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Non-Registered Investing
- By John Klotz
- Published 01/28/2008
- Money Talks
- Unrated
Many of my clients are concerned about RRSP\'s and the fact that it
creates taxable income at retirement. Yet, they need the immediate RRSP
deduction to reduce taxes. Described below is a way to create non
registered assets and provide yourself with a deduction for income tax
purposes (just like an RRSP).
Firstly, you create a loan for the purpose of investing. If the amount is $100,000, assuming interest rates of 6 % per year, your monthly cost for interest would be approximately $6000 per year or $500 / month. This amount is fully deductible just like an RRSP. ManuLife Bank can loan you up to $100,000 with zero underwriting (they do a credit check and that\'s it)
And, just like an RRSP, your monies are put to work. In this regard, ManuLife has a product called GIF (Guaranteed Investment Funds) Encore which has a number of very positive characteristics. Firstly, the funds are 100 percent guaranteed on principle after 10 years. Therefore, regardless of how the market performs, you will not suffer a loss of principle at the 10 year maturity. AND THERE WILL BE NEVER BE A MARGIN CALL!
Unlike an RRSP, these funds will be non registered and not subject to tax like an RRSP. Infact, if you speak with most well heeled seniors or people who have had a good career, you will find that if they have
RRSP\'s and are over the age of 69, that they are paying more tax than ever because the proceeds of the RRSP are fully taxable.
So, what you end up with here is Non Registered Investments with a deductible expense. Considering that the $100,000 would be operating at say, an 8 percent interest rate, the $100,000 will double in about 9 years. You would then pay off the loan and have $100,000 of non registered investments. At the same time, you would have been deducting the interest expenses to the tune of $6000 per year just like an RRSP
Furthermore, there is a 4 % increase in death benefit each year. That means, if you invest $100,000 and die in year 2, the amount paid out to your estate will be $108,000 regardless of how the market performed. So, if your mutual funds within the program were only worth $80000 after 2 years and you died, your estate would receive $108,000.
The funds are also creditor protected. This is important if you are self employed or own a business as the funds cannot fall into your creditors hands. This is based on the fact that they are considered to be segregated funds and are part of the Insurance Act.
And there are numerous funds to choose from, most of which are brand name mutual funds that you may already be familiar with. These include AGF, Fidelity, AIM Trimark , Elliot & Page, to name a few. The fund that has been most popular during this bear market has been the Elliot & Page High Income fund which has returned 11 % per year since inception. Of course, when the equity runs returns (whenever that is), you can switch between 100 or so funds to position your portfolio to a more aggressive stance. That being said, I remind you that the funds are 100 % guaranteed at the 10 year maturity.
So, what do we have here?
1) A Non Registered Investment
2) Deductions to income similar to an RRSP
Ideally, you should discuss this program with a trusted financial advisor to see if it meets your requirements. There is some excellent software that can outline this program and further show you the benefits.
This article was written by John Klotz., BA., CFP., CLU., CH.F.C., RHU., TEP. John is Vice President of LMS Prolink Ltd. He can be reached at johnk@lms.ca or phone (416)-595-7484 ext. 305
Firstly, you create a loan for the purpose of investing. If the amount is $100,000, assuming interest rates of 6 % per year, your monthly cost for interest would be approximately $6000 per year or $500 / month. This amount is fully deductible just like an RRSP. ManuLife Bank can loan you up to $100,000 with zero underwriting (they do a credit check and that\'s it)
And, just like an RRSP, your monies are put to work. In this regard, ManuLife has a product called GIF (Guaranteed Investment Funds) Encore which has a number of very positive characteristics. Firstly, the funds are 100 percent guaranteed on principle after 10 years. Therefore, regardless of how the market performs, you will not suffer a loss of principle at the 10 year maturity. AND THERE WILL BE NEVER BE A MARGIN CALL!
Unlike an RRSP, these funds will be non registered and not subject to tax like an RRSP. Infact, if you speak with most well heeled seniors or people who have had a good career, you will find that if they have
RRSP\'s and are over the age of 69, that they are paying more tax than ever because the proceeds of the RRSP are fully taxable.
So, what you end up with here is Non Registered Investments with a deductible expense. Considering that the $100,000 would be operating at say, an 8 percent interest rate, the $100,000 will double in about 9 years. You would then pay off the loan and have $100,000 of non registered investments. At the same time, you would have been deducting the interest expenses to the tune of $6000 per year just like an RRSP
Furthermore, there is a 4 % increase in death benefit each year. That means, if you invest $100,000 and die in year 2, the amount paid out to your estate will be $108,000 regardless of how the market performed. So, if your mutual funds within the program were only worth $80000 after 2 years and you died, your estate would receive $108,000.
The funds are also creditor protected. This is important if you are self employed or own a business as the funds cannot fall into your creditors hands. This is based on the fact that they are considered to be segregated funds and are part of the Insurance Act.
And there are numerous funds to choose from, most of which are brand name mutual funds that you may already be familiar with. These include AGF, Fidelity, AIM Trimark , Elliot & Page, to name a few. The fund that has been most popular during this bear market has been the Elliot & Page High Income fund which has returned 11 % per year since inception. Of course, when the equity runs returns (whenever that is), you can switch between 100 or so funds to position your portfolio to a more aggressive stance. That being said, I remind you that the funds are 100 % guaranteed at the 10 year maturity.
So, what do we have here?
1) A Non Registered Investment
2) Deductions to income similar to an RRSP
Ideally, you should discuss this program with a trusted financial advisor to see if it meets your requirements. There is some excellent software that can outline this program and further show you the benefits.
This article was written by John Klotz., BA., CFP., CLU., CH.F.C., RHU., TEP. John is Vice President of LMS Prolink Ltd. He can be reached at johnk@lms.ca or phone (416)-595-7484 ext. 305
