is designed – the tax liability rests with the spouse who’s making the withdrawal, so the way that would work in most cases is that you would want the lower income spouse to own the tax liability when that withdrawal is made.

The one thing you want to be careful about is making contributions to a spousal RRSP and pulling the money out too fast.

If the couple does that, then the tax liability may fall back to the contributing spouse, so you just want to work with your advisor to make sure you’re up to speed on the rules around spousal contributions.

We’ve got a question here that says:

“If you withdraw money in a given year for a large expense or other investment, can you return those contributions at a later time?”

With respect to TFSAs, I think we answered that – yes, you do get the contribution room back the following year.

With RRSPs, you don’t. With RRSPs, any time you make withdrawals, the contribution room is gone – including for the home buyers’ plan.

If you withdraw the full $25,000 amount under the RRSP home buyers’ plan to fund the purchase of your first home, you’re not going to receive the $25,000 back in contribution room. Once you use it, it’s gone.

MARC

Alright – we have a question here about the current yearly contribution limits and if there’s any anticipated changes with the new federal government.

I’ll start with TFSAs; James covered that a few questions back.

Currently the limit for TFSAs is $10,000 a year, plus any previous year’s contribution room.

There’s an expectation that that limit is going to be rolled back to $5,500 in 2016, however that has yet to be announced.

And with respect to whether or not that it will be clawed back for 2015, there’s an anticipation that that will not happen, that the $10,000 per year will stick for 2015.

However, if the government does change their mind on that, they’ve already told Canadians that if you have already maximized your TFSA contribution room, you’ll be able to withdraw the excess $4,500 you’ve, say, over contributed tax-free without being penalized.

As far as RRSP goes, the annual limit currently, right now, maximum for 2015, is $24,930 and you need to earn about $138,500 a year to be able to contribute that much for 2015. Otherwise, it’s 18% of your gross, taxable income.

In 2016, the annual limit is going up to about $25,370, and therefore to hit that number you’d need to make about $141,000. Anything lower than that would be considered 18% of what you’ve made and reported as income for the year.

JAMES

We’ve talked about TFSA limits and pending legislation a few minutes ago – we’ve got a question here around:

“If we deposit $10,000 into our TFSA on January 1st, will there be an issue considering the new Liberal government policy to reduce the TFSA limit back to the $5,000 range?”

Again, I don’t want to speculate too much with respect to hypotheticals and pending legislation, but again, the consensus seems to be among financial experts that there likely would not be a claw back, so any contributions you made, given a set $10,000 contribution limit would not be affected.

MARC

We have another question about spousal RRSPs, so maybe I’ll run a little bit of an example here as this person has asked for a bit of a scenario:

If you have a husband and wife couple, and the husband is, say, the high income earner in the family, and the wife spouse is the stay-at-home parent to their children, in this case has presented us with an income split opportunity.

What this person can do – in this case, the husband – they could open a spousal RRSP for his spouse, that the husband would be able to contribute to.

The RRSP would be for the spouse, so the wife, but the contributions would be tax deductible for the husband against the larger income earning spouse that therefore would provide a better tax benefit.

But as James had mentioned, if the spouse – in this case, the wife – withdraws the money within two years, the withdrawal will be taxed back to the spouse – to the wife.

As long as the two years have elapsed, any withdrawals from that spousal RRSP, say, during retirement, would be taxable back to the spouse – and it’s really a way to keep retirement assets nice and even throughout your careers, as opposed to always contributing to the higher income earning spouse.

We have another question about: “Can you review the carry-forward limit for TFSA?”

The TFSA has been around since 2009. The limit at that time was $5,000 per year; that $5,000 limit was consistent all the way up until 2012 – so that’s for four years.

The limit was then increased in 2013 to $5,500 a year (for the next two years).

And then just this year, in February, it was introduced that the limit would move up to $10,000.

If you add all that up, that’s basically $41,000 that, if you’ve never contributed to a TFSA, and you were 18 in the year 2009 (or older), you could essentially contribute $41,000 as it stands today.

If the limit is $10,000 next year, well you can be rest assured that now your limit would $51,000 – but, as the consensus has said, if the limit does revert back to $5,500, your limit for next year would be about $46,500 – and again, more to follow on that in the next few weeks or over the coming months.

We have a question about: “If you own rental real estate personally, is this income obtained from that and taxed at the same tax bracket?”

The answer is yes – rental income does count as taxable income. You can, although, deduct some of the rental income expenses from that income.

It is considered self-employment income, and any expenses incurred to generate that income can be deducted, so it does present a better way to reduce the actual gross income that you’re earning.

However, it does get added onto your gross income.

We have a bit of a change to the question:

“I meant are you able to share the write up on incorporation and the likely tax savings?”

JAMES

We’ve got a couple of incorporation questions coming through on the chat here; I’ll just mention that we will likely be hosting a number of incorporation webinars throughout 2016, so stay tuned for those – they are coming.

We will also be following up via email with our participants, so if you could be a little bit more specific about the incorporation information you’re looking for, we would be more than happy to share the content and the links to our website in the next couple of days.

I’d also refer you to the MD Quick Clinics that live on the investor education section of the MD Financial Management website.

There are a number of them centered around incorporation that can be a really valuable resource for high-level questions about the topic.

For more specific questions – I think, given that the subject of tonight’s presentation is RRSPs and TFSAs, we’ll hold off and maybe defer those until a future incorporation webinar.

We have a request here to repeat the information about spousal RRSPs; Marc – you just did that so I think that’s up to date.

We’ve got more questions coming in here – okay – a question around the number of RRSP accounts that you can have.

Really there is no limit, again, and you just want to make sure you’re not over contributing given you’ve one set contribution limit.

“Can you and a spouse each have a personal RRSP and a joint one?” – Marc, is that something you’ve seen with clients you’ve worked with?

MARC

It’s not that common, to be honest. I find that spousal RRSPs are not as popular as they once were because there’s other ways to split income.

It’s possible, and we’ve seen it, but it’s not necessarily all that common.

JAMES

We’ve got a question here around – a great question about – the consequences and penalties of withdrawing from your RRSP early, before retirement – and when can you start withdrawing without penalties?

There are really only two scenarios where you can withdraw 100% tax-free; Marc touched on one of them earlier which is the RRSP home buyers’ plan.

The other is the lifelong learning plan that allows you to remove funds from your RRSP up to a limit tax-free to fund post-secondary education for either you or your spouse.

Those are really the only two formal programs that allow you to withdraw money tax-free.

With RRSPs and withdrawals, there’s no minimum age where you are forced to – sorry – I should rephrase:

You aren’t penalized for withdrawing the money early; you just have to withdraw starting in the year in which you turn 71 – and that’s when the money has to be converted, but there aren’t any strict penalties for withdrawing at age 55 versus 71, or any other age before that point.

MARC

Alright – we have a question here from a medical student asking about TFSAs and wondering about whether about or not this person was 18 in 2009, if they were able to receive the full $41,000 contribution room.

Yes – that is correct.

If anyone is less than 18 in, say, 2009, they wouldn’t have been old enough to generate the first $5,000 contribution limit.

For example, if in 2009 you were 16 years old, you wouldn’t have yet been able to generate that first $5,000.

The following year, in say, 2010, when you were 17, again you wouldn’t have been old enough to yet generate the $5,000.

In this case, your limit would be $31,000 in total based on two years at $5,000, two years at $5,500, and this current year – 2015 – at $10,000.

JAMES

Okay – we’ve got a question here around TFSAs and tax implications.

When the money goes into a TFSA you receive no deduction.

As long as it’s invested within the TFSA it grows tax-free and generates income tax-free, and at any point you can sell those investments and pull the money out tax-free with no income tax ramifications.

“Can you clarify how fast you need to pay back your RRSPs or TFSAs once you’ve withdrawn money?”

The only case where you need to repay into an RRSP would be under either the home buyers’ plan or the lifelong learning plan.

I believe the way the home buyers’ plan works is in the second year after you make the withdrawal; you have to start repaying the amount at a minimum of 1/15 of the amount withdrawn every year for 15 years.

You can certainly repay the amount faster if you wish, but that’s the minimum formula they use to determine how soon or how fast you have to repay it.

We’ve got a question here about what the limit is for the lifelong learning withdrawal.

The annual limit is $10,000 per year, up to a maximum of $20,000.

Marc?

MARC

We’ve got a really good question about choosing amongst different financial institutions for your TFSAs or even, let’s just say RRSPs.

What I really think it comes down to is choosing an institution that you feel has your best interests at heart, and are really trying to figure out what your goals and your objectives are, because at the end of the day, a TFSA is just an account – it’s just a product.

You’re really going to want to look for someone that’s going to have that discussion with you about: What are you basically looking to do; what is the TFSA for; what would the RRSP be for as well.

It really doesn’t – from one institution to another – have a whole lot of difference in terms of one account to another, because at the end of the day, you have to follow the same legislation and the same rules.

It’s really about making sure that you’re devising the right strategies to meet your goals and objectives.

JAMES

We’ve got a question here, Marc:

“Would if ever make sense to contribute to an RRSP to defer deductions; instead, why wouldn’t you just wait to deduct – to contribute, and thus deduct the contributions when it is most beneficial – when you are in a higher tax bracket? That way, your money wouldn’t be tied up in an RRSP.”

That’s a really terrific question and one we get from residents all the time.

I would say that residents and even practice physicians are very lucky because they know – almost to a certainty – that their income is going to increase at some later day – significantly – and knowing how marginal tax rates work, they know that RRSP contributions, RRSP deductions and RRSP deduction room can be much more valuable to them.

There are a number of different strategies you can employ to take full advantage of this:

You can house your money in a TFSA and defer making contributions to an RRSP; you can make a contribution to an RRSP today and realize the deduction today, take some tax refund money and use it to free up more cash flow, pay down debt, etc.; or you can make an RRSP contribution today and not claim the deduction – start having it growing and compounding tax-free in the RRSP and defer making that deduction until a later date when you know it’s going to be more valuable.

What makes the most sense for you?

It’s really a matter of personal choice and making sure that – whatever decision you make – that it’s fully aligned with your financial goals and objectives.

MARC

Alright – we’ve got a question about withdrawing some money for some post-secondary education for this person and their spouse without penalty, but there’s a question about whether or not you can withdraw money from an RRSP or a TFSA to fund children’s education.

We didn’t cover this tonight, but there’s another type of registered account called the “registered education savings plan,” otherwise known as an RESP.

That’s typically the type of account would be setup and geared for helping fund your children’s education, because not only can you earn tax-free investment income inside that type of account, you’re also getting government grant money from your contributions.

To answer your question, you certainly can withdraw money from your RRSP for your children’s education; however, it would not be considered a tax-free withdrawal.

JAMES

Okay – we’ve got another question here about the lifelong learning program:

“What is the requirement: post-secondary institutions? Is there a course load requirement?”

Typically, it is used for post-secondary education at a qualifying institution.

I think, rather than get into specifics and talking about the requirements, I’ll refer you to the Canada Revenue Agency website where you can read through all of the requirements, all of the criteria for both the lifelong learning plan and the home buyers’ plan in detail, and if you think it’s something that makes sense for you, you can certainly discuss with your advisor and your own individual RRSP.

We’ve got another question about TFSA contribution room:

“Is there room for re-contribution; the base amount plus growth or just the base amount? Can you clarify this, please?”

It is the base amount, plus the growth, once you’ve withdrawn the fund.

You would get both the base amount and the growth back the next year.

“Do you have to look at the cuts the financial institutions make for RRSPs and TFSAs?”

Marc – I think you’ll agree – account fees aren’t a major concern; what you are concerned about is transaction fees and the given fees on different investments, but I’ll let you get into that a little bit more.

MARC

Absolutely – typically, RRSPs and TFSAs don’t have fees to open and manage accounts on a monthly basis.

Really, where you’re going to be charged fees is really when you invest outside of these accounts – based on transactional fees for buying and selling different investments inside the accounts, or, for any type of managed investment, what we would call the “management fee” – that would be charged by the portfolio manager that’s basically managing the investments inside the account for you.

Certainly, we would want to have a look at what are you being charged, or the types of investments, but really that wouldn’t have anything to do with opening the account and managing the account on a monthly/annual basis.

Alright – we have another question here:

“Is there any advantage to having investments in non-registered accounts if you have not yet maxed out your TFSA or RRSP?”

It depends – I would say that commonly, probably not – because if you have room in your TFSA that you can deposit money and withdraw tax-free and, of course, earn tax-sheltered income versus not doing that in a non-registered account; certainly wouldn’t make a whole lot of sense to do that.

With regards to RRSPs – a little bit different, because remember: taking money out of an RRSP, there are restrictions and certainly you’ll be paying tax on withdrawals except for through the home buyers’ plan and the lifelong learning plan as we’ve talked about.

Certainly, that would be one reason why a non-registered account would make more sense for a shorter term goal if you’ve already maxed out your TFSA contribution room versus looking to maximize RRSPs – if you needed money in the short-term for something other than the home buyers’ plan or lifelong learning plan withdrawal.

JAMES

Great point, Marc – I think finding the right balance between corporate, non-registered, TFSAs, RRSPs, RESPs – given the different asset class considerations, is something that all residents and even practice physicians really struggle with understanding and need to consider, and something that you can really help them walk through, so that’s terrific.

All right – I think we’ll have to conclude tonight’s session on RRSPs and TFSAs, just because we’re running short on time, and I really want to thank all of our panelists – our participants, I should say – for all of their great questions.

We really appreciate it – and I want to remind you, those of you whose questions we did not have a chance to answer – we will be following up by email in the next 48 hours, so stay tuned – you will be receiving an email from us.

I think together we’ve really discussed and explored a broad range of details and considerations when it comes to RRSPs and TFSAs. Really terrific.

We will be posting a recording of this webinar on the MD Financial Management website in the next few days, and as I’ve said before, we’ll be following up by email to make sure you get all of your questions answered.

We’ll also be sharing one of the MD quick clinics – which is the short educational video I was mentioning earlier – on our investor education section of the website. We’ll be sharing that with you.

The MD quick clinic on TFSAs and RRSPs captures a lot of what we presented tonight, and is a great way to share what you’ve learned here with colleagues and friends.

Also, keep an eye out for our follow up email as it’ll cover the latest news on how TFSAs and RRSPs will be affected by the new Liberal government, federal budget and tax changes.

If you have any further questions around RRSPs, TFSAs or any personal finance matters, please do not hesitate to contact MD for more information – you can find our contact information on the contact us section of the MD website.

On that note – remember that when it comes to RRSPs and TFSAs, it’s not about one or the other – it’s about utilizing both to help you achieve your financial goals.

I want to thank everyone again for your time.

When it comes to your next move, we here at MD Financial Management have your financial best interests at heart.

© 2015 MD Financial Management Inc.

These presentations are provided for informational purposes only and should not be considered investment advice or an offer for a particular security or securities. Please consult your MD Advisor for additional information concerning your specific wealth management needs.

The information contained in this presentation is not intended to offer foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals. Incorporation guidance is limited to asset allocation and integrating corporate entities into financial plans and wealth strategies. Any tax-related information is applicable to Canadian residents only and is in accordance with current Canadian tax law including judicial and administrative interpretation. The information and strategies presented here may not be suitable for U.S. persons (citizens, residents or green card holders) or non-residents of Canada, or for situations involving such individuals. Employees of the MD Group of Companies are not authorized to make any determination of a client’s U.S. status or tax filing obligations, whether foreign or domestic. The MD ExO® service provides financial products and guidance to clients, delivered through the MD Group of Companies (MD Financial Management Inc., MD Management Limited, MD Private Trust Company, MD Life Insurance Company and MD Insurance Agency Limited). For a detailed list of these companies, visit md.cma.ca. MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies. MD Financial Management Inc. is owned by the Canadian Medical Association.