What is a prescribed annuity? How can it save me tax in retirement? Kevin and Clinton answer those questions in this episode of Financial 15.

This is episode 4 of the Becker Orr Original Series on how to save tax in retirement. Check out the other videos:

Episode 1: CPP Sharing

Episode 2: RRSP Meltdown

Episode 3: Pension Splitting

Episode 5: Tax Loss Selling

Episode 6: Charitable Giving

Episode 7: Medical Expense Tax Credit

Clinton and Kevin are both with Becker Orr Wealth Management and are both portfolio managers with Canaccord Genuity Wealth Management. Combined they have over 40 years of experience. In this video they discuss:

0:00 Intro
0:56 3 D’s of Tax Planning
1:46 What is an Annuity?
2:46 What is a Prescribed Annuity?
3:50 Help save income tested benefits
4:57 Qualifies as pension income
6:32 Who is this for?

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Save Tax in Retirement with a Prescribed Annuity – Financial 15…(read more)

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Save Tax in Retirement with a Prescribed Annuity – Financial 15

Ensuring a comfortable retirement is a goal for many individuals, and one important aspect to consider is minimizing tax liabilities. One effective strategy to achieve this is through a prescribed annuity. With the Financial 15 plan, individuals can save tax in retirement while providing a steady stream of income.

A prescribed annuity is a type of annuity purchased with funds from a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF). It provides a predetermined amount of income for a fixed period, typically until the annuitant’s death or a specific number of years.

What makes a prescribed annuity attractive is its tax advantages. Since the annuity payments are considered a return of capital, only a portion of the income received is taxable, while the remaining portion is tax-free. This not only reduces the overall tax liability but also allows retirees to maximize their income by preserving more of their hard-earned savings.

Financial 15 refers to a specific type of prescribed annuity that offers even greater tax-saving benefits. Under this plan, the income from the annuity is structured to take advantage of the lifetime capital gains exemption. In Canada, individuals are entitled to a lifetime exemption on capital gains from the sale of qualified small business corporation (QSBC) shares, up to a predetermined limit. By structuring the annuity payments as a return of capital, individuals can potentially shield a portion of their income from taxes entirely.

The Financial 15 plan typically involves reinvesting the original capital in a diversified portfolio of dividend-paying stocks. This not only generates income but also allows for potential capital appreciation over time. As the annuity payments are received, they are considered part of the return of capital, reducing the taxable portion of the income.

Moreover, the Financial 15 plan offers additional flexibility. Retirees can choose to receive annuity payments monthly, quarterly, semi-annually, or annually, depending on their specific income needs. They can also choose the length of the annuity term, typically ranging from 15 to 25 years, or until their death.

It’s important to note that while prescribed annuities provide tax advantages, they may not be suitable for everyone. Individuals considering this strategy should consult with a financial advisor or tax professional to assess their specific circumstances and to ensure that the plan aligns with their retirement goals and objectives.

In conclusion, saving tax in retirement is a crucial aspect of financial planning. By utilizing a prescribed annuity, specifically the Financial 15 plan, individuals can minimize their tax liabilities and enjoy a steady stream of income. This strategy not only allows retirees to preserve more of their savings but also provides flexibility and potential for capital appreciation. Consulting with a financial professional is recommended to determine whether this strategy is suitable for one’s individual needs and goals.