A type of annuity contract that is established with a single lump-sum payment by the owner. The annuity then grows on a tax-deferred basis until annuitization. Single-Premium Deferred Annuities (SPDA) can be either fixed or variable, and distributions are only taxed when you take them. There is no investment limits regarding how much you wish to invest in a SPDA. Watch: What Are Deferred Annuities? Single Premium Deferred Annuities (SPDA) differ from immediate contracts in that they grow tax-deferred for a period of time before annuitization. They also differ from flexible-premium contracts where the investor makes multiple payments into the contract over a period of time while the assets grow. SPDA is appropriate for investors who need steady income and have a lump-sum balance to invest.
One of two payout option methods an employer uses to distribute retirement benefits. At retirement, a retiree has the choice of either a single-life payout or a joint-life payout. A single-life payout means only the employee will be receiving the payments for the rest of his/her life, but the payments stop upon his/her death. In contrast to the single-life payout option, a retiree can also choose a joint-life payout option that will continue payments after the retiree's death to someone else, such as a spouse. Some plans restrict the survivor benefits to immediate family members. Typically, the periodic payment from a joint-life payout option will be less than the amount in a single life payout because it continues after death.
The risk of receiving lower or negative returns early in a period when withdrawals are made from the underlying investments. The order or the sequence of investment returns is a primary concern for those individuals who are retired and living off the income and capital of their investments. It is not just long-term average returns that impact your financial wealth, but the timing of those returns. When retirees begin withdrawing money from their investments, the returns during the first few years can have a major impact on their wealth. Two retirees with identical wealth can have entirely different financial outcomes, depending on when they start retirement. A retiree starting out at the bottom of a bear market will have better investing success in retirement than another starting out at a market peak, even if the long-term averages are the same.
A type of RRSP (Registered Retirement Savings Plan) whose owner determines the asset mix held in the trust. An RRSP is a Canadian retirement savings vehicle to which contributions are tax deductible on an annual basis, up to a certain amount. With a self-directed RRSP, an investor can determine the portfolio of investment products in his or her RRSP. Investments that are not RRSP eligible, however, are sill not allowed in a self-directed RRSP. Aside from the tax advantage provided by the Canadian federal government, a self-directed RRSP account is very similar to a regular investment account. Owners of self-directed RRSPs are responsible for ensuring that their RRSP investments meet the legal requirements set by the Canada Revenue Agency. The penalty for not meeting these requirements is the loss of the income tax deduction.
A retirement account in which the individual investor is in charge of making all investment decisions. The self-directed IRA provides the investor with greater opportunity for asset diversification outside of the traditional stocks bonds and mutual funds, as real estate, private tax liens and notes can be purchased. All securities and investments are held in an account administered by a custodian or trustee. Some investment types, such as life insurance, are still not permitted in an IRA. In addition, investments cannot be employed for personal use or gain. For example, an investor cannot hold real estate that is personally used in a self-directed IRA. It is the responsibility of the investor to comply with all IRS regulations.
A tax-free exchange of an existing annuity contract for a new one. In order for the new contract to qualify as a Section 1035 Exchange, the policyholder must have exchanged his or her existing contract for an equivalent new contract. The annuitant or policyholder must also remain the same. Application of a check received for the old contract against the new contract does NOT qualify.
A tax-deferred, government-registered retirement savings plan that is specially designed for small business owners (SBOs). Eligible participants for an SBO-401(k) are businesses that employ the business's owners and their spouses. The business must not have any other eligible employees. Watch: Introduction in 401(k) An SBO-401(k) provides self-employed small business owners the opportunity to participate in a tax-deferred retirement savings plan. These types of savings plans may be either self-directed or professionally managed.
A non-refundable tax credit available to lower income individuals and households that contribute to qualified retirement savings plans. This includes employer-sponsored plans such as 401(k), SIMPLE and SEP plans, or the governmental 457 plan, along with contributions to Traditional and Roth IRAs. The amount of the credit will depend on the adjusted gross income of the individual or household and the size of the contribution. Watch: Tax Deduction Vs. Tax Credit A taxpayer must be at least 18 years old to be eligible for the credit. Individuals that are full-time students, were full-time students for at least five months of the year, or filed as dependents are not eligible.The maximum contribution amount to which this credit can be applied is $2,000. For households with an adjusted gross income of $30,000 and under ($22,500 for individuals) the credit rate is 50%. Households with an adjusted gross income of between $30,001 and $32,500 ($22,501 – $24,375 for individuals) the credit rate is 20%. For households earning an adjusted gross income of $32,501 to $50,000 ($24,376 – $37,500 for individuals) the credit rate is 10%. For example, an individual earning $22,900 who contributes $2,000 to a retirement plan will receive a tax credit of $400 ($2,000 x 20%). Any amount above the 10% credit rate limits are not eligible for this tax credit.
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