I saw your response about the scenarios of which choice would be better between contributing toward an RRSP and a TFSA. To recap:

1. If the tax rate after retirement is expected to be the same as it is now, TFSAs and RRSPs will produce the same net after-tax result.

2. If the tax rate after retirement is expected to be less than it is now, it is better top up an RRSP before opening a TFSA.

3. If the tax rate after retirement is likely to be higher than it is now, saving in a TFSA will produce a better return than making an RRSP contribution.
   
Now the million dollar question is: where do you feel tax rates will be 10 years in the future compared to present? - Dietmar S.
 

Talk about crystal ball gazing! The obvious answer is: who knows? However, most governments in recent years have recognized that lower tax rates encourage higher employment and greater economic activity. So my guess is that we will continue to see a gradual reduction in taxes for lower and middle-income wage earners. Upper-income earners probably won't be as fortunate, at least not to the same extent. - G.P.

Thank you for all of your good advice; if only I had followed it and not trusted management of my RRSP money with a large institutional Private Client Group. This was to have allowed me to focus on everyday issues and let them look after my hard-earned dollars for future retirement in the next few years. Well, the accounts have dropped about 30% to 50% in value and I have paid them significant fees for this. The manager was advised in writing that buying shares at the top of the market in a deteriorating environment was not prudent but they though this was a good idea even when they were reminded of a two-year time frame to retirement. They are no longer managing my money and no one will be given this opportunity again. I could dwell on this negative experience for a long time but will address it through regulators and possibly legal channels.

It is now time to take things in hand and move on in a positive mode to try and recover somewhat and look after my RRSP in a prudent and responsible manner. This brings me to a question for you on an investment approach that seems too good to be true: Buy preferred shares rather than GICs, which the bank's local branch is pushing. For me, it appears that a preferred share will provide you with a guaranteed return of say 6.6% for the new National Bank issue until 2014. The rate is reset at that time which still appears to be favourable. If the bank calls the shares you get your initial investment back and whatever interest it has earned.

If preferred shares are below the purchase price this would appear to be even more attractive. Is this too good to be true? - Charles S.
 

Sorry to hear about your losses but as I am sure you know, you are not alone. Since you are now taking over the responsibility of managing your own money, you obviously plan to take a more conservative approach.

Regarding your specific question, most of the banks have all been coming out with new issues of preferreds to raise capital and so far each new issue has had a slightly higher dividend rate than the one before. How long this will last is anyone's guess. However, one of the effects has been to depress the prices of existing preferreds because they pay lower rates.

The National Bank's rate of 6.6% certainly on the high side (a recent Royal Bank issue paid 6.25%). That's because National Bank is smaller and deemed to be somewhat higher risk. However, it is unlikely that any Canadian bank will miss a preferred share payment unless we plunge into a deep and long depression.

Remember that if you put preferred shares in an RRSP, you lose the dividend tax credit. It is better to hold them outside a registered plan. - G.P.
 

I own my own company and have had my mother, who is 50+, work for me in the past, just to help her out financially as she has no savings, no house, nothing to her name. A few years back she developed a bad neck and has planter fasciitis (feet problems) so can't work. Now I have just been giving her money here and there.

I let her stay with me and my family for months at a time and then she will go to my sisters. I need to know what I can do for her money-wise, as in maybe some kind of  RRSP, GIC, or some sort of fast-growing savings account so that she may have a bit of money before she dies. I want to know how or if I can at least use her as a tax write-off or the money I am giving her as a tax write off? - Lorena
 

This is a rather complicated situation. You might be able to claim your mother as an "infirm dependant" at line 306 of the income tax return but it is not clear from the information you provided whether she (or you) would qualify. Check the 2008 General Income Tax Guide and if you are still unsure consult a tax specialist.

You cannot set up an RRSP for your mother (or anyone else) and she would need to have earned income to create her own plan. You can give her any amount of money you want but you cannot claim a deduction for doing so, nor is it taxable to her.

You say you own your own company. Is there no work your mother could perform for it in spite of her health problems? Try being a little creative. If you could find something she could contribute, you could pay her a reasonable salary which would be deductible to the company. - G.P.
 

Can I use my TFSA as collateral? - George N.

Yes. This is one of the major differences between Tax-Free Savings Accounts and RRSPs. The assets within a TFSA may be pledged as collateral against a loan. However, by doing so you may find that you will be prohibited from making withdrawals as long as the loan is outstanding. - G.P.
 

I am a fifty year old single male. I will have $100,000 to invest. How would you invest it? - Peter D.
 

Very carefully. These are treacherous markets and you don't want to blow it. If you don't own a home, you might seriously consider using the money to acquire one now that housing prices are down. Otherwise, put it in low-risk securities - we like high-quality corporate bonds, preferred shares, GICs, and some blue-chip dividend stocks at present. Make use of any RRSP contribution room you have and set up a Tax-Free Savings Account to shelter any profits.

My book Sleep-Easy Investing may be helpful in deciding how you want to proceed. You can order it at http://astore.amazon.ca/buildicaquizm-20  - G.P.
 

I have about $80,000 from a former employee to transfer to a LIRA this week. I’m already heavily invested in equities; looking for something with less risk, such as GICs. No plan to withdraw the money for another 15 years+.  Do you have any recommendations on obtaining the highest yields? - Karen G.
 

Smaller financial institutions such as credit unions and foreign banks usually offer the best GIC yields. According to reportonbusiness.com, the higher rate on a five-year GIC right now is 4.6% from Outlook Financial, a division of the Manitoba-based Assiniboine Credit Union (www.outlookfinancial.com).

Among the more popular companies, ING Direct is paying 3.7% for five year certificates. The major banks are way down on the scale at around 2.5% to 2.6% although some offer special deals on occasion.

Be sure to check the deposit insurance coverage offered by the financial institution you are considering. - G.P.
 

Comment: We had a client bring to our attention a question that was posed on your Q&A. Janis M. is under the impression we only offer a Tax-Free Investment Savings Account. We also offer a Tax-Free Guaranteed Investment and a Tax-Free Mutual Fund. Is there any chance you could let Janis know we do have these additional options for her Tax-Free savings? - Mark Nicholson, ING Direct

Response: Assuming Janis is reading this week's column, consider it done. - G.P.

I am having an incredibly confusing time with TD Waterhouse re designating my husband and I as "successor account holders" for each other's newly opened Tax Free Savings Accounts.

I have spoken to at least six people both at Direct Investing and at the branch level, all of whom declare that the "successor account holder"/beneficiary is governed by the individual Provinces and Ontario has not yet brought in the necessary changes. Everything, we have read to date seems to clearly state (as does your new book which I was just able to get today) that the "successor account holder" can be placed now, but the beneficiary designation is still under consideration.

TD Waterhouse still refuses to allow the "successor" designation to be placed on our accounts. We would greatly appreciate a reply from you clarifying exactly what it is that we can do. – Allan and Rose B.
 

Succession laws are provincial responsibilities so although the federal rules clearly allow for a "successor account holder" the provinces each have to pass legislation to actually make it work. To date, British Columbia, Alberta, and PEI have done so.

This legal tangle had led to different policies from one company to another.  Some, like TD and Scotia, are waiting for enabling provincial legislation before they will allow TFSA planholders to designate a successor account holder. Others, like Mackenzie Financial, have a place on their forms to name a successor account holder now, however the fine print says that the designation won't take effect until the appropriate provincial law is passed.

It's the old problem of competing jurisdictions and legal caution. As soon as Ontario acts, TD, Scotiabank, and the others will issue addendums to their forms. Until then, the only way to be absolutely certain that the TFSA will be dealt with appropriate if you die is to add a clause to your will. – G.P.
 

My mom went to a seminar and was told that the contribution room only begins to accumulate AFTER you open a TFSA. That is, if you don’t open an account until 2011, you will only be allowed to deposit $5,000, because you didn’t earn the $10,000 in contribution room in 2009 and 2010. I am wondering if she is correct (although I will be opening a TFSA in the near future just to be on the safe side). – Margaret B.
 

The information she received is incorrect. You don't have to open an account to accumulate contribution room. As long as you file an income tax return every year, your TFSA contribution room will be credited to you. If you don't use it, the $5,000 will be added to the next year's contribution limit. There will be a report telling you how much contribution room you have on each notice of assessment you receive, starting in 2010, in the same way as the Canada Revenue Agency advises people about available RRSP room. – G.P.