“Irs BAD enough to have the. certainty of death and taxes always hanging over our “heads. Now you can add the risk of double taxation if you “over-contribute to a regis- ‘tered retirement savings plan -and death intervenes before “you can use ‘Up the over-cen- ‘tribution. © This fhippens because following the death of the plan holder; an © ‘over-contribution loses its identity as such and.the amount is no longer ‘considered separately from the other funds in the plan. : - “People over-contribute to an RRSP to shelter the investment | ‘income ‘earned by this money from’ ‘tax, So, if you have money you don’t need and its investment income is being taxed, putting these funds into an RRSP will help your “RRSP compound faster. You may, over-contribute up to $8,000 on tup of your normal RRSP contribution limit. Once you have ‘over-contributed (to your own or spousal plan), each January you may subtract.your allowabie contribution . for the upcoming year (based on * your previous year’s earned income and pension adjustment if applica- ble). Then you may over contribute gain ‘back t up to the $8,600 limit: “For example: You are allowed to -contribuie $4,500 to an RRSP for :1994, You may put $12,500 into the RRSP now ($4,500 plus the $8.000 over-contribution), Then, next January, assuming you may put another $4,500 into an RRSP for 1995, your over-contribu- tion will be reduced by that amount to ($8,000 minus $4,500) $3,500. That means pext January you could over-contribute another $4,500 to bring your over-contribu- tion back up to the $8,000 level. Note: Hf you have a pension plan, f suggest you keep your over-contri- bution to perhaps $7,000, Then, for exampie, if'a past service pension adjustment is made to the plan — which normally reduces your RRSP contribution “room” — you have ‘allowed yourself a margin. If you exceed the $8,000 limit, you'll be taxed one per cent per month on the excess. In almost every case, you should only over-contribute if you have 66 People over-con- tribute to an RRSP to - shelter the investment income earned by this -money from tax. 99 enough years of earned income (and so RRSP contribution room) ahead of you yo use up the over-contribu- tion, Otherwise, if you are unable to ‘, deduct the over-contributed amount, it will be taxed again when it’s with- drawn. You can afford to do this only if the money remains and grows in the . ‘RRSP (and possibly the RRIF) long enough so the tax-sheltering more than makes up for the double taxa- tion. : _ Just make sure death doesn’t spoil your tax planning. ; * Double taxation also occurs if an -over-contribution is outstanding at ‘death. Because the over-contributed amount in the RRSP loses its identi- ty as an over-contribution following death, it can’t be “used up” as described earlier, Then, when the money does come out of the RRSP, it will be taxed again, The only exception: f you have unused RRSP contribution room when you die, then the over-contri- bution can be deducted up to that limit as a spousal contribution on the final tax retuen — provided * somebody knows to make this claim on your behalf. Revenue Canada might provide administrative relief in cases of extreme hardship. For example: a widow inherits her husband’s relatively small RRSP which includes an over-con- tribution. She must withdrawal the money immediately because she is in dire financial straits. Revenue Canada might make some provision to relieve the double taxation on the over-contribution, but the depart- ment would consider each case indi vidually. Perhaps the only advantage of having an over-contribution lose its identity as such following death would be in the following situation. Let's say both husband and wife (common-law or married) regularly maintain an $8,000 over-contribu- tion each. If the wife dics, her RRSP, including her $8,000 over- contribution is transferred to the husband’s RRSP. . . The wife's over-contribution simply becomes part of the hus- - . band’s regular RRSP. If it didn’t, the husband would find he was $16,000 over-contributed and would pay $80 a month penalty iax on the $8,000 over-contribution excess. : Mike Grenby is a North Shore- based columnist and independent financial adviser wha works with individuals; he will answer your . questions in this column as space allows — write him clo 2444 Haywood Avenue, West Vancouver, ‘B.C, V7V IYI. Sale ends 1,000's to June 30, ‘94 choose from North ‘Shore | Super, Store : Debbie Lew Customer Service Manager We cordially invite you to come visit our new expanded branch, Win a prize on the TD Wheel. of Fortune. me Enjoy refreshments or attend one of the scheduled Will & Estate :f Planning and Retirement Seminars. We look forward to seeing : you. June 6 to June 10 Bnsnch Manager “Hats oF To You For Helping Us Grow!" Pall Proceeds To Charity: Your Bank. 1802 Marine Drive - ‘Your Way.” | West. 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