Ahead, with courage

Just a few more sleeps left in 2024.

A year ago would you have expected your boring B&D investments to earn 15% or 20%? To see interest rates plummet? To witness the finance ministress quitting in a huff hours before delivering a budget? To experience the renaissance of Trump and the re-emergence of Tariff Man? Or behold house prices starting to rise yet again? Or earn 69-cent dollars?

And now we stand on the threshold of 2025. It could make last year look like training wheels.

There’s little point worrying about geopolitics or macroeconomics. Better to spend time on your own finances and the security of your family. So here are five things this blog expects you to do. (We have taken over your devices and are watching you, BTW.)

First, open a crazy FHSA if you’ve not owned a house in five years. Or do it for your 18+ kid. This is an outrageous thing that let’s you deposit eight grand, write it off income (like an RRSP) and later take the finds without paying tax (like a TFSA). The money can be used for the downpayment on a house (giving tax-free profits) or rolled into a retirement plan, allowing $40,000 more RRSP room. It’s ridiculous.

Open one, even if you have nothing to deposit. The contribution room can be carried forward for a year (max) but only if the account exists. It costs nothing. Do it.

Second, next week feed your TFSA.

The contribution limit for 2025 is (once again) $7,000. But look at the cumulative total since this thing was created: $102,000, or more than two hundred thousand for a couple. As you know, contributions are not tax deductible, but withdrawals are untaxed while all growth inside the plan is sheltered from sticky government fingers. A great advantage is being able to replace funds that were withdrawn, which can’t happen with an RRSP. But you have to wait until the next calendar year – which begins on Wednesday.

Why do you want a honking big TFSA later in life?

Because all withdrawals are uncounted as income for tax purposes.. So a million-dollar account (not hard to achieve if you’re now in your early career) could spin off six or seven grand a month in retirement without triggering a clawback in government pogey. It’s legal. Do it.

Also next week we get a sexy new limit for registered retirement plans. It’s up to $33,490, or a max of 18% of earned income. Back in 2000 the limit was just $13,500, so you can be happy that this tax shelter limit has kept up with inflation.

All contributions are tax-deductible, natch. You can borrow the funds and use the refund to repay a whack of it. You can make a contribution in kind using assets you already own, to score a refund. You can open a spousal plan and contribute to his/her account, take the deduction yourself and have the funds withdrawn at a lower rate in three years. Plus lots more.

Of course, RRSP withdrawals are added to annual taxable income – so ensure you spread wealth around to the TFSA and non-registered accounts as well. Plus, at age 72, if still breathing, you can convert the RRSP into a RRIF. Tax-free growth continues but a small annual amount is taken as iincome – which should be covered by the returns of growthy ETFs within the account.

Don’t forget the kids, either. A registered educational savings plan gives you free money from the feds (and some provinces). Plunk in $2,500 a year and get five hundred in a grant. Just like that. If you miss a year, you can still make it up and get the gift. As a student, Junior can take the money out for expenses, or a new Tesla, and be taxed at his/her own non-existent rate.

Lastly, make 2025 the year you open a joint non-reg account with your squeeze. That may allow some tax-saving strategies, and will certainly give peace of mind in case something dire happens to one of you. The funds and assets are then, immediately, the property of the other person. Also, this year do your wills. Or update them. A hand-written version (called a holographic will) may be perfectly legal in your province, but better that you throw a few bucks at a trusted lawyer to assist. And don’t make your kid your executor, unless she happens to be an accountant, tax solicitor or full-service financial person without family obligations and the time to spend two years on your estate.

All set? Good.

Here we go.

About the picture: “I walk two pups for my neighbours,” writes Kim. Ashley is an old soul with a tail wagging wiggle and thick soft shiny fur.  She’s definitely an alpha and a rough houser. Daisy, the blonde pup pictured here, is the most lady-like pupperoni I’ve ever known.  She loves escaping her parents and running to my front door,  for treats. Thank you Garth and Happy New Year!”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2024/12/27/ahead-with-courage/