Entrepreneurs have the opportunity to build a bigger nest egg |
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Today’s retirees are more active than ever before, and many are continuing to work part-time after retirement. Some are even starting their own businesses. If you are currently a small-business owner, or planning to become one, you should know about special Retirement Savings Plan (RSP) opportunities open to business owners. As an entrepreneur, you should maximize your RSP, as it will probably provide a significant portion of your retirement income — but you can also do much more with your RSP. Your business provides you with a number of attractive income-splitting opportunities, which may be used to boost your whole family’s RSPs. Income splitting involves transferring a part of your income to another family member — for example, one at a lower marginal tax rate, or one who has unused contribution room in his or her RSP. By effectively doubling up on your RSP contributions, you and your partner can reap tax savings and build a bigger retirement nest egg. Below are two effective strategies to employ. Plan for the future. Consider having a lower-income family member — such as a child — make the RSP contribution. Choose a family member whose taxable income is low, but is expected to increase in the future. Then, defer deducting it until the child’s income increases, netting a larger tax benefit. Keep it all in the family. If you hire your partner or children, you can effectively split income among family members. This strategy allows you to shift income to family members in a lower tax bracket, reducing your family's overall tax bill. This tactic also qualifies for Canada/Quebec Pension Plan (CPP/QPP) contributions that could not be made otherwise. To receive the income, family members must work for the business and the wage must be in keeping with the work performed. To further maximize this tax-saving opportunity, eligible family members can use the income to make their allowable RSP contribution. They will receive an immediate tax deduction and benefit from tax-deferred investment growth. Be sure to speak with your financial advisor to discuss which RSP strategies may be appropriate for your situation. Article Disclaimer The statements contained herein are based on material believed to be reliable, but are not guaranteed to be accurate or complete. The articles do not provide individual financial, legal, tax, insurance or investment advice and are for information purposes only. Graphs and charts, if used, are for illustrative purposes only and do not reflect future values or future performance of any investment. Particular investment strategies should be evaluated relative to each individual's objectives and risk tolerance. Each insurance policy or contract has different provisions on coverages, benefits, exclusions and limitations. Any policy should be carefully reviewed to determine the rights and obligations of the owner and insured persons. The insurance strategy described is not appropriate for all people. Particular insurance strategies should be evaluated relative to individual objectives and in consultation with a life licensed insurance advisor. The Toronto-Dominion Bank and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered. |
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