ve

Business

As your RRSPs proliferate, are
you beginning to groan at the
growing volume of paperwork, the
challenge of keeping track of ever-
ything, the new fees and other
restrictions?

The registered retirement sav-
ings plan promotion season is over
for another year. But if you, like
many people, have more than one
plan — some deposits with one
company, perhaps a mutual fund
with another — perhaps now is the
time to simplify matters.

Most RRSP-holders have guar-
anteed plans, with term deposits
and sometimes bonds, bond
mutual funds or other income
instruments. If you deal with sev-
eral financial institutions, you
receive a variety of statements —
all different and many’ hard to
understand.

Let’s clarify the difference
between (1) the kind of RRSP GIC
you buy from a financial institu-
tion and (2) a GIC held in a
self-directed RRSP.

(1) When you walk into your
bank (trust company, credit union,
etc.) and open or add more money
to your (or a spousal) RRSP,
chances are you put that money
into a term deposit or GIC. That
deposit is registered as an RRSP.
So you have an RRSP GIC.

When the deposit matures, you
renew it for another term — or
possibly transfer the money if you
have exceeded the deposit insur-
ance limit with that institution or
have found a more competitive
company.

That’s when you run into delays
which will cost you lost interest
and possibly closing-out or trans-
ferring fees. Don’t expect the com-
pany you are leaving to be overly
cO-operative.

(2) On the other hand, if you
have a self-directed RRSP, you
simply contribute money to the
plan. That money is then used to
buy a regular GIC. So you have a
GIC in an RRSP. (Of course, you
many also buy any other invest-
ment that qualifies for an RRSP)

When a deposit in the self
directed plan matures, the cash is
immediately available for reinvest-
ment — just as it is when a
non-RRSP deposit matures.

And because more investment
options are available, it’s easier to
maximize the safety of your
money — investing in Treasury
bills, government of Canada
bonds, Canada Savings Bonds or
mortgage-backed securities, for
example, all of which are backed
at the federal level without limit.

A self-directed RRSP used to be
for only sophisticated investors,

Beterans in Canada

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who actively managed their port-
folios. But today, at least one
company offers a no-fee self-
directed plan to hold income

instruments like GICs and bonds.

The Richardson Greenshields
plan requires an initial minimum
balance of $7,500. “I think we’re
unique in the industry with this
no-fee plan,” said David Motion a
vice-president and resident man-
ager.

While most self-directed plans
cost between $125 and $200 a
year, some have a reduced fee if

homes.

without interest.
A qualified home is:
*located in Canada

after its purchase

above criteria are satisfied.

years.
Other Rules:

years are eligible.

unti] September 30, 1993.

Canada district offices.

house.

TIPS

THE HOME BUYER’S PLAN —
USING RRSP FUNDS

(written by Richard Flader and Terry Greene, partners of
Flader & Greene, Chartered Accountants, Sidney, B.C.)
|Last month’s Federal Budget included provisions for individuals to
use registered retirement savings plan (RRSP) funds to purchase

Up to $20,000 may be withdrawn tax free from an existing RRSP
to purchase or build a qualifying home. The withdrawn amount must
be repaid to the RRSP over fifteen years in equal annual amounts

*not previously owned by you or your spouse
*acquired by September 30, 1993
*to be occupied as your principal residence within one year

Almost all categories of housing units are eligible provided the

Repayments made to an RRSP are not tax-deductible since a
deduction would have been claimed when the money was originally
| put in the RRSP. Repayments have no effect on future RRSP
contributions and limits. If you choose to pay less than the
scheduled amount in a particular year, the amount of any shortage
must be reported as income on your tax return for that year.
Repaying more than the scheduled amount would reduce the
outstanding balance and result in lower annual repayments in future

*Only RRSP contributions which were deductible in 1991 or prior

*Plan participants are restricted from making normal RRSP
contributions before March 2, 1993, but will not lose their
RRSP limits which will be carried forward to future years.

*An agreement to buy or build a house must be entered by
March 1, 1993 although the completion may be extended

The first repayment is due by December 31, 1994.
*To participate in the plan, complete a Home Buyers’ Plan —
Withdrawal Application (Form 11036) available from Revenue

*Where both spouses are eligible for the plan, each can
withdraw up to $20,000 for a down payment on the same

*Special rules apply for participants who reach the age of 71 while
ihere is an outstanding plan balance.
The Finance Minister stated: “The Plan will stimulate the housing
| market, without reducing tax revenues or risking retirement sav-
ings.” While it will be difficult to isolate the effects of the Home
Buyers’ Plan, the concept seems to be drawing attention. As long
as the participants are not otherwise planning to purchase a house
f= in the next year, then this mission will be accomplished.”

Managing RRSPs for higher yield, less paperwork

you hold only Canada Savings
Bonds and perhaps other income
investments.

“Our no-fee plan originally
attracted sophisticated investors,”
Motion said. “Now we find people
have perhaps a dozen RRSPs and
the paperwork drives them crazy:
We offer a no-risk way for them to
consolidate these plans.”

Reorganizing and simplifying
can take a while. If you have RRSP
GICs maturing over the next five
years, for example, it will take five
years before all the money has
been transferred into your self-
directed plan.

Make sure the person dealing
with your self-directed plan
arranges to have the transfers take
place so little or no interest is lost.
If $50,000 takes three weeks to be
transferred, at eight per cent inter-
est you will lose about $230.

Plan the transfers to minimize
fees. Let’s say you have three
deposits maturing in January and
February, for example, and each

transfer costs $25. Depending on
interest rates and the amount of
money involved, perhaps consoli-
date the funds as they mature into -
a daily interest account and then
make a single transfer to your
self-directed plan.

As you near the age 71 deadline
for deregistering your RRSPs,
again it’s simpler to have all your
funds under one tax-sheltered roof.
That will make transfers to a
registered retirement income fund
easier and cheaper.

You can then have a self-
directed RRIF with investments
similar to those you had in your
self-direct RRSP. And arranging
your withdrawals is also simpler
when all the funds are in one
place.

Self-directed plans are typically
offered by trust companies and
through investment brokers and
some other financial institutions.
If you pay a fee, write a separate
cheque so you many claim this as
a tax deduction.

dollars and start saving toward a
more comfortable financial future.

Call:
TOM FITZGERALD
388-4234

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