Photography by Jeff Coulson Credits: Photography by Jeff Coulson
1. Withdrawing from TFSAs
Tax-free savings accounts not only allow you to save for short-term and long-term goals, they also let you make withdrawals any time you wish without tax penalties. Still, there are financial strategies to keep in mind. Planning a withdrawal in the New Year? Take out the funds by the end of December instead, suggests Jim Yih, an Edmonton-based financial planner and blogger at Retire Happy. Withdrawing in December means you have the option of replacing the money in January, just one month later. TFSA rules stipulate you cannot re-contribute a withdrawn amount during the same calendar year. Doing so means stiff tax penalties of one percent per month on the re-contributed amount. If you withdrew in January, you'd have to wait until 2015 to put the money back in.
2. Plan tax-loss selling strategies
If you own some losing investments and want to off-load them this year, write off those losses against past or future capital gains on other investments. Doing so will greatly reduce the amount of tax you'll pay, says Yih. Tax-loss selling should happen at year's end, because that's when you'll know your taxable capital gains on various investments. Here's how it works: Let's say you own Stock A and Stock B. You originally purchased Stock A for $1,000 but it's now worth only $500. You bought Stock B for $500 and it's now worth $1,000. You should sell both stocks. By selling Stock A you'll have $500 worth of losses you can use to offset the gains made on Stock B.
3. Maximize grant money from RESPs
The Canada Education Savings Grant (CESG) is the best part about Registered Education Savings Plans. Contribute funds toward your child's education and the CESG tops up that amount by 20 cents on every dollar you contribute, up to $500 a year. But to maximize this free money, you'll need to be diligent about contributing $2,500 per child each year, says Yih. If you miss a year, you could contribute $5,000 per child next year and get $1,000 in CESGs. But that's as much as you can get in one year. Contributions are calculated by calendar year, and you're allowed to catch up only one year at a time.
4. Make the most of your benefits
If you've delayed booking that massage or having that crown replaced, now's the time. It's use-it-or-lose-it when it comes to benefits. Remember, group benefits don't accumulate, says Diane McCurdy, a Vancouver-based financial planner and author of How Much Is Enough? (Wiley, 2005). She suggests thinking strategically about major health-care costs. Let's say you need two crowns replaced but your benefits only cover one per year. "Look at your limits and wait until January before you do the next portion," she says.
5. Charitable donations
Keep in mind that any amounts donated to a registered charity by Dec. 31 can be applied to your 2013 income tax return, Yih says.
6. Update your documents
Has your marital status changed? Did you change your name? Are there new additions to your family, or have you purchased a new home? If so, your will, insurance policies and other important documents may need updating.
We have more money-saving tips, including how to spend less on Christmas gifts.
|This story was originally titled "Merry Money Moves" in the December 2013 issue.|
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