# Store it or Invest?



## dawne

History:
Have no money, work pt time, 63 yrs old this yr, living off CPP and wages, totalling approx. $15,000/yr, in Alberta. Living in decent subsidized bach suite costing 30% of income. 
Just inherited approx. $90,000 tax free cash. Would love to quit work and move to BC. 
The government gives us poor folks lots of perks at 65, such as full GIS benefits, health care discounts, etc. Not sure however, if it's better to invest in something that earns interest but costs taxes and loses perks.....or put it in a box and hide it. Is this enough money to retire 'poorly' on?....Any advice out there for a non-money minded soul? (health relatively good, hiking/x/c skiing/cycling)
What would you do with it?


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## Guban

I wouldn't store it, as money loses value with time due to inflation. Have you maxed out your TFSA? Any money earned in a TFSA is tax free, and doesn't count agains government supplements, as I understand it. You could put it into a high interest savings account as a safe measure.


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## james4beach

Congrats on the 90k, that's great!

I say the same. TFSA is a great deal in every way, so if you have the room to do so, put some of the cash into the TFSA (a high interest savings account of some kind).

I think putting some of the cash into a safe is a good idea, but only if it's a very secure fire-proof safe. Don't put all your eggs in one basket.


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## dawne

Plan to max out the TFSA, as soon as they determine how much room I have. (will be approx. $30,000) CRA said to ask the bank, and the bank teller/manager could not say. So, looks like I'm on my own to figure that out too, add/subtract/subtract...?
Right now the money's in chequing acc't, someplace where the gov't can't see it. Teller gasped when I said I just wanted to put it in there, like I was crazy......everybody thinks accruing interest is a good thing, but I need to compare interest earned with taxes/perks lost, and keep it liquid to live off of if I want to quit work.


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## Spudd

If you have never put anything in a TFSA before, your available room is $31,000.


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## dawne

TFSA is great but there'll still be lots left, approx. $60,000. Almost doesn't make sense not to 'try' to earn income from that. The gov't would love a piece of it. Maybe put a little in GIC? Have no RRSP's, so lots of room there. Trouble is, if anything happens to me, my kids will pay a lot to get that money out. And it'll boost me to higher income level, then pay taxes on that. 
REally appreciate the replies, thanks all.


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## Ihatetaxes

In your situation I would look at buying an annuity which will give you a small monthly payment for the rest of your life and zero management or worrying about it. Somewhere around $400/month guaranteed for life (I used RBC's annuity calculator).


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## dawne

Well, I have put a bit into TFSA, regular deposits last yr, and deposited/withdrew over $5K also in 2012. Investment lady from bank on phone said I still have room for $30,000 but that didn't sound right based on the little I knew about it.


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## My Own Advisor

Congrats on the 90k.

I'd max out the TFSA for sure.

Invest in a low-cost income producing product and withdraw the dividends and distributions it pays every year. These withdrawals do not count as income, which means you're not taxed on it against your OAS and GIS payments. 

Keep some cash if you can, so next year in January, you add more contributions and get more income. 

Put leftovers in laddered GIC for safe-keeping.


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## dawne

Really appreciate all these great tips/info.

Wondered if there was something I could put it in, and draw from monthly, without pushing up income too much, yet still gain a little. Didn't know it was called an 'annuity'....Lots to learn here.


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## dawne

What would a low-cost income producing product be that pays non-taxable dividends? And would they be paid out yrly or monthly?


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## dawne

If withdrawals/dividends aren't taxable with annuity, what are the taxes based on? And would they be payable at tax time?


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## Spudd

dawne said:


> If withdrawals/dividends aren't taxable with annuity, what are the taxes based on? And would they be payable at tax time?


An annuity is when you pay an insurance company a bunch of money, and in return they promise to pay you every month as long as you live. The money you get every month will be taxable but you will be in a low tax bracket, so you shouldn't lose very much to taxes. However, your kids wouldn't get any inheritance from the 90k in this case since you have given all the money to the insurance company.


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## Eclectic12

dawne said:


> Plan to max out the TFSA, as soon as they determine how much room I have. (will be approx. $30,000) CRA said to ask the bank, and the bank teller/manager could not say. So, looks like I'm on my own to figure that out too, add/subtract/subtract...?


 ... not sure why you want to wait to figure this out. 

The reporting cycle from financial institutions to CRA, then back to you is slow. As an example, some who misunderstood the TFSA rule about putting withdrawals back *the following year* did not find out about their over-contribution until about 10 to 14 months later. The issue with such as long time is that the "honest mistake" penalty is 1% of the over-contribution per month. So 10 months is locking in a 10% penalty.

Assuming you were 18+ in 2009, have been a Canadian resident for tax purposes from 2009 onwards and have never contributed to a TFSA - you will have $5K x 2009 through 2012 + $5.5K x 2013 through 2014. This is $5K x 4 + 2 x $5.5K for a total of $31K.

TFSA contributions will reduce the available contribution room. Withdrawals become additional TFSA contribution room in the following year (ex. withdraw $10K in 2014, the $10K is added back as contribution room in 2015).

If you keep a running total of what TFSA contribution room you have, what you've used by contribution and adding in the new room for each year plus withdrawals from previous year - it is simple math and easy like balancing a cheque book.


Some of the reasons the TFSA is being recommended are that it is tax free, where interest/gains are Canadian tax free, withdrawals won't increase you income (unless after withdrawal, the money makes interest or other gains in a taxable account) and $31k is a reasonable amount to easily make tax free.

It's easy to setup a savings account type TFSA and if you were to decide invest a part into stocks/bonds/gics etc., a second TFSA can be setup to accommodate this (just make sure where there is 2+ TFSAs, the contribution limit is applied across all TFSAs as the contribution limit is per person).




dawne said:


> Right now the money's in chequing acc't, someplace where the gov't can't see it....


In these days of computers and financial reporting to potentially help find terrorist money - I suspect the bank is report this money and doubt it's hidden from the gov't. 

You know that if the chequeing account is taxable and any interest paid is under a set amount, something like $50, the tax payer is supposed to report it on their tax return ...

http://canadaonline.about.com/od/personalincometax/a/T5-tax-slips.htm
http://business.financialpost.com/2012/05/05/missing-income-is-costly/


Cheers


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## Eclectic12

dawne said:


> What would a low-cost income producing product be that pays non-taxable dividends? And would they be paid out yrly or monthly?


It's where you hold the investment that matters.

If you hold a dividend paying investment in a taxable account, the dividends (as well as any capital gain when it is sold) will be taxable. If you hold that same investment in a TFSA - neither will be taxable. There is one exception where US company dividends are taxed by the IRS (i.e. US gov't) when held in the TFSA but there is no Canadian tax.


Cheers


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## birdman

In answer to some of your questions I offer the following for thought:
1. In my opinion you do not have enough to retire on.
2. If you invest and receive income would this have an effect on your GIS supplement?
3. Moving to BC would be an added cost
4. You may wish to consider being in receipt of your OAS before considering retirement. Even then, I would think you may wish to work part time.
5. It is unclear if you are receiving CPP.

Suggest you figure out how much it costs for you to live. Simply prepare a budget and there are lots of internet sites to help you with this. Then figure you how much income you have and then figure out future expenses. The latter can includee MSP premiums, dental and health expenses, etc. The process to develop a budget is not that difficult. Let us know how you make out.


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## Nemo2

frase said:


> 5. It is unclear if you are receiving CPP.


From OP's initial post:


> living off CPP and wages


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## dawne

You guys are all sending great info to consider, thanks so much.

Max. allowable income is 16,700 for full GIS supplement. It gradually decreases as income increases. (ie: with a job, I'd lose some GIS if the income took me over max. allowable. Sooo, I do 'not' want to work after 65....Don't really want to work after today.)
So was thinking I don't want to withdraw money from a taxable account after 65, as I could lose some OAS and/or GIS. Why not get free money from the gov't? On the other hand, would I lose more than I'd gain by investing?....(note: not much of a gambler w. stock market, and there's not that much money so don't want to risk it there.)
I could keep working pt time and just let as much as possible grow in TFSA (not much, I know). 
In any other account, what would be a good percentage to receive? Some I'd researched said 1%....that sounds like so little, but maybe the best I can expect under these circumstances?


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## Spudd

If you keep the money in a taxable (regular) account, you'll have to pay taxes on the interest, but not on the money itself. With the TFSA you don't pay interest on either the interest or the money. So, max out your TFSA and put it into a high interest savings account. For the TFSA you can get as much as 3% interest.

For the rest, you can keep it in a regular high interest savings account. If you spend it, it won't count as income, and won't affect your GIS. Only the interest you earn will count as income, and that will be very low. Let's say you put it at PC Financial and earn 1.35% on the 60k you weren't able to put in TFSA. That would be $810/year in income. That's not going to stop you from getting GIS. 

http://www.highinterestsavings.ca/chart/

It's only if you put it in an RRSP that you will have to pay tax when you withdraw (spend) it. Since you are already very low income I expect this would be no benefit to you.


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## Eclectic12

dawne said:


> ... So was thinking I don't want to withdraw money from a taxable account, ...


I'm hoping that your reference to a withdrawal from a taxable account potentially affecting income is a typo on your part.
If you meant it as written, then I'd recommend doing some reading and researching.


Generally when the term "taxable account" is used - it means that the account is subject to tax. So whether one withdraws or not - there is the potential to increase income and affect GIS/OAS. For example, if you earn $10K in interest in a taxable savings account - you will receive a T5 listing $10K interest that is to be reported on your tax return and will increase your income in that tax year. Whether you leave the interest in the savings account or withdraw it makes no difference.


When referring to "registered account" - there is typically no tax due that particular tax year, regardless of what was earned in the account and a withdrawal may or may not affect income, depending on the type of registered account. 

For example, there is no income or capital gains to report for money held in an RRSP, whether it has grown or not. When it is withdrawn, the amount taken out is reported as income on that year's tax return. The TFSA on the other hand (with the exception of US stock paying dividends), has no income or capital gain to report while held in the TFSA and withdrawals are not reported as income.



Cheers


*PS*

If you are looking to avoid increasing your income with this money, the TFSA is the clear winner. If you need time to learn/research, then a taxable HISA is likely a good bet as $60K held in a interest account that pays 2% is only likely to increase your annual income by about $1200 per year. Then you can learn about other income that is taxed at a better rate as well as investing.


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## Ponderling

If it really is found money,and you don't need it short term, then yes, I chime in on the TFSA route for as much as you can.

I know you don't have a whack of cash coming in, but remember you can feed in another $5500 each year, if you go GIC's etc for the part you can't do as TFSA this year.

and then pull any money out of the TFSA tax free any time in the future when an ill wind blows your way and you might otherwise be caught short.


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## james4beach

dawne said:


> Right now the money's in chequing acc't, someplace where the gov't can't see it.


I just want to correct a misconception you may have. The government can always see this money. They saw it the moment you inherited it, and they certainly "see" your chequing account. In fact (to get technical) the moment you deposited 90k cash, the transaction was reported to FINTRAC because it's so huge.

I understand your concern about receiving too much interest income on it resulting in tax and other benefits consequences. Don't worry, interest rates are so low that it's nearly impossible for you to receive so much interest that it impacts you in any way.

This works in your favour, in your particular case.

As others are saying, at least put it into a high interest savings account. Stick to big banks only, make sure it's CDIC insured, and don't put it all into one bank. The TFSA will shelter some of that from generating taxable income. The part that's not in the TFSA will earn the same interest rate but you're going to earn so little that it would impact you negatively in any way. Look at buying some GICs too as it will enhance your returns. Again the returns you get will be so low that it won't impact your tax situation.

An example, splitting up the money:

50k in PC Financial "Interest Plus" account (actually a CIBC account), 30k in a TFSA, 20k taxable. Both earning 1.35%
40k at your regular bank, seek a high interest savings account. You'll have ready access to it, tellers, etc


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## james4beach

I'll re-iterate that I recommend sticking to the big banks in your situation, unless you already deal with a credit union you like (in which case they would likely have better savings interest rates)


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## dawne

..so that would be out of the question. I could die tomorrow. But let's hope not.


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## dawne

How is People's Choice? They offer 3% on TFSA.


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## dawne

Since opening my TFSA, 
in 2011, I withdrew only $100 from it.
In 2012, I withdrew 1900.
In 2013, withdrew 5100.
Total withdrawals = $7100.
So then I subtract that $7100 from $31,000, which = 23,900 which should be my allowable deposit for TFSA in 2014. Does that sound right?


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## marina628

MAX TFSA and in your situation I probably would stick with HISA and each year feed the TFSA.Best case is you will make $1800 a year interest on the money which will have to be declared ,your income is low so doubt you have to worry much about clawbacks.Is there a reason you wanted to move?


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## dawne

Thanks for letting me know the gov't has a big eye on all our bank accounts. But they can't do anything to us, even if we have it in chequing, can they? And they can't hold it against us or call it 'money earned'.....can they? It's tax free so what can they do to me?

If I want to stay in subsidized housing, the less earnings, the better. Right now I pay less than $500/mo rent, and live quite comfortably on $17,000/yr. That would increase substantially if I moved to BC.......who wants to live in cold Alberta forever, in a city of a million people, with endless traffic/noise. Take me to the mountains. 

Have to live in BC for 1 yr before qualifying for subsidized there, and then may have to wait a yr to get in. So might be good to keep working a bit, and save for when I move, hopefully this yr. 
Health care there is higher....car insurance is higher. Anything 'lower'? (No, I don't want to buy property)


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## dawne

Tried to find HISA online, not sure what that is....found 'isa'.....and then ING Direct. I'd be a bit nervous investing in something that's just advertising online....Not safe enough for me, I like the big bank theory for safety.......sound fair?


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## Eclectic12

dawne said:


> .... So then I subtract that $7100 from $31,000, which = 23,900 which should be my allowable deposit for TFSA in 2014. Does that sound right?


No.

Between 2009 and 2014, TFSA contribution granted = $31K

Between 2009 and 2014, TFSA contributions were made = 2009 + 2010 + 2011 + 2012 + 2013 + 2014 = $x

Between 2009 and 2013, TFSA withdrawals were made = 2009 + 2010 + 2011 + 2012 + 2013 = $0 + $0 + $100 + $1900 + $5100 = $7100.

The 2011 withdrawal became new contribution room in 2012, 2012 withdrawal became new contribution room in 2013 and the 2013 in 2014.


It is much easier to do year by year, as each transaction is made but since you've given some yearly amounts, I am doing this by the totals.


Currently available TFSA contribution room = total TFSA room granted - total contributions + withdrawals from all years but 2014.
= $31K - $x + $7100. 

Any 2014 withdrawals should be added back on Jan 1, 2015.


Note that because these are totals, if there was an over-contribution in any year - it could be hidden from view as using the totals hides what year how much was contributed.

Then too, I find it takes only a few minutes to record the transactions as they happen so that I know the currently available TFSA contribution room at any given time.


Cheers


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## Spudd

dawne said:


> Tried to find HISA online, not sure what that is....found 'isa'.....and then ING Direct. I'd be a bit nervous investing in something that's just advertising online....Not safe enough for me, I like the big bank theory for safety.......sound fair?


ING Direct is owned by Scotiabank so it's just as safe.


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## Eclectic12

dawne said:


> Thanks for letting me know the gov't has a big eye on all our bank accounts ... And they can't hold it against us or call it 'money earned'.....can they? It's tax free so what can they do to me?


The money itself is tax free but any interest earned by it in a chequing or savings account will be taxable.

I haven't heard of subsidized housing using anything other than income. The question is what requirements are they to qualify for the housing. 

What I have heard of is that for some disability pensions - having a sum such as $60K in the bank would reduce or eliminate the pension.



Cheers


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## RBull

dawne said:


> Since opening my TFSA,
> in 2011, I withdrew only $100 from it.
> In 2012, I withdrew 1900.
> In 2013, withdrew 5100.
> Total withdrawals = $7100.
> So then I subtract that $7100 from $31,000, which = 23,900 which should be my allowable deposit for TFSA in 2014. Does that sound right?


You can replace the money you withdrew but you must do this no earlier than the next calendar year. You would need to look at your contributions and your withdrawals to calculate your room against the 31k. See Eclectics post below.
Congratulations on the inheritance. That is obviously a very nice windfall for you. I agree with others on the TFSA, HISA and not retiring just yet. Given your income and savings consider the decision to move carefully given higher cost of living. 

BTW, both OAC & GIS is money from other taxpayers...not really "free from the government". Best wishes with your move and the investments.

I don't think you are at any risk of losing the OAS regardless of your income.


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## dawne

Thanks so much eclectic12 for all your calculations...shows exactly how to do it...Need to add up all my contributions over the yrs too....Never thought I'd ever have enough money to need to know these things, and now look. Back in kindergarten.


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## dawne

Eclectic12 said:


> The money itself is tax free but any interest earned by it in a chequing or savings account will be taxable.
> 
> I haven't heard of subsidized housing using anything other than income. The question is what requirements are they to qualify for the housing.
> 
> What I have heard of is that for some disability pensions - having a sum such as $60K in the bank would reduce or eliminate the pension.
> 
> 
> 
> Cheers


BC subsidized housing requirements are you have to have lived there 1 yr, income below $26,000 - $30,000 (or it wouldn't be worth it), and be in the age bracket of the particular building you're applying to get into. I'd be ok to pay normal rent for a yr, somewhere, or share w. someone,, but then I'd want to get into subsidized asap....They're pretty nice actually, at least if they're like the one I'm in....

Not on any disability pension......But this is what makes me a little nervous about where to put this money. I don't want to have to fill out any forms that ask how much I have in a TFSA or savings acc't......Don't want to lose any perks, but maybe the interest earned would outweigh them, as some of you are saying. IE: BC healthcare. Costs nothing in Alberta, but when I lived in BC 5 yrs ago for a few months, cost was $12/month based on low income. If income is below $22,000, it should be free.


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## dawne

RBull said:


> You can replace the money you withdrew but you must do this no earlier than the next calendar year. You should still be able to deposit 31k in 2014. Someone else weight in I have this wrong.
> 
> Congratulations on the inheritance. That is obviously a very nice windfall for you. I agree with others on the TFSA, HISA and not retiring just yet. Given your income and savings consider the decision to move carefully given higher cost of living.
> 
> BTW, both OAC & GIS is money from other taxpayers...not really "free from the government". Best wishes with your move and the investments.
> 
> I don't think you are at any risk of losing the OAS regardless of your income.


The inheritance is from someone who was and always will be, near and dear to my heart, would rather he were still here. I'm very grateful, but very sad.


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## RBull

dawne said:


> The inheritance is from someone who was and always will be, near and dear to my heart, would rather he were still here. I'm very grateful, but very sad.


That is almost always the way. 

Based on your responsiveness in this thread, I'm sure you'll do well with the inheritance.


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## Eclectic12

RBull said:


> You can replace the money you withdrew but you must do this no earlier than the next calendar year.
> 
> You should still be able to deposit 31k in 2014. Someone else weight in I have this wrong...


The first part is correct but the second is possible but likely not true.

A total of $31K has been granted, an unknown amount has been contributed and $7.1K has been withdrawn prior to 2014, so it's available again for contributions.

To have the full $31K TFSA contribution room available - the unknown contributions likely has to pretty much equal the withdrawals.
Or using math, $31K - $x + $7.1K. The closer $x is to the withdrawal amount, the closer to having $31K TFSA contribution room available. 

There is also possibility that the growth of whatever was held in the TFSA but I am thinking it's a low growth TFSA. 
To use an extreme example to illustrate, say the contributions $x was $5K. Then the total would end up as $31K - $5K + $7.1K = $33.1K but that would require the investments held in the TFSA to grow to be valued at or over $7.1K so that the withdrawals can happen.


Cheers


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## RBull

Yes, what I meant was to a total of $31K plus withdrawals, since we knew she already had withdrawals from contributions. 




Eclectic12 said:


> The first part is correct but the second is possible but likely not true.
> 
> A total of $31K has been granted, an unknown amount has been contributed and $7.1K has been withdrawn prior to 2014, so it's available again for contributions.
> 
> To have the full $31K TFSA contribution room available - the unknown contributions likely has to pretty much equal the withdrawals.
> Or using math, $31K - $x + $7.1K. The closer $x is to the withdrawal amount, the closer to having $31K TFSA contribution room available.
> 
> There is also possibility that the growth of whatever was held in the TFSA but I am thinking it's a low growth TFSA.
> To use an extreme example to illustrate, say the contributions $x was $5K. Then the total would end up as $31K - $5K + $7.1K = $33.1K but that would require the investments held in the TFSA to grow to be valued at or over $7.1K so that the withdrawals can happen.
> 
> 
> Cheers


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## dawne

Eclectic12 said:


> The first part is correct but the second is possible but likely not true.
> 
> A total of $31K has been granted, an unknown amount has been contributed and $7.1K has been withdrawn prior to 2014, so it's available again for contributions.
> 
> To have the full $31K TFSA contribution room available - the unknown contributions likely has to pretty much equal the withdrawals.
> Or using math, $31K - $x + $7.1K. The closer $x is to the withdrawal amount, the closer to having $31K TFSA contribution room available.
> 
> There is also possibility that the growth of whatever was held in the TFSA but I am thinking it's a low growth TFSA.
> To use an extreme example to illustrate, say the contributions $x was $5K. Then the total would end up as $31K - $5K + $7.1K = $33.1K but that would require the investments held in the TFSA to grow to be valued at or over $7.1K so that the withdrawals can happen.
> 
> 
> Cheers


Ok...finally got the contribution total..which is $7557. So I'm $457 over the withdrawals. Does that mean I have $31K less the $457, room in TFSA? Which would = $30,543Give me a prize if that's right, please....


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## RBull

dawne said:


> Ok...finally got the contribution total..which is $7557. So I'm $457 over the withdrawals. Does that mean I have $31K less the $457, room in TFSA? Which would = $30,543Give me a prize if that's right, please....


I think you've got it, but the prize......I can't help with that.


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## dawne

RBull said:


> That is almost always the way.
> 
> Based on your responsiveness in this thread, I'm sure you'll do well with the inheritance.


Thanks for your kind support and vote of confidence, RBull.


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## Brian Weatherdon CFP

Dear Dawne, you'd surely consider putting a good deal into Tax Free Savings Account ....with some dividends and other value (google "Life Income Mandates") that can pay you income to add to your comfort over the years ahead. <> Mattress loses money, waking or sleeping, because it cannot grow. 2% interest rates still lose value because health inflation (which creeps up as we age) is nearer 10% and nowhere near the 1% our govt talks about. It's worth discussing, even as a free initial consultation, with a recognized financial advisor (prefer a duly "certified financial advisor") near where you live. Gather ideas that you can understand well enough, and feel will keep you comfortable and secure for life.


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## dawne

Brian Weatherdon CFP said:


> Dear Dawne, you'd surely consider putting a good deal into Tax Free Savings Account ....with some dividends and other value (google "Life Income Mandates") that can pay you income to add to your comfort over the years ahead. <> Mattress loses money, waking or sleeping, because it cannot grow. 2% interest rates still lose value because health inflation (which creeps up as we age) is nearer 10% and nowhere near the 1% our govt talks about. It's worth discussing, even as a free initial consultation, with a recognized financial advisor (prefer a duly "certified financial advisor") near where you live. Gather ideas that you can understand well enough, and feel will keep you comfortable and secure for life.


Many thanks Brian, and to all for reading/replying. I have an app't w. an investment rep at RBC on Mon. He's the first of many I'll be talking with about this, before deciding what to do. You all have helped prepare me. Just pray there's not a test at the end....


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## james4beach

No conflict of interest there with Mr. Brian (CFP) recommending you see an advisor ... lol


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## GoldStone

Brian Weatherdon CFP said:


> (google "Life Income Mandates")


Are you trying to drum up your business again?

"Life Income Mandates" = Big Marketing Words Invented By Brian.


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## Eder

I think I have a prob with someone getting dropped 90k but worried about pooching his subsidized housing....bleh!


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## dawne

Brian Weatherdon CFP said:


> Dear Dawne, you'd surely consider putting a good deal into Tax Free Savings Account ....with some dividends and other value (google "Life Income Mandates") that can pay you income to add to your comfort over the years ahead. <> Mattress loses money, waking or sleeping, because it cannot grow. 2% interest rates still lose value because health inflation (which creeps up as we age) is nearer 10% and nowhere near the 1% our govt talks about. It's worth discussing, even as a free initial consultation, with a recognized financial advisor (prefer a duly "certified financial advisor") near where you live. Gather ideas that you can understand well enough, and feel will keep you comfortable and secure for life.


Ok....I googled LIfe Income Mandates....It's great, and nice to see you Brian. Congrats on your book, sounds like a gem...nice website, forwarded to my kids.....I understand 90K could disappear pretty fast. Under the circumstances I respect it and would like it to last as long as possible, and still hold onto the lifestyle I choose. Really appreciate all your input, will spend more time on your website and continue to learn. Trying to graduate into grade 1.


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## dawne

james4beach said:


> No conflict of interest there with Mr. Brian (CFP) recommending you see an advisor ... lol


Right, no conflict at all.. .....Well you know James4beach, there sits a smart man who jumps on any opportunity to find someone who wants to cross his bridge. :encouragement:

Many thanks, and all the best to everybody.


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## Eclectic12

dawne said:


> Ok...Does that mean I have $31K less the $457, room in TFSA?
> Which would = $30,543Give me a prize if that's right, please....


Available TFSA contribution room = total granted - contribution + old than a year withdrawals = $31000 - $7557 + $7100 = $31000 - $457 = $30,543.

So yes - you get the prize! :encouragement:


If you keep updating the total either based on contributions or adding new contribution room & withdrawal room on Jan 1 of each year, it should be tedious but not difficult to stay on top of it.


Cheers


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## Eclectic12

dawne said:


> ... Not on any disability pension......But this is what makes me a little nervous about where to put this money. I don't want to have to fill out any forms that ask how much I have in a TFSA or savings acc't......Don't want to lose any perks, but maybe the interest earned would outweigh them, ...


There's nothing to fear as long as you investigate and learn before making any changes. 

You are ahead of those who don't ask or investigate ... so don't let it get you down.


Cheers


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## dawne

Brian Weatherdon CFP said:


> Dear Dawne, you'd surely consider putting a good deal into Tax Free Savings Account ....with some dividends and other value (google "Life Income Mandates") that can pay you income to add to your comfort over the years ahead. <> Mattress loses money, waking or sleeping, because it cannot grow. 2% interest rates still lose value because health inflation (which creeps up as we age) is nearer 10% and nowhere near the 1% our govt talks about. It's worth discussing, even as a free initial consultation, with a recognized financial advisor (prefer a duly "certified financial advisor") near where you live. Gather ideas that you can understand well enough, and feel will keep you comfortable and secure for life.


Well, and there is another side to this I haven't mentioned. My 2 kids are grown w. the usual line of credit/mortgage/debt. They ea have good jobs and are just paying off debt. After I deposit $30K into TFSA, there will still be substantial remaining. To sit in a savings acc't that even gathers just 2%, and costs me a little on interest, may not be a purposeful as giving the kids the $ to save all the interest they're paying. I think that would be best use of remaining funds. OF course I was going to give them some, but I'm thinking it may be best to give them most of it to save for me, and help them.

In saying that, if I ever need the money, they have to promise to have it available for me. Even if they pay me 3% on any funds I need from them, (won't need large lump sums as far as I know), why don't I give them most of the remaining which would help them out more than the sm. interest earned from an institution would help me. I'd make more interest, and they'd save interest on their payments..... Does that make sense?


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## RBull

^There are rules around what you're proposing but I'll let the experts detail what they are. 

Just my opinion but what you're proposing has a lot of risk attached to it. Risk of not getting your money back and risk of causing a family rift. Many things could change that make repaying difficult or impossible. Loss of employment, health issues, marital issues, family rifts etc. Do not lend what you cannot afford to lose. 

It also sounds like you need the money more than they do. Giving money away seems to be a conflict when at the same time you receive taxpayer subsidized housing and GIS. Your intentions may be noble but not something I could in any way advocate for myself.


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## dawne

RBull said:


> ^There are rules around what you're proposing but I'll let the experts detail what they are.
> 
> Just my opinion but what you're proposing has a lot of risk attached to it. Risk of not getting your money back and risk of causing a family rift. Many things could change that make repaying difficult or impossible. Loss of employment, health issues, marital issues, family rifts etc. Do not lend what you cannot afford to lose.
> 
> It also sounds like you need the money more than they do. Giving money away seems to be a conflict when at the same time you receive taxpayer subsidized housing and GIS. Your intentions may be noble but not something I could in any way advocate for myself.


Thanks for sharing that RBull. Agree totally re: the family 'risk'....that's part of why I hesitate......I didn't mention that the kids have already told me to keep the money, to make sure I'm looking after myself, and that alone helps them to feel better, knowing I'm going to be ok. They don't know I was considering giving them most of what remains. I need time to think about it, and to weigh financial pros/cons. If one of them lost their job, I would help them anyway if it was within my means, of course. And I wouldn't be 'giving' it away, as they would have to have it available to pay back if I needed, and add interest on.

As far as the government goes, the opportunity is there for those of us with low income, to live in subsidized housing if we fall under their categories. This money is non-taxable, and they don't have to know what I'm doing with it, if it doesn't affect taxes, as far as I know. (..and still learning..)
If you 'could' earn tax-free dollars, would you? And even though I didn't 'earn' it, it's now mine to take care of the best way I can. If I don't have to share it with the government, why would I? 
In my 'other' life many yrs ago, I had lots of money and also did not advocate living off the government. I relate to how you feel about that. 
Since then, things have changed and I appreciate living in a country where the government has assistance programs for low income residents. I believe I'm more efficient with money than in the past, and more frugal than many people who have a lot. I have little waste and leave a small footprint.... happy living simple life and grateful for health and this 'gift'.


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## Eclectic12

dawne said:


> ... And I wouldn't be 'giving' it away, as they would have to have it available to pay back if I needed, and add interest on ...


Once it is not a gift but a loan, CRA has rules in place to ensure it's not a tax scam.

One part of the rules is there are set limits for how low the interest can be. That interest rate was raised from 1% to 2% last year - which has to be paid to the lender (i.e you), each year.

It's no different than the bank loaning your family money and having to report the interest charged as income for the bank.

http://www.kpmg.com/ca/en/issuesandinsights/articlespublications/tnf/pages/tnfc1328.htm

The gov't put in place these rules as typically lower interest loans than commercially available are being made by the high income family member to a lower income family, as a way to minimise taxes. 

http://www.theglobeandmail.com/glob...-income-splitting-with-family/article8024584/




dawne said:


> ... This money is non-taxable, and they don't have to know what I'm doing with it, if it doesn't affect taxes, as far as I know ...


That's where a loan to family members has to have interest being paid back to you to be considered legitimate.
The interest paid to you does affect your taxes as it is income, the same as the interest paid on a savings account has to be reported as income.


Cheers


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## RBull

dawne said:


> Thanks for sharing that RBull. Agree totally re: the family 'risk'....that's part of why I hesitate......I didn't mention that the kids have already told me to keep the money, to make sure I'm looking after myself, and that alone helps them to feel better, knowing I'm going to be ok. They don't know I was considering giving them most of what remains. I need time to think about it, and to weigh financial pros/cons. If one of them lost their job, I would help them anyway if it was within my means, of course. And I wouldn't be 'giving' it away, as they would have to have it available to pay back if I needed, and add interest on.
> 
> As far as the government goes, the opportunity is there for those of us with low income, to live in subsidized housing if we fall under their categories. This money is non-taxable, and they don't have to know what I'm doing with it, if it doesn't affect taxes, as far as I know. (..and still learning..)
> If you 'could' earn tax-free dollars, would you? And even though I didn't 'earn' it, it's now mine to take care of the best way I can. If I don't have to share it with the government, why would I?
> In my 'other' life many yrs ago, I had lots of money and also did not advocate living off the government. I relate to how you feel about that.
> Since then, things have changed and I appreciate living in a country where the government has assistance programs for low income residents. I believe I'm more efficient with money than in the past, and more frugal than many people who have a lot. I have little waste and leave a small footprint.... happy living simple life and grateful for health and this 'gift'.


I think I misunderstood a little thinking you might be making a gift regardless. Hence my comment. 

Yes, you are right about only paying tax on whatever interest or dividends, capital gains upon sale accumulate each year, depending on your choice of investment. I don't know of any way to earn tax free dollars in this country, at least in my situation. You can defer tax like in an RRSP etc but not avoid paying it so the answer I guess is no. About 10 years ago when I started my business I could have received a significant financial gift from the provincial government for incorporating. I chose not to take it since I fundamentally disagreed with the government giving me money to start a business. I felt I needed to walk the talk.

I am not surprised to hear what you are saying about your "former life" and your current situation. I totally get what you are saying and know several people in the same boat. You've clearly got the right approach and attitude to all of this. Good luck with your gift and your choices.


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## dawne

Eclectic12 said:


> Once it is not a gift but a loan, CRA has rules in place to ensure it's not a tax scam.
> 
> One part of the rules is there are set limits for how low the interest can be. That interest rate was raised from 1% to 2% last year - which has to be paid to the lender (i.e you), each year.
> 
> It's no different than the bank loaning your family money and having to report the interest charged as income for the bank.
> 
> http://www.kpmg.com/ca/en/issuesandinsights/articlespublications/tnf/pages/tnfc1328.htm
> 
> The gov't put in place these rules as typically lower interest loans than commercially available are being made by the high income family member to a lower income family, as a way to minimise taxes.
> 
> http://www.theglobeandmail.com/glob...-income-splitting-with-family/article8024584/
> 
> 
> 
> 
> That's where a loan to family members has to have interest being paid back to you to be considered legitimate.
> The interest paid to you does affect your taxes as it is income, the same as the interest paid on a savings account has to be reported as income.
> 
> 
> Cheers


Wow....I never knew that could be done legally. It's something to think about as it may help the kids, and I don't need the lump sum. Really glad you shared those 2 links, and all this important info, Eclectic. Going to do more research on it and maybe send these links to them to think about too. 

Thank-you!


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## dawne

RBull said:


> I think I misunderstood a little thinking you might be making a gift regardless. Hence my comment.
> 
> Yes, you are right about only paying tax on whatever interest or dividends, capital gains upon sale accumulate each year, depending on your choice of investment. I don't know of any way to earn tax free dollars in this country, at least in my situation. You can defer tax like in an RRSP etc but not avoid paying it so the answer I guess is no. About 10 years ago when I started my business I could have received a significant financial gift from the provincial government for incorporating. I chose not to take it since I fundamentally disagreed with the government giving me money to start a business. I felt I needed to walk the talk.
> 
> I am not surprised to hear what you are saying about your "former life" and your current situation. I totally get what you are saying and know several people in the same boat. You've clearly got the right approach and attitude to all of this. Good luck with your gift and your choices.


Kudos to you RBull for not taking the gift, I guess. It's important to walk your talk, for sure. My mom (raised on a farm) walked this talk: 'don't turn your back on a gift horse.' Since my dad died when my brother and I were babies, we needed to accept assistance from anywhere it was offered, even if we didn't want to. Everything is relative, and if doing it your way works, go for it. You're setting a good example.

I was planning to give the kids a little to help them out, share this gift. But in looking at the links from Eclectic12, it might be smarter to do a family loan if they want to do that. Not sure they'll go for it, as they're doing ok....It just feels strange to have this money and not put it to better use. If I just take out what I might need over the next 2 yrs, and they can split what's remaining. Then that should cut their interest payments substantially, and they can still pay me interest, which I'll be getting anyway if it sits in a HISA or even a GIC...? Really want to think about this.

If anyone has experience with family loans, I'd be interested in hearing the ups and downs of that process. Maybe there's a link on here. I'll check.


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## RBull

dawne said:


> Kudos to you RBull for not taking the gift, I guess. It's important to walk your talk, for sure. My mom (raised on a farm) walked this talk: 'don't turn your back on a gift horse.' Since my dad died when my brother and I were babies, we needed to accept assistance from anywhere it was offered, even if we didn't want to. Everything is relative, and if doing it your way works, go for it. You're setting a good example.
> 
> I was planning to give the kids a little to help them out, share this gift. But in looking at the links from Eclectic12, it might be smarter to do a family loan if they want to do that. Not sure they'll go for it, as they're doing ok....It just feels strange to have this money and not put it to better use. If I just take out what I might need over the next 2 yrs, and they can split what's remaining. Then that should cut their interest payments substantially, and they can still pay me interest, which I'll be getting anyway if it sits in a HISA or even a GIC...? Really want to think about this.
> 
> If anyone has experience with family loans, I'd be interested in hearing the ups and downs of that process. Maybe there's a link on here. I'll check.


Thanks. 

While the benefits of a family loan sound good for both sides the potential problems are significant. Good luck with your choice.


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## marina628

I wouldn't give a dime to your kids or family in your situation , also I assume many here are biting their lips with all this talk on subsidized housing .You need to be honest with whatever paperwork you have to fill out,giving it to kids to 'hide' so you can qualify for free rent is not kosher.


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## dawne

RBull said:


> I think I misunderstood a little thinking you might be making a gift regardless. Hence my comment.
> 
> Yes, you are right about only paying tax on whatever interest or dividends, capital gains upon sale accumulate each year, depending on your choice of investment. I don't know of any way to earn tax free dollars in this country, at least in my situation. You can defer tax like in an RRSP etc but not avoid paying it so the answer I guess is no. About 10 years ago when I started my business I could have received a significant financial gift from the provincial government for incorporating. I chose not to take it since I fundamentally disagreed with the government giving me money to start a business. I felt I needed to walk the talk.
> 
> I am not surprised to hear what you are saying about your "former life" and your current situation. I totally get what you are saying and know several people in the same boat. You've clearly got the right approach and attitude to all of this. Good luck with your gift and your choices.


RBull, do you or anyone here have any knowledge/advice re: a combo investment, such as a GIC combined w. Managed Payout Solution for my situation? Met w. an advisor today and he suggested that might work too. A lot depends on how much I want to keep liquid and how often I'll need to liquidate any funds. And another idea was perhaps there could be more gained to forego the TFSA and put more into something w. just a little risk, to gain more in interest because of a larger sum invested. ?? Lots of good ideas, trying to find one that fits best.


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## RBull

dawne said:


> RBull, do you or anyone here have any knowledge/advice re: a combo investment, such as a GIC combined w. Managed Payout Solution for my situation? Met w. an advisor today and he suggested that might work too. A lot depends on how much I want to keep liquid and how often I'll need to liquidate any funds. And another idea was perhaps there could be more gained to forego the TFSA and put more into something w. just a little risk, to gain more in interest because of a larger sum invested. ?? Lots of good ideas, trying to find one that fits best.


Just got back to this thread now. I don't know much about these managed payout solutions, other than it's a fund that pays a tax efficient regular % payout with a mix of assets, equities, bonds etc. Pretty sure all major banks offer several options on these however I would look closely at the fees associated with them. 

I'm not following why to forgo the TFSA. You should have lots of options in your TFSA that address whatever risk you are fine with. If you don't maybe this is because it is not self directed. A self directed account would allow most any type of investment choice there is.


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## dawne

Brian Weatherdon CFP said:


> Dear Dawne, you'd surely consider putting a good deal into Tax Free Savings Account ....with some dividends and other value (google "Life Income Mandates") that can pay you income to add to your comfort over the years ahead. <> Mattress loses money, waking or sleeping, because it cannot grow. 2% interest rates still lose value because health inflation (which creeps up as we age) is nearer 10% and nowhere near the 1% our govt talks about. It's worth discussing, even as a free initial consultation, with a recognized financial advisor (prefer a duly "certified financial advisor") near where you live. Gather ideas that you can understand well enough, and feel will keep you comfortable and secure for life.


So, after some time of thinking about what to do with this money-gift, I've just gratefully received another bit of pension from the deceased's benefits. Amounted to over $30K, but the gov't took 30% tax off. (leaving net of over 20K) So my income for this yr is already twice what it was last yr. If I don't work another day (just have sm. part time job, 10 hrs/wk, would love to drop that), my total income for 2014 will be about 2K under the gov't allowed of $43,900 at 15% tax. If I earn more, it jumps up to 22%. Wondering if it's even worth my while to keep working as I could lose more than gain if I don't work enough to make up diff? I don't really need the $....live frugally.

Also, since I've already paid taxes on this money, I'm wondering if they pay me interest on that 'pre' payment. Usually we pay taxes at the end of the tax yr. I don't owe them any money, and that 10K deduction might have earned me some interest.

Was going to start a new thread, but will try adding on to this old one to see if anyone will reply....If not, I'll repost somewhere else on here. Thanks for any replies/advice.


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## Spudd

I may be wrong, but since this money was from the deceased's estate, I don't think it counts as income for you.


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## peterk

dawne said:


> So my income for this yr is already twice what it was last yr. If I don't work another day (just have sm. part time job, 10 hrs/wk, would love to drop that), my total income for 2014 will be about 2K under the gov't allowed of $43,900 at 15% tax. If I earn more, it jumps up to 22%. Wondering if it's even worth my while to keep working as I could lose more than gain if I don't work enough to make up diff?


Hi Dawne.

Spudd's comments aside (I don't know either), I think you may have to look at the math little more closely to learn how the tax brackets work. Remember, when you jump up a tax bracket, like 15% to 22%, you _only_ pay that 22% on your wages _over_ 43,953. The money you already make up to 43,953 gets taxed at the usual 15%.

Let's say you stop earning your wage now at $42,000 for the year. You would pay $7,051 in total income tax (before deductions and credits). If you made an extra $1,953 to stay in the 15% tax bracket, you would pay an extra $488 (15%+10% Alberta) in income tax for a total of $7,539. 

Now let's say you decide to keep working and make $2000 more, $45,953. You still pay the $7,539 for the first $43,953, then the extra $2,000 will get taxed at 32% (22%+10% Alberta). You now owe an extra $640 in tax, but you have made an extra $2,000 in wages. There is never any amount of income where "jumping to the next tax bracket" will cause you to take home less money than if you decided not to work for that extra money in the first place.

Remember, the government is not so cruel that it will actually take away ALL your wages in taxes! A lot of people get confused by this, and become worried about going into the next tax bracket (like 15% to 22%) because they think they will make less money in the end. It is simply a misunderstanding that many people have, and a common one, so don't feel bad.


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## dawne

Spudd said:


> I may be wrong, but since this money was from the deceased's estate, I don't think it counts as income for you.


Thanks for your reply Spudd....When payments were made into this pension fund, they were tax deductible. So I'm thinking that's why they tax the payout. Since they sent me a completed T4A form to use next yr at tax time, I have to consider it income.


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## dawne

peterk said:


> Hi Dawne.
> 
> Spudd's comments aside (I don't know either), I think you may have to look at the math little more closely to learn how the tax brackets work. Remember, when you jump up a tax bracket, like 15% to 22%, you _only_ pay that 22% on your wages _over_ 43,953. The money you already make up to 43,953 gets taxed at the usual 15%.
> 
> Let's say you stop earning your wage now at $42,000 for the year. You would pay $7,051 in total income tax (before deductions and credits). If you made an extra $1,953 to stay in the 15% tax bracket, you would pay an extra $488 (15%+10% Alberta) in income tax for a total of $7,539.
> 
> Now let's say you decide to keep working and make $2000 more, $45,953. You still pay the $7,539 for the first $43,953, then the extra $2,000 will get taxed at 32% (22%+10% Alberta). You now owe an extra $640 in tax, but you have made an extra $2,000 in wages. There is never any amount of income where "jumping to the next tax bracket" will cause you to take home less money than if you decided not to work for that extra money in the first place.
> 
> Remember, the government is not so cruel that it will actually take away ALL your wages in taxes! A lot of people get confused by this, and become worried about going into the next tax bracket (like 15% to 22%) because they think they will make less money in the end. It is simply a misunderstanding that many people have, and a common one, so don't feel bad.



Thank-you peterk for all the great info and figures. Might be a good idea to save $ in an acc't just for paying taxes next yr. I haven't paid for yrs, might be a shock.......But it makes sense if I needed the money, to keep working....or if I wanted to keep my boss happy. So, any hrly wage earned after the max. amount, I might as well deduct 22%? Maybe I should ask for a raise?


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## Taraz

BC is expensive - have you thought about moving to a small town instead? They often have far cheaper housing (depending on the area), but the wages are similar to the city (or sometimes higher).


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## dawne

Taraz said:


> BC is expensive - have you thought about moving to a small town instead? They often have far cheaper housing (depending on the area), but the wages are similar to the city (or sometimes higher).


Yes Taraz, thanks for asking....thought about staying in good old 'cold' Alberta, in busy/noisy Calgary. Penticton BC is about as small as I'd like to go......within walking distance of most things in town, more moderate winters....and for those who have ever been there, I don't need to go on about the geographic perks. Lived there for 10 months a few yrs ago, and have been wanting to return when finances were better for me. I understand the transition into that province will cost a bit, but when that's done, there's not a big diff in costs there. I've been comparing rental prices between there and Calgary, and they are very similar. Wages are really poor however, so if a person had to work, they might be disappointed in that part of BC.


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## carverman

Spudd said:


> I may be wrong, but since this money was from the deceased's estate, I don't think it counts as income for you.


I think she mentioned it was a gift from a deceased person's pension..that is taxable. If she received a gift from a relative's estate, then that is another matter.
I got some last year and being mentioned in the deceased person's will, (not a pension), I didn't have to declare it as income with my 2013 tax return.


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## OhGreatGuru

This all sounds peculiar. I would have expected a lump sum payment from a deceased person's pension to be taxable in the hands of the deceased's estate, not the beneficiary. 
Possibilty A: executor set it up this way, to simplify estate settlement, passing tax liability onto beneficiary;
Possibility B: Pension plan is set up this way so that, while payment bypasses the estate, it gets taxed in the hands of beneficiary so that CRA gets its deferred taxes. The fact that a T4A has been issued to the beneficiary suggests this is the route being followed. But it might be worth a call to the pension administrator to make sure they haven't made a mistake.

CRA says Income earned on RRSP funds between the date of death and the date of payment to the beneficiary may be taxed in the hands of either the estate or the beneficiary. So if the $30k is for such income it would explain it.

CDA also says: _A beneficiary will not have to pay tax on any payment made out of the RRSP, if the amount has been included in the deceased annuitant’s income._ So, if for whatever reason the payment was not included in the deceased's income, it gets taxed in the beneficiary's hands.

PS. I can see the attraction of this to a pension administrator. No need to deal with an estate executor. Just make payment to the named beneficiary, withholding the prescribed taxes; and issue a T4A to the beneficiary.


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## dawne

carverman said:


> I think she mentioned it was a gift from a deceased person's pension..that is taxable. If she received a gift from a relative's estate, then that is another matter.
> I got some last year and being mentioned in the deceased person's will, (not a pension), I didn't have to declare it as income with my 2013 tax return.


That's interesting Carverman, thanks for your reply. With that information, I'm probably phoning CRA or LAPP tomor to ask why it is taxable to a beneficiary. It says in the booklet it's taxable, but I'm also named in will as beneficiary. Although the pension is not mentioned in will, maybe that is the difference.....? Not sure but worth checking out for clarification since the tax was almost 10K....I should give you a cut if they decide it's not taxable, eh?


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## dawne

OhGreatGuru said:


> This all sounds peculiar. I would have expected a lump sum payment from a deceased person's pension to be taxable in the hands of the deceased's estate, not the beneficiary.
> Possibilty A: executor set it up this way, to simplify estate settlement, passing tax liability onto beneficiary;
> Possibility B: Pension plan is set up this way so that, while payment bypasses the estate, it gets taxed in the hands of beneficiary so that CRA gets its deferred taxes. The fact that a T4A has been issued to the beneficiary suggests this is the route being followed. But it might be worth a call to the pension administrator to make sure they haven't made a mistake.
> 
> CRA says Income earned on RRSP funds between the date of death and the date of payment to the beneficiary may be taxed in the hands of either the estate or the beneficiary. So if the $30k is for such income it would explain it.
> 
> CDA also says: _A beneficiary will not have to pay tax on any payment made out of the RRSP, if the amount has been included in the deceased annuitant’s income._ So, if for whatever reason the payment was not included in the deceased's income, it gets taxed in the beneficiary's hands.
> 
> PS. I can see the attraction of this to a pension administrator. No need to deal with an estate executor. Just make payment to the named beneficiary, withholding the prescribed taxes; and issue a T4A to the beneficiary.


GreatGuru, thanks to you too.....saw your message after replying to Carverman. I'm not even sure where this pension is from as the lawyer saw LAPP listed as assets to me, and implied it wasn't going to be much so I didn't concern myself with it. Never even applied for months after. Then going through paperwork again, I saw it was something to be applied for, and thought that even if it's just a couple hundred $, I'd apply anyway. Well.....you can imagine my 'shock' when I opened the envelope to see a cheque for over $20K made out to me.

So I don't want to ruffle any feathers, and if they've made a mistake they'll surely contact me sooner than later. So don't want to draw their attention to it....And they've taken a lot of time to sort this out. I've sent them all paperwork they requested, but don't recall if they have copy of will......and I actually forgot about this benefit. So now, I don't want to seem ungrateful for anything, as I appreciate this generous gift. 

It states clearly in the booklet, that: "Beneficiaries other than a pension partner, will receive a one-time payment which cannot be transferred to a LIRA, but must be taken as a cash payment with income tax withheld." (I was named as the 'beneficiary other than pension partner.') So, that is clear, but maybe they don't realize I am also named in the will as beneficiary....? I wonder if that would make a difference?

Oh, and I was named as executor and decided to resign that position a few months after. Didn't want to be responsible for all the ins and outs of it, so there is no executor at this time. And not sure who will be appointed/do it, because there's no money in the estate to pay anyone. So this pension plan must have been set up this way. It was not mentioned in will, just me as beneficiary/executor.

...and what I'm thinking is, if I can keep my income low, I'll get some of this 10K tax deduction back..? It works out to be 33% deduction, which is higher than deductions for the income I plan to have. And will CRA pay me interest on that 'overcharge' of early tax payment?


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## carverman

dawne said:


> That's interesting Carverman, thanks for your reply. With that information, I'm probably phoning CRA or LAPP tomor to ask why it is taxable to a beneficiary. It says in the booklet it's taxable, but I'm also named in will as beneficiary. Although the pension is not mentioned in will, maybe that is the difference.....? Not sure but worth checking out for clarification since the tax was almost 10K....I should give you a cut if they decide it's not taxable, eh?


It depends on your circumstances, I would think. If you had a relationship and were designated as beneficiary in the deceased person's will, the payments would then be made to you ,but
since the pension payments come out of a pension fund, the payments are taxable, AFAIK. 

I have to pay tax on my pension draws. At some point when my company pension is rolled over to a LIF, I will still have to pay tax on it. When I die, and there is a designated beneficiary in my will to receive the residual amount of the LIF (which is registered with the govts), there will be tax consequences on that, because it is like earning income in my view.
A monetary gift, OTOH, from a deceased persons estate (where the tax has already been paid on a savings or TFSA, is not taxable if it is a gift....AFAIK.


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## RBull

Dawne,

No the government doesn't pay interest on anything taxed at source that might be at a higher rate than your end of year rate.


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## dawne

carverman said:


> It depends on your circumstances, I would think. If you had a relationship and were designated as beneficiary in the deceased person's will, the payments would then be made to you ,but
> since the pension payments come out of a pension fund, the payments are taxable, AFAIK.
> 
> I have to pay tax on my pension draws. At some point when my company pension is rolled over to a LIF, I will still have to pay tax on it. When I die, and there is a designated beneficiary in my will to receive the residual amount of the LIF (which is registered with the govts), there will be tax consequences on that, because it is like earning income in my view.
> A monetary gift, OTOH, from a deceased persons estate (where the tax has already been paid on a savings or TFSA, is not taxable if it is a gift....AFAIK.


Thanks Carverman....As a beneficiary, I received the benefits/payouts from the deceased's LIF and also insurance and they were not taxed. A beneficiary does not pay tax on money received from a death, as far as I know. You might have to pay tax on your LIF, but when you die, it should not be taxed. So I think the difference is, if the pension payments are tax deductible during a person's life, then they are taxed when they are paid out on that person's death...?....Still researching. Appreciate any input.

Also, these monies were not considered 'gifts' legally...I only used the term lightly, in a personal way. And I don't believe your beneficiaries would pay tax on any amounts coming to them from your LIF after your death. For you to withdraw, yes, it's considered income for you, but not for them. (AFAIK, based on what I just went through and paid 'no' taxes on LIF money received)


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## carverman

dawne said:


> Thanks Carverman....As a beneficiary, I received the benefits/payouts from the deceased's LIF and also insurance and they were not taxed. A beneficiary does not pay tax on money received from a death, as far as I know. You might have to pay tax on your LIF, but when you die, it should not be taxed. So I think the difference is, if the pension payments are tax deductible during a person's life, then they are taxed when they are paid out on that person's death...?....Still researching. Appreciate any input.
> 
> Also, these monies were not considered 'gifts' legally...I only used the term lightly, in a personal way. And I don't believe your beneficiaries would pay tax on any amounts coming to them from your LIF after your death. For you to withdraw, yes, it's considered income for you, but not for them. (*AFAIK, based on what I just went through and paid 'no' taxes on LIF money received*)


Yes, I know Life insurance is not taxed in the hands of the recipient, neither are actual gifts from the estate, but it all depends on how the proceeds of the estate were handled. If there is tax
payable on the proceeds of a LIF as part of an estate, it is may have been possible that the estate of the deceased person paid any taxes owing at the time of distribution of the estate.
But it's a "dog's breakfast" with these LIFs , which I am opting for when my Nortel DB pensions is finally wound up this year. I will be in the same boat when I finally hold a LIF and have to designate my beneficiaries, which in my case will be my grown children, as I am divorced.

Here's what I have been able to find on line....maybe others on the CMF forum may be able to shed some light on this..but as I mentioned, it all depends on how wills/estates are set up to distribute the proceeds of any residual amount left in the LIF. You may have to go online with an estate lawyer to get an answer.

http://www.investingforme.com/classroom/account-type/life-income-fund/designating-a-beneficiary


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## dawne

carverman said:


> Yes, I know Life insurance is not taxed in the hands of the recipient, neither are actual gifts from the estate, but it all depends on how the proceeds of the estate were handled. If there is tax
> payable on the proceeds of a LIF as part of an estate, it is may have been possible that the estate of the deceased person paid any taxes owing at the time of distribution of the estate.
> But it's a "dog's breakfast" with these LIFs , which I am opting for when my Nortel DB pensions is finally wound up this year. I will be in the same boat when I finally hold a LIF and have to designate my beneficiaries, which in my case will be my grown children, as I am divorced.
> 
> Here's what I have been able to find on line....maybe others on the CMF forum may be able to shed some light on this..but as I mentioned, it all depends on how wills/estates are set up to distribute the proceeds of any residual amount left in the LIF. You may have to go online with an estate lawyer to get an answer.
> 
> http://www.investingforme.com/classroom/account-type/life-income-fund/designating-a-beneficiary


Thanks Carverman.....Had to do some digging, and found out that yes, it seems tax will have to be paid on the LIF received. But it's a puzzle, because I received the money as beneficiary, but the T4RIF form is in the deceased's name. That tells me tax must be paid on it...but why isn't it made out in my name? This looks like it's for his estate, and then the $ should have just gone to estate instead of to beneficiary?

So why have a beneficiary if they don't get the $? What does the beneficiary receive if the LIF $ goes into estate? All debt can then come out of it and nothing received by beneficiary? That doesn't sound right to me....So today I'll be trying to talk with a couple of estate lawyers to get their thoughts on it, plus CRA, plus RBC (origin of LIF)...

And if anyone on this site can shed some light on this, I'd really appreciate hearing back. Not sure if there's a thread for 'Estate Planning'. Haven't seen one. Sure is learning process on how things are handled after death.

And thanks for your link.....There is a lot of info online. Still trying to find out details of his 'plan' to see what it says about beneficiary that is not a spouse. Can't find, but I think therein lies the info which could explain how they did this.

UPDATE: Was on ph most of the morning. The LIF went to me, and the taxes on it come from the estate. If there is no
money in estate, then CRA will find me and ask me for the taxes, probably 30% (based on amount). So that is something good to know down the road. If I spend the $, and it's gone, then I might be able to file bankruptcy to be exempt from paying the taxes...? Haven't looked into that yet.


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## carverman

dawne said:


> UPDATE: Was on ph most of the morning. The LIF went to me, and the taxes on it come from the estate. If there is no
> money in estate, *then CRA will find me and ask me for the taxes*, probably 30% (based on amount).


That makes more sense that the money for the taxes owing come out of the estate. 




> So that is something good to know down the road. If I spend the $, and it's gone, then I might be able to file *bankruptcy to be exempt from paying the taxes*...? Haven't looked into that yet.


Well it is possible I suppose, but that is a drastic step, because if you have any other tangible assets (home etc),that will also be considered by the bankrupctcy trustee, I believe, 
so it may not be as simple as filing for bankruptcy to get out paying the tax owing , (that is if the estate doesn`t have enough left to pay them).
Besides, why put yourself in "a hole" for 5-7 years, where your credit rating will be shot to pieces?
You can always arrange with the tax man to pay off any tax owing in instalments that you can afford. 
http://www.bankruptcy-canada.ca/bankruptcy/tax-debts-in-bankruptcy.htm


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## dawne

carverman said:


> That makes more sense that the money for the taxes owing come out of the estate.
> 
> 
> 
> 
> Well it is possible I suppose, but that is a drastic step, because if you have any other tangible assets (home etc),that will also be considered by the bankrupctcy trustee, I believe,
> so it may not be as simple as filing for bankruptcy to get out paying the tax owing , (that is if the estate doesn`t have enough left to pay them).
> Besides, why put yourself in "a hole" for 5-7 years, where your credit rating will be shot to pieces?
> You can always arrange with the tax man to pay off any tax owing in instalments that you can afford.
> http://www.bankruptcy-canada.ca/bankruptcy/tax-debts-in-bankruptcy.htm


Thanks Carverman.....Didn't know your comment/reply was sent here....Just checked in. 

Bankruptcy won't be necessary, but I can see where some could get caught having to do that, not knowing how things work in the world of settling estates. 

Big learning curve being thrown into it. 

Good thing I didn't give all the money away or invest it into some locked-in account. I simply followed the steps as they came along, and this money was sent to me, in my name. I was told it was mine, with no mention of possibility of paying tax on it. So it's a good thing I knew financial situation of estate, and learned I might be asked to pay tax on it. If I had been a spouse or qualified beneficiary, I could have invested it and possibly save the immediacy of paying tax....But that alternative isn't available for me.

Will just hope there's enough left in estate when assets are settled, to pay for most if not all taxes.


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## Retiredguy

dawne said:


> Really appreciate all these great tips/info.
> 
> Wondered if there was something I could put it in, and draw from monthly, without pushing up income too much, yet still gain a little. Didn't know it was called an 'annuity'....Lots to learn here.



TFSA is a good thought for sure.

Just an additional thought. Don't know what the cost of buying similar accommodation is in your area but personal Real Estate ownership does not count against GIS and fixing your long term accommodation costs might be worth consideration. Of course this would require detail calculations. If RE went up over the years then your kids would inherit it tax free as it is your principal residence.


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## dawne

Updating on my life situation:

Moving to BC within the next couple of months. (ok, not all decisions have to be based on saving $, do they? Will cost a bit more, but will have a nice place to live, 10 min walk from the beach. I think I can swing it with the funds recently inherited. 
Although, I am a bit surprised no one on this site recommended investing into another TFSA under my daughter's name. She's never opened a TFSA. Why would I not ask her to open one for me, max it out, and if she ever wants to put $ in, she can give it to me and we can calculate interest earned. I can't think of a reason 'not' to do that. Any tips? (of course we would have it in writing for legal purposes)
Wasn't sure what thread to post this on. I know there's a TFSA one but not enough time to search.....



Retiredguy said:


> TFSA is a good thought for sure.
> 
> Just an additional thought. Don't know what the cost of buying similar accommodation is in your area but personal Real Estate ownership does not count against GIS and fixing your long term accommodation costs might be worth consideration. Of course this would require detail calculations. If RE went up over the years then your kids would inherit it tax free as it is your principal residence.


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## OnlyMyOpinion

Your daughter (if >18yrs, or 19yrs in BC and most east coast provinces with contribution room from age 18) can certainly open a TSFA in her name - it will be her TSFA though - both the capital in it and any earnings. You could 'gift' contributions to her though. Or are you suggesting settinging one up in 'name only' for the use of your capital and to shelter inome that you would be taking ownership of - as in tax evasion?


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## cannew

TFSA yes, and invest in DG stocks (only large, stable, and companies with a history of increasing their dividend). You wouldn't need more than 3 or 4 companies. They should generate about $3,500 to $4,000 per year (assume you invest it all). With your current income the dividend income will not affect your taxes (basically no tax) or pensions. 

You could look at BNS, Telus, Emera, and Royal. Buy the shares from a broker, then get a share certificate from the broker. Then set up DRIP account with Computershare. Once they are setup have Computershare deposit the dividends directly into your bank each quarter. Not only will your receive a decent return, it should increase each year.


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## OnlyMyOpinion

Re-read 63 yr old Dawne's posts. Tell me if she sounds like a 'kindergarten' level novice - or a TROLL?


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## LBCfan

Well, you can live cheaply under a BC bridge.


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