Many employers offer a Group Savings Plan to arrange for regular income deductions that are automatically contributed to a personal RRSP or RESP. Employer group savings plans are great if you're a permanent employee for a company that offers one. But what are your options for retirement and education savings if you work for yourself?
I’m not a financial planner myself so I put your questions to Michael Collins, a financial planner who manages the group plan for our internal staff and also my personal investments. Did you notice that we share a last name? Yes, we're related. Michael Collins just happens to be my Uncle Mike. Here are Mike’s answers to some frequently asked questions from independent contractors.
- As an independent contractor (incorporated, sole proprietor or partnership) how do I save for my retirement?
Independent Contractors, if they have income through earnings (not dividends) are allowed 18% per year to a maximum of $22,000.00 they could put into an RRSP. If they are behind or starting in later years of life they might qualify for another method of deposits (Individual Pension Plan) where they could put in significantly more, but must meet certain criteria to qualify.
- Are Group Plans available for independent contractors?
Your Financial Planner should have all the required documents to set one up and yes I do those also.
- What is the maximum I can invest in RRSP/RESP?
18% on income can be put into RRSP to a maximum of $22,000.00 for this year.
RESP is $5000.00 per child annually but only $2,500.00 each get the 20% government grant added on.
- Is there any carry over if I haven't invested in the last 5 years?
RRSP's – yes, the full qualifying amount of 18%/year of earnings (in any amounts desired) which are not used can be carried on to age 71. On an RESP you can catch up the full qualifying amount also but only by using two years in any one year.
- What is the tax credit for RESPs?
There is no tax credit, but they do grow tax free.
- Can I invest in an RESP for someone outside of my immediate family? A cousin, nephew or niece?
Yes but the parent must sign off on it so that there isn't a doubling up of credits or government grants.
- How much would my child need to invest if they are going to university in 5, 10, 15 or 20 years?
There are tables available to help with this question, but assumptions have to be made on Interest Earned and the costs associated with which University they wish to attend or the type of program they are taking, whether 4 year Arts or a 7 Year Doctorate.
Dundee Wealth Management
2225 Kingsway Drive, Kitchener, N2C 1A2
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