Retirement Savings Plans (RSPs) are

the foundation of many Canadians’

retirement savings and financial

planning strategies. Personal and

spousal RSPs offer an immediate

tax deduction and the potential for

tax-deferred growth, as well as other

benefits such as the Home Buyer’s

Plan to help fund a home purchase

or the Lifelong Learning Plan to help

fund a tuition bill. However, it should

also be emphasized that saving

outside your registered plan may

be an important financial planning

strategy as well.

There may be a variety of reasons

to examine your non-registered

investment strategies, particularly

if a registered plan alone would be

insufficient to maintain your standard

of living in post-retirement years. In

such instances it may be important

to pay extra attention to your

non-registered investments.

General approaches to non-registered

investing may vary, but there are a few

obvious principles. Investments in a

non-registered account are generally

more accessible and not subject to

withholding taxes when withdrawn

as is the case with registered account

investments. There are also no

repayment requirements as there are

with Home Buyers Plans or Lifelong

Learning Plans. It is important to

invest in a tax efficient manner

since income from non-registered

investments is subject to tax.

These and other “outside the RSP

box” strategies may be considered to

supplement your RSP contributions.

Speak to your Financial Advisor

about the tax implications of each

investment decision and also how

to allocate the funds accordingly.

It is generally accepted as good

practice to maximize RSP contributions

and pay down personal debt such

as mortgages before considering

investing in a non-registered account.

However, if RSP contributions have

been maximized and mortgages

and other debts have been repaid,

there may be a simple but effective

leveraged investing strategy.

Investors may want to borrow a

manageable amount of money and

invest it in a non-registered portfolio.

In doing so, they would reap all the

benefits of leveraged investing such

as the interest’s tax deductibility. More

importantly, investors also tend to save

more aggressively when repaying debt

as compared to simply contributing

into an account. Having a manageable

debt level provides investors with an

intermediate savings goal.

Once the loan amount has been paid

off, another similar amount can be

borrowed again, and as each loan

is borrowed and returned, wealth is

accumulated and investors experience

the more immediate satisfaction of

having paid off the debt. The key to

the strategy is finding an achievable

and manageable amount to borrow

without subjecting your portfolio to

excessive risk. If this is an approach

that interests you, speak to your

Financial Advisor and discuss your

investment objectives, risk tolerance,

and what you feel is a reasonable

amount to leverage.

Non-registered investing strategies

should be chosen so that your strategy

suits your particular tax situation.

Income from investments is taxed

differently depending on whether the

income is interest, dividends, or capital

gains. Based on those differences, a

non-registered portfolio can be

structured to maximize tax efficiency.

For example, a high income earner

may want to allocate a larger

percentage to equities since only

one half of capital gains are taxable.

Alternatively, a retiree with lower

income but a large portfolio may

want to focus on wealth preservation,

and because they are in a lower tax

bracket, may opt for a portfolio with

a larger fixed income component.

Another approach may be to use

a registered account to hold more

heavily taxed fixed income assets,

and a non-registered account to hold

securities that deliver capital gains

and dividends, which benefit from

preferential tax treatment.

Investors may also consider real estate

as a tax-wise solution. A principal

residence in Canada is exempt fromial Groupendes

capital gains tax. Also, Real Estate

Investment Trusts (REITs) are publicly

traded companies that own and

manage properties, and can offer

exposure to the real estate market.

REITs were excluded from the recently

proposed changes to the taxation of

income trusts, and as a result, there

may be opportunities for investors

to increase their exposure in the

real estate market yet remaining

tax efficient. If this interests you, it

would be prudent to contact your

Financial Advisor or tax advisor to fully

understand how you are positioned

from a taxation perspective.

An alternative strategy for saving

outside RSPs may be to use the

benefits of universal life insurance1.

Universal life insurance is unique as

it offers insurance protection and

also the opportunity to accumulate

money on a tax-deferred basis within

the policy. Individuals who do not

have any remaining RSP contribution

room may consider using universal

life insurance for tax deferred growth

to help supplement or enhance their

retirement income. There is a strategy

where at retirement or whenever funds

are needed, funds are made available

through a loan using the cash value in

the policy to secure the loan.

Using universal life insurance may be

particularly beneficial for investors

who may not need the additional

funds, and have sufficient retiring

income from other sources such as

an RSP or pension. In those instances,

universal life insurance contracts may

be passed on to the investors’ estates

in a tax efficient manner. If the funds

are withdrawn, however, tax is paid

on the growth but the investor would

have still benefited while the growth

of the investments was tax sheltered.

Individuals who have a dual need

of both insurance and tax-deferred

investments should speak to their

advisors and consider a universal life

insurance product to meet both of

their needs appropriately. Consult your

Financial Advisor to determine whether

such an insurance product would be

right for you and your portfolio.

 Using IPPs to Boost

Retirement Savings

Individual Pension Plans (IPPs) are

another alternative for investors who

have maximized their RSP contributions

but who have not accumulated sufficient

retirement savings. IPPs enable

investors to establish a plan that will

provide a guaranteed income for life

after they retire.

To be eligible, you must be employed

by an incorporated business, be age

40 or older, and have a salary of at

least $75,000. IPPs are sophisticated

products that generally require ongoing

actuarial and trustee services. In

addition, depending on the province of

residence, IPP assets may be locked-in.

The primary advantage of an IPP is

that it is essentially a mini-defined

benefit pension plan that enables

investors to take advantage of a more

aggressive tax-deferral arrangement,

assuming there is sufficient income

to warrant such a strategy. However,

there may be significant administrative

costs that each investor should be

aware of before investing within an IPP.

Investors who have the income to

maximize their contribution room

and whom have paid off their debt

do have alternative strategies outside

registered plans to accumulate wealth

and defer taxes. You may want to

speak to your Financial Advisor

regarding these strategies as some of

them may help you reach your long

term goals sooner.

1All insurance products and services are offered by life licensed agents.

The statements contained herein are based on material believed to be reliable, but are not guaranteed to be accurate or complete. The article is

not intended to provide individual financial, legal, tax, insurance or investment advice and is for information purposes only. Particular investment,

insurance, or trading strategies should be evaluated relative to each individual’s objectives. TD Asset Management Inc., 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.

TD Mutual Funds is a trade-mark of The Toronto-Dominion Bank, used under license.

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