“Welcome to the PlanEasy blog! We make personal finance easy.

Thanks for visiting.”

– Owen

How Are Dividends Taxed? How Can They Lower Taxes In Retirement?

How Are Dividends Taxed? How Can They Lower Taxes In Retirement?

Dividends from Canadian corporations receive some special tax treatment that can make them an attractive investment in non-registered accounts. This special treatment means that they can help lower your average tax rate, especially in retirement.

But this special tax treatment makes it a bit confusing to understand how dividends are taxed. To calculate tax on Canadian dividends there are things like “gross ups” and dividend tax credits to consider.

Despite the extra confusion caused by this special tax treatment it can be very attractive to invest in Canadian companies. For most people there is a significant tax advantage when receiving Canadian dividends. For example, in Ontario, a retiree in the lowest tax bracket will experience a negative tax rate on eligible dividends!

The way these eligible dividends are taxed can help offset other income from CPP, OAS, pensions and RRSP withdrawals. With a bit of tax planning this advantage could add thousands in after-tax income for a retiree.

In this post we’ll look at how dividends are taxed, the difference between eligible and non-eligible dividends, and we’ll look at an example of how eligible dividends can help lower taxes in retirement (all the way to zero!).

Lastly, we’ll also look at how the dividend gross up can also trigger OAS clawbacks for high income retirees. A surprising negative of the way dividends are taxed (although it’s still an attractive form of income).

read more
What’s Worse In Retirement? An Investment Decrease Or A Spending Increase?

What’s Worse In Retirement? An Investment Decrease Or A Spending Increase?

A large decrease in portfolio value is a common concern when entering retirement. After all, seeing a large chunk of your retirement portfolio evaporate over just a few months can be quite disconcerting.

But… a large spending increase should be much more concerning in retirement.

If you had to guess, between a 20% drop in portfolio value and a 20% increase in spending, what is worse for a retirement plan?

It feels like a large stock market correction of 20%+ is the worst thing that can happen in retirement. After all, for an average retirement portfolio, a 10-20% drop could equate to a portfolio decline of $50,000 to $200,000+. That’s a large amount of money!

But a permanent increase in retirement spending should be much, much more concerning.

An increase in retirement spending of 10-20% is significantly worse than a 10-20% portfolio decline. Let’s see why…

read more
The New TFSA Contribution Limit! How Big Could Your TFSA Get If You Contribute The Max Each Year?

The New TFSA Contribution Limit! How Big Could Your TFSA Get If You Contribute The Max Each Year?

The TFSA is an amazing account and it just got a little bit better. The contribution limit for 2023 is an additional $6,500. This means that as of January 1st 2023, anyone over the age of 18 in 2009 will have $88,000 of TFSA contribution room if they’ve never contributed before!

What makes the TFSA so amazing is the tax free compounding and when this compounding starts to take hold the results are incredible (just take a look at some of the projections below).

It’s reasonable to expect that many of us with TFSAs will see them reach $1,000,000+ at some point in the future. It’s just a matter of time. We’ll share some projections below but its pretty reasonable to expect that TFSAs could reach $5M, $7M or even $10M+ (in future dollars).

In fact, having TFSAs that reach $1,000,000+ is pretty common in many retirement projections that we do at PlanEasy.

Often, from an income tax and estate planning perspective, we want to draw down TFSAs last in retirement (or sometimes they’re also draw down strategically to avoid higher marginal tax brackets). We’re also strategically shifting assets from RRSPs/RRIFs into TFSAs over time. This leads to some very large TFSA balances and very little tax on the estate (depending on future investment returns of course).

read more

Owen Winkelmolen

Advice-only financial planner, CFP, and founder of PlanEasy.ca

Work With Owen

“Welcome to the PlanEasy blog! We make personal finance easy.

Thanks for visiting.”

– Owen

New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...

How Are Dividends Taxed? How Can They Lower Taxes In Retirement?

How Are Dividends Taxed? How Can They Lower Taxes In Retirement?

Dividends from Canadian corporations receive some special tax treatment that can make them an attractive investment in non-registered accounts. This special treatment means that they can help lower your average tax rate, especially in retirement.

But this special tax treatment makes it a bit confusing to understand how dividends are taxed. To calculate tax on Canadian dividends there are things like “gross ups” and dividend tax credits to consider.

Despite the extra confusion caused by this special tax treatment it can be very attractive to invest in Canadian companies. For most people there is a significant tax advantage when receiving Canadian dividends. For example, in Ontario, a retiree in the lowest tax bracket will experience a negative tax rate on eligible dividends!

The way these eligible dividends are taxed can help offset other income from CPP, OAS, pensions and RRSP withdrawals. With a bit of tax planning this advantage could add thousands in after-tax income for a retiree.

In this post we’ll look at how dividends are taxed, the difference between eligible and non-eligible dividends, and we’ll look at an example of how eligible dividends can help lower taxes in retirement (all the way to zero!).

Lastly, we’ll also look at how the dividend gross up can also trigger OAS clawbacks for high income retirees. A surprising negative of the way dividends are taxed (although it’s still an attractive form of income).

read more
What’s Worse In Retirement? An Investment Decrease Or A Spending Increase?

What’s Worse In Retirement? An Investment Decrease Or A Spending Increase?

A large decrease in portfolio value is a common concern when entering retirement. After all, seeing a large chunk of your retirement portfolio evaporate over just a few months can be quite disconcerting.

But… a large spending increase should be much more concerning in retirement.

If you had to guess, between a 20% drop in portfolio value and a 20% increase in spending, what is worse for a retirement plan?

It feels like a large stock market correction of 20%+ is the worst thing that can happen in retirement. After all, for an average retirement portfolio, a 10-20% drop could equate to a portfolio decline of $50,000 to $200,000+. That’s a large amount of money!

But a permanent increase in retirement spending should be much, much more concerning.

An increase in retirement spending of 10-20% is significantly worse than a 10-20% portfolio decline. Let’s see why…

read more
The New TFSA Contribution Limit! How Big Could Your TFSA Get If You Contribute The Max Each Year?

The New TFSA Contribution Limit! How Big Could Your TFSA Get If You Contribute The Max Each Year?

The TFSA is an amazing account and it just got a little bit better. The contribution limit for 2023 is an additional $6,500. This means that as of January 1st 2023, anyone over the age of 18 in 2009 will have $88,000 of TFSA contribution room if they’ve never contributed before!

What makes the TFSA so amazing is the tax free compounding and when this compounding starts to take hold the results are incredible (just take a look at some of the projections below).

It’s reasonable to expect that many of us with TFSAs will see them reach $1,000,000+ at some point in the future. It’s just a matter of time. We’ll share some projections below but its pretty reasonable to expect that TFSAs could reach $5M, $7M or even $10M+ (in future dollars).

In fact, having TFSAs that reach $1,000,000+ is pretty common in many retirement projections that we do at PlanEasy.

Often, from an income tax and estate planning perspective, we want to draw down TFSAs last in retirement (or sometimes they’re also draw down strategically to avoid higher marginal tax brackets). We’re also strategically shifting assets from RRSPs/RRIFs into TFSAs over time. This leads to some very large TFSA balances and very little tax on the estate (depending on future investment returns of course).

read more

 

Join over 250,000 people reading PlanEasy.ca each year. New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...

 

 

Join over 250,000 people reading PlanEasy.ca each year. New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...

 

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