The 3 Remaining Tax Havens.
Let's get right to it.
The FIRST one is the TFSA.
The Tax Free Savings Account allows investors to grow money on a tax-free basis and take out that money, plus growth, on a tax-free basis. It's agreat little tax shelter, but limited in scope. It's nice that it is equally available to all Canadians, as long as you have the money to invest. If you were 18 years or older in 2009, then your total contribution room to date is $109,000. Another key benefit of the TFSA is estate planning. The proceeds of your TFSA can be given to your kids on an immediate and tax-free basis after you die, as long as you name them as beneficiaries. This can happen within weeks of your death and outside of your will and probate.
The SECOND one is your personal primary residence.
Owning a house is important, and the longer you can own that house, the better, as you have extended the time frame for keeping your tax shelter in place, and providing an opportunity for sustained long-term growth in value. Some people, who bought a home 50 years ago, only paid $50,000 for the home, and now it's worth $1,000,000. That's a nice tax shelter.
The THIRD one is permanent life insurance.
This is the most significant tax shelter, by far. By utilizing a permanent life insurance policy like Universal Life or Whole Life Insurance with cash value, you can grow several significant tax shelters. You can have individual policies, like on your own life, or the life of your spouse and children. You can also have joint life policies as a couple. There are two parts to the monthly premiums you pay. There's the part that goes to pay the actual insurance cost, and the part that is used for an investment vehicle inside your policy. Both parts are paid out to your beneficiary - TAX FREE - upon your death. But, everything inside the policy is growing on a tax-free basis. There are limitations to the maximum amount you can shelter in the policy, but the limits are rather generous. Not only is this type of insurance a benefit to your survivors, but the cash value can also be a benefit to you during your lifetime as a source of tax-free income.
A last, or FOURTH tax shelter can be cash under the mattress.
Maybe, not a lot of growth potential on regular old cash, but if it is in the form of precious metals or rare bills, now that's a different story!
Conclusion
Building wealth is all about optimizing all of your investment opportunities. It's also about reducing the amount of money you spend on taxes. The less you give to the taxman, the more you have for growing your personal wealth and the more you have for spending on your lifestyle, providing for your family, and giving to charitable causes.
Retirement income planning is about looking at all of your various sources of income and then determining the most tax-efficient order for taking that income with as little market risk as possible. This is what we do for our clients. If you are uncertain about how to do this or you lack confidence in your current advisor’s ability to do this for you, then schedule a meeting with us.
Click Here to learn more about our process for creating your financial roadmap for retirement, getting your total financial house in order, and living your ideal lifestyle.
Retirement Income, Investment & Tax Planning for Those 55+,
Willis J Langford BA, MA, CFP
Nancy R Langford CRS
