From: AlanBaggett@volcanomail.com   
      
   RRSP scenarios change for teens, low-income retirees : CRA SOTW   
      
   By Terry McBride,    
   The Starphoenix January 20, 2014    
      
   For most Canadians, a Registered Retirement Savings Plan (RRSP) is a very good   
   way to save money for retirement. However RRSPs require special consideration   
   by three types of Canadians - teenagers, low-income earners and U.S. citizens.   
      
   Teenagers Are you eager to teach your teenager about the benefits of starting   
   to save money at a young age? Suppose your child received wages from   
   babysitting or mowing lawns, for example. That means your child can file tax   
   returns to report this income,    
   without paying tax, to generate RRSP contribution room for the following year.   
   If your child opens an RRSP, he or she could make RRSP contributions even   
   before reaching the age of majority (18 in Saskatchewan). Parents or   
   grandparents should not try to    
   help out by making additional gift-contributions to the RRSP. There is a stiff   
   penalty charged on contributions that exceed the teenager's RRSP limit.   
      
   If a low-income teenager is not even taxable, don't waste the RRSP deduction   
   by claiming it immediately. Defer claiming the RRSP deduction until years   
   later when your child is earning enough (more than $43,953) to create   
   second-bracket tax savings.   
      
   Low-income retirees The ideal, most tax-efficient scenario is to make RRSP   
   contributions in a high tax bracket while you are working, and, years later,   
   make withdrawals in a low tax bracket while retired.   
   However, the worst-case scenario is for someone to make contributions in the   
   lowest tax bracket while working, and, years later, make withdrawals in a   
   higher tax bracket while retired. If you are a worker in a lowwage job,   
   contributing to a small RRSP,    
   but hardly likely to have a retirement income over $20,000 per year, you could   
   find yourself eligible to receive some Guaranteed Income Supplement (GIS) at   
   age 65.   
      
   The income test for GIS means your GIS benefits are reduced by 50 cents for   
   every dollar of taxable income from RRSP or RRIF withdrawals that you report.   
   That 50 per cent "clawback" is on top of the 26 per cent lowest bracket rate   
   (in Saskatchewan). It    
   is not tax efficient to deduct RRSP contributions at 26 per cent and later pay   
   tax at 76 per cent on withdrawals.   
      
   In that scenario, using a tax free savings account makes more sense than   
   contributing to an RRSP.   
   U.S. citizens Are you a dual citizen, born in the U.S., who resides in Canada?   
   Was one of your parents a U.S. citizen when you were born in Canada? In any   
   case, if you are a U.S. citizen, you should know that the Internal Revenue   
   Service (IRS) has rules,    
   requiring you to file special forms, when you have a Canadian RRSP.   
      
   First, you cannot claim an RRSP deduction on your U.S. 1040 tax return.   
   Second, interest   
   and dividends earned inside your RRSP are taxable annually, unless you file a   
   form 8891 with your U.S. tax return to defer the tax. You must also file form   
   8938 to declare the value of your RRSP when it reaches a certain size. In   
   addition, you would    
   normally need to file form TDF 90-22.1 (FBAR) each year, separately from your   
   U.S. 1040 tax return.   
      
   Onerous penalties apply if you fail to file these forms each year.   
      
   Calgary lawyer Roy Berg expects that by July 1, Canada will execute an   
   intergovernmental agreement with the U.S. to administer the U.S.'s Foreign   
   Account Tax Compliance Act (FATCA). Many non-tax-compliant U.S. citizens are   
   "playing ostrich" and purposely    
   not filing tax returns and the various reporting forms. Basically, FATCA will   
   impose   
      
   U.S. filing obligations on Canadian financial institutions that have U.S.   
   citizen clients. Therefore, if U.S. citizens living in Canada want to continue   
   to hold financial accounts such as RRSPs, they will need to comply with the   
   U.S. tax system.   
      
   Terry McBride, a member of Advocis, works with Raymond James Ltd. (RJL). The   
   views of the author do not necessarily reflect those of Raymond James Ltd.   
   (RJL). Information is from sources believed reliable but cannot be guaranteed.   
   This is provided for    
   information only. Securities offered through Raymond James Ltd., member of the   
   Canadian Investor Protection Fund. Insurance services offered through    
   Raymond James Financial Planning Ltd., not a member of the Canadian Investor   
   Protection Fund.   
   (c) Copyright (c) The StarPhoenix    
      
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