As we leave 2020 and head into a still uncertain time in 2021, January is the perfect time to review your wealth-building strategies to make sure they still align with your overall financial goals.
As we have seen over the past year, the pandemic has forced us to see our lives through a different lens, some of that through a Zoom lens. We have stronger ties with family. We have new perspectives on our other close relationships. And, we appreciate those “freedoms” in our lives that we once took for granted.
So now it’s January, the start of a new year and the month to start to planning in the areas of wealth creation and tax planning strategies.
Insurance should be part of all wealth-building strategy conversations for more reasons than just a protection against loss, although that certainly is one important component. Consider the benefit of tax-deferred growth and tax free access, growing your asset without exposing it to the market, creditor proofing your money, or even using it as an alternative avenue for leveraging your assets to ensure that one dollar can do the job of two.
Malcolm Forbes once alluded that nothing is more efficient or more effective at building wealth than life insurance. It’s why so many high net worth individuals families own so much of it. Not because they need insurance, but because they value the asset and tax benefits it creates.
Life insurance is an asset and helps diversify a portfolio, and it is one of the faster ways to build wealth, no matter what investment strategy you use.
As you review your client’s financial goals for 2021, and yours, keep in mind some of the updates from CRA for investors and taxpayers
CPP enhancement for 2021
This will impact millions of employed and self-employed Canadians that contribute towards the pension fund. This will also impact businesses that need to cover 50% of employee contributions.
The maximum pensionable earnings for 2021 will rise from $58,700 to $61,600 due to a rise in CPP contribution rates. In January 2021, the employee and employer contribution rate will increase to 5.45%, up from the current 2020 figure of 5.25%. This means the contribution rate for self-employed Canadians will increase to 10.9% from 10.5%.
The RRSP contribution limit for 2021
You can contribute up to $27,830 towards your RRSP compared to the maximum contribution limit of $27,230 in 2020.
The TFSA contribution limit is $6,000 for 2021
This means the maximum cumulative contribution room will increase to $75,500, up from $69,500 in 2020.