Bus

siness

&
TheReview Wednesday, July 18,1990 — B4

Plans should change with new RRSP rules

The new pension and RRSP
tules have been such a long time
coming — reform was first pro-
posed in 1979 — we should now
summarize the main changes and
some planning ideas.

I asked John Beaton and Don
Smith, both senior vice-presidents
and consulting actuaries with The
Alexander Consulting Group, for
suggestions. (Smith has also acted
as an adviser to the federal finance
department in developing the new
legislation.)

— Registered retirement savings
plan contribution limits jump to a
maximum of $11,500 in 1991,
then rise by $1,000 a year to
$15,500 in 1995. You may contri-
bute up to only 18 per cent of your
eared income. The limits drop if
you belong to a pension plan.

The 1990 RRSP maximums
remain at the old levels of 20 per
cent of your eared income: up to
$7,500, or if you belong to a
pension or deferred profit-sharing
plan up to $3,500 minus any
contributions you make to the
pension plan.

— If you belong to a pension
plan, your employer could esti-
mate (and later in the year Reve-
nue Canada will confirm) how
much you may put into an RRSP
that year — based on your previ-
ous year’s income and pension
plan involvement.

— You may put up to $6,000 of
your private pension or DPSP
income (but not CPP or OAS) into
a spousal RRSP each year through
1994.

“Use this provision if it makes
sense financially. If, for example,
your spouse will be in a lower tax
bracket than you are now — or
perhaps even in the same bracket
— when the funds are with-
drawn,” Beaton said.

— You may no longer transfer
up to the total amount of all your
pensions into your own RRSP.
(But you may still transfer, within
limits, a lump sum pension payout
and severance pay into your own
RRSP)

— If you don’t use some of your
RRSP contribution allowance or
“room” starting in the 1991 tax
year, you may carry forward up to
seven years’ worth of this “contri-
bution room” and make catchup
contributions later.

— From 1991 on, you may
over-contribute to your RRSP up
to a total of $8,000. This money
will grow tax-free. But if you don’t
apply future RRSP contribution
room against this amount, you will
be doubly taxed on the over-
contribution.

—*“Use it or lose it.” If an
RRSP is appropriate to your per-
sonal finances, plan to make your
contribution for 1990, even if you
have to take out a short-term loan.
Perhaps delay alternatives like
paying off debt until next year,
when the carry forward provisions
take effect.

‘If you are deciding
whether fo join a —
pension plan, try to
wait until next
January I. Thaf way,
you can put up fo
$7,500 into your RRSP
for 1990 instead of
only up fo $3,500’

— If you are deciding whether
to join a pension plan, try to wait
until next January 1. That way, you
can put up to $7,500 into your

LIONS CLUB

RRSP for 1990 instead of only up
to $3,500.

— If you are self-employed or
otherwise can control your
income, realize you will need
$63,889 of earned income this
year to make your maximum
$11,500 RRSP contribution for
1991.

— If you own your own busi-
Ness, you can set up a designated
shareholder pension plan (your
business must be incorporated)
Starting in 1991).

“Such a plan may well offer
more tax-sheltering scope than an
RRSP,” said Beaton. “Jan. 1,
1991, will be the best date to start
the plan because you lose all
RRSP contribution room the year
the plan is set up — and so should
get in exchange the credit for a
whole year of service in the
defined benefit pension plan.”

— If you are in a public service
superannuation plan, you should
be able to contribute more to your
RRSP starting in 1991 — “a total
of $2,500 or more for most plans,”
Beaton said.

— If you change jobs and termi-
nate a defined benefit pension plan
(in which the pension is based on
your income and years of service),
there will be no adjustment to
allow you to make an RRSP con-
tribution to compensate.

— High eamers (with incomes
of more than $60,000 - $70,000)
will be unable to get as high a
pension as they could under pre-
sent rules on either retirement or
early retirement.

Also, those who belong to non-
contributory pension plans (those
in which only the employer makes
a contribution) will find their
RRSP contribution maximum
drops to $1,000 from the present
$3,500.

Mike Grenby is a - Vancouver-
based columnist and independent
personal financial adviser; he
will answer your questions as
space allows in his column —
write to him clo The Review, Box
2070, Sidney, B.C. V8L 3CS5.

Continued from Page B2
Work.

The $1,000 donation will enable
the woman to safely continue her
volunteer work by making it possi-
ble for her to call for help.

Recent projects of the club
include 20 hours donated to a
multiple sclerosis tag day, 178
hours spent constructing Babe
Ruth roof structures in Centennial
Park and Wednesday evenings
spent working on landscaping at

Mount Newton Centre.

Lions also donned aprons and
picked up spatulas to man the
annual strawberry breakfast
recently. Held at the Peninsula
Co-op on Keating Cross Road, the
annual breakfast raised $466 for
community projects.

Ingredients for the breakfast are
supplied by Co-op and labor is
provided by the Lions.

The club has $80,000 saved

towards a major community pro-
ject and has offered to contribute
$100,000 to a Central Saanich
community centre.

Johnson estimates club mem-
bers donate 1,000 hours annually
to maintaining the Lions Hall,
which is used by several local
community groups.

Administration costs for the
club are covered by members’
dues, Johnson said.

POINTING SOUTH AND out fo sea during hot weather last
Sunday are Ed and Carrie Green with Dr. Larry Green, all
of Sidney, enjoying the view from the government wharf
at the foot of Beacon Avenue in Sidney. The wharf is a
popular place for visitors to take a refreshing break in the

cool breeze, flowing in off the water, while boats make

their way through salty waters.

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Call

LYLEKAHL 478-5648
REMAX OF VICTORIA
386-5333

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how Investors can help
you start building your
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734 Broughton St.

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