While Congress continues to dither and drag its feet on Social Security reform - reform which is absolutely critical before the system goes belly up - the Canadians are moving forward with efforts to allow their citizens to invest some of their own money in private savings accounts. Here are the details as outlined by columnist Norma Greenaway at Canada.com last month…
OTTAWA - A new tax-free savings account was a groundbreaking surprise in the federal budget that experts predict will be attractive to middle- and upper-middle income Canadians who can afford to set aside up to $5,000 a year.
Starting next year, Canadians aged 18 and older can save up to $5,000 a year in a registered Tax-Free Savings Account, a new vehicle that essentially allows people to enjoy the benefits of a tax-free offshore account as long as they want without sending their money out of the country.
Unlike the registered retirement saving plan, contributions each year will not be deductible for income tax purposes. But interest and investment income - including capital gains - earned in the account will not be taxed when it is withdrawn, as is the case with RRSP withdrawals…
The benefits…are real. A family of four, for example, would enjoy a gain of $4,000 after 10 years if each spouse or common-law partner invested $5,000 a year in a guaranteed income certificate earning interest of four per cent.
People can buy any investment vehicle they choose and place it into the registered tax-free account. And they can contribute to their spouse’s, or common-law partner’s tax-free account, depending on the available room.
Finance Minister Jim Flaherty described the tax-free savings plan as a historic measure that will be a “powerful incentive” for Canadians to save. People can contribute for as many years as they want, and unused contribution room can be carried forward to future years.
Funds can be withdrawn without penalty at any time whether the money is used to buy a house, a car, go on vacation, start a new business or pay off a debt. There are no restrictions on how the money is spent.
Also, any amount withdrawn can be put back into the tax-free account without reducing the contribution room.
For example, if someone withdraws $20,000 tax-free from the account to renovate a home, he or she will be able to re-contribute $20,000 to the account in the future without affecting his or her available contribution room.
Another bonus, according to experts, is neither income earned in a tax-free account nor withdrawals will affect Canadians’ eligibility for income-tested benefits and tax credits, meaning everything from GIS and OAS pension payments to payments under programs such as the National Child Benefit.
Myron Knodel, a tax and estate planner with Investors Group of Winnipeg, said the tax-free savings account also gives people aged 71 or older a way to make tax-free money after they can no longer contribute to RRSPs.
Posted on March 21st, 2008 by Chuck Muth
Filed under: National
I cannot believe that a liberal country like Canada can beat a generally conserative leaning country like the USA at this common sense solution.
America needs to educate it’s citizens on fundamental economic principals before it’s too late.
The problem is that the United States is run by Democrats and they haven’t figured a way yet of how to get a cut of that money.
You guys ever hear of a Roth IRA?! Duh, it’s been around since 1998. Check it out!
Have you tried taking money out your Roth before you are ‘old enough’ or put money back in or roll forward the allowance for last years’ contribution and put in for both last year and this year? Have you tried using some of your Roth to buy a house or car? The Canadian plan does have several significant advantages.
Duane,
You have valid points. Allow me to address some of them;
Roth contribution limit in 2008 is $5,000 ;
Roth contributions (not earnings) can be taken at any time (earning withdrawal before age 59.5 gets you tax + 10% penalty);
Roth allows you to withdraw money for a home tax free up to $20,000, including earnings and contributions, and no, you don’t have to replace it;
There is a catch up allowance of one year (you can do 2007 contribution until April 15 this year).
Write to your Senators and Congressmember and tell them you want to modify Roth! All Canada really has is a system whereby $5,000 a year is in a taxfree account. We should be encouraged to SAVE in the country, but our Congress is run by people beholden to business so SAVING is discouraged (i.e. it is taxed at ordinary income rate), whildst INVESTMENT in business is rewarded with tax free dividends and a 15% tax rate on cap gains (where did business get the money to grow?, from the banks that got the money from savers who get taxed fully).
We could do this, write to you members of Congress today. I’ll tell you what they told me….don’t hold your breath!
There are two differences between a Ponzi Scheme and social security. You get a better return in a Ponzi Scheme and no one is forced to join a Ponzi Scheme. If social security is so great, how come it is not voluntary? And most important which section of the Constitution authorizes social security? Ask your crooks and or mental midgets in Washington that and watch them stare open mouthed.
How many people know that social security was first proposed by Bismark and refined by Adolph. FDR fits right in with these two great humanitarians.
Howard,
Cheyenne, WY