It is said death and taxes are the two certainties in life. While this is true, let’s not let the taxes be more than they should be. There are many facts and strategies which will allow you avoid paying more of your money to the government.
Marginal tax rates during your retirement years could be substantially lower than what you could expect in the year of your death. When you die, your estate could potentially be taxed at the highest marginal tax rate (currently 45.8% in BC). Income splitting rule, lower taxed dividends and capital gains, and now the reduced RRIF minimum withdrawal rates might allow retirees to have marginal tax rates of 30% or lower. This equates to a significant tax savings.
Whether you expect to leave assets to your heirs upon your death, or you want the peace of mind knowing you will have access to more capital down the road, maximizing your TFSA’s is the easiest way to accomplish this. Sound too rich? Yes, $10,000.00 per year for an individual ($20,000.00 per year as a couple) on an after-tax basis is not a small sum. However, if you have investment assets, there are many ways to accomplish this:
1. Make withdrawals from your registered retirement income fund (RRIF) to contribute to your TFSA today. Consider this, at a marginal tax rate of 30% you would have to withdraw $14,286 from a RRIF to be left with $10,000.00 after taxes for the contribution. Presuming a 5% return annually after twenty years you would have $347,193 which is not subject to tax..
On the other hand, if those assets were left in the RRIF, growing at the same 5% rate in 20 years the value would be $495,999. Yes, this is a larger amount, but assuming this is the year of your death, your estate would be taxed at the highest marginal tax rate therefore the after tax value would be $277,759. This means $69,434 less to your estate compared to the above strategy of shifting to TFSA’s.
2. If you have non-registered investments, you could transfer up to your TFSA limit from your non-registered assets to your TFSA. Under the same premise as above it would represent a savings of anywhere from $22,000 to $31,000 in taxes.
3. Those with high pension incomes, or large forced RRIF payments who are not spending their entire annual income could of course utilize the contribution room in their TFSA’s as a way to accumulate and grow the assets in a tax exempt environment.
So there you have it....while not able to completely eliminate taxes, we at Insightful Wealth Group have the knowledge and expertise to reduce the taxes you will have to pay in your lifetime. As for death, the best advice we can give is until then Give, Love, Laugh, and Enjoy life.