Travelling south tax free

Many retirees want to escape the harsh winters in Canada with an extended stay in the Southern United States. If you’re one, you need to know there can be meaningful tax consequences relating to part time residency. For example, US authorities will apply what is known as the “Substantial Residence” test. It notes the number of days you spend in the US in the current year, plus 1/3 of the days you spent in the US last year, plus 1/6 of the days you spent in the US two years ago. This total must not add up to more than 182 days. If that limit is exceeded, you will be subject to US taxation on your worldwide income.

If you always spend 121 days (about four months) or less in the US annually then you will never reach the 182 days that will make you subject to US tax.

What if you exceed the 182 days and meet the substantial residency test?  Well you can still be treated as a non-resident alien. You must file form 8840 – the ‘Closer Connection Exception Statement for Aliens’ to establish a closer connection to a foreign country and maintain your non-resident alien status.  The form must be filed on or before June 15^th of the year following the year you met the substantial presence test. If this form is not filed in a timely manner, the right to claim the exception for that tax year might be lost and you could be deemed a resident of the United States and would be required to file a tax return and declare your worldwide income.

So, keep current with this paperwork and don’t get tangled up in Uncle Sam’s taxation system if you don’t need to!

The Budgeting Series. Volume 2 'Talk is Cheap'

Thinking of getting a second telephone line?  VoIP ( Voice over Internet Protocol) can be a good option.  Several companies such as Skype, Vonage and Magic Jack provide this service.  We chose Magic Jack because of the competitive price.  For an initial sign-up fee of $49.99 you get a telephone number assigned to you along with a little USB plug-in device about the size of a match box.  You plug it into a USB port and any ordinary phone plugs into the other side of the device.  The device then automatically sets up the software on your computer.   Then you're ready to go. 

If you want to retain your local Canadian area code there’s an additional one time charge of $10.  After that you only pay an annual fee of $19.99 for unlimited calls in Canada and the USA.  You can plug the device into any computer in Canada and the USA and start making phone calls.  The voice quality is quite good and the service seems reliable.

We spend three and a half months in Arizona so we take the device with us and we also take a laptop and we sign up for the internet there so we can use the same telephone number as home.  This means friends in Alberta can phone us at our local area code and it's a local call for them.  When friends in Arizona call us locally they are actually calling long distance so we tell them to phone us and we call back right away.

Pros

• Portable and cheap
• If it’s your main personal number (we also have a business land line in Alberta) there are no annoying telemarketing calls because the number isn’t listed.
• Price includes call display and an answering service.  If the power or internet is down you’ll receive an e-mail with the message attached to play back on your media player.

Cons

• The 1-800 series of tel. numbers don’t always work
• 911 service is not totally reliable (e.g. if power or internet is down).   That’s why we have another land line in Alberta and in Arizona we make sure our cell phones are charged up.  Apparently there’s no charge for 911 calls on a cell phone but you’ll need to answer a lot of questions so emergency services can find you.

Getting To Grips With Retirement Numbers

It’s a bit of a paradox really.  Saving for retirement is most effective when young, but it’s the time when people are the least interested in doing so.  It’s least effective when started later in life, but it’s the time when people are most motivated.  If we knew then what we know….yeah, yeah that applies to a lot of things.

So, what to do.  The biggest challenge for people in retirement is establishing how much money they’ll need to cover additional expenses that pensions won’t cover.

If you are at all serious about this you’ll need to get cracking on some things right away!  Determine when you wish to retire then you’ll know how long and how much you can save.

Calculate retirement expenses.  You can predict the ones which will reduce e.g. business clothing because you won’t be going to work anymore.  Ones that will increase may include entertainment and travel because you’ll have more time on your hands.

Adjust for inflation - it’s a fact of life. The expenses you calculate now are in today’s dollars.  Twenty years from now these costs will be higher.  Your financial advisor can help with this as well as determining how much to save every month to create the portfolio needed that will cover your retirement expenses.

Be realistic. When calculating growth on investment it’s better to choose a more conservative percentage because it truly is better to be safe than sorry. If it turns out that your portfolio yields a higher percentage you'll have extra money in your account.

It’s not rocket science.  The important thing is to make a start and begin to understand your situation regarding your retirement.  Remember, you do know things you didn’t know then so you do have an advantage right there.



The Budgeting Series. Volume 1 - ‘The Tool Pool’

238,468 people bought electric drills at hardware stores last year.  How many people wanted an electric drill?  None -  they all wanted holes!  Do you really want or need all those shiny new specialty tools hanging around your space?

How about creating a Tool Pool.  Identify a group of like-minded handy folk like yourself and contribute equally into a common budget to purchase say, five good quality tools.

For example – an 18V drill set with spare batteries and a drill bit set; a hand held circular saw with a blade set; a compound miter saw; a set of hand saws and some tooth sharpeners and; a saber saw.  These are the type of tools most average handy folk use only once in a while.  If someone uses tools like these extensively, then it’s likely you wouldn’t want to have them in the pool.

Each person in the pool could be responsible for keeping one of the tools in good working order and properly stored.   This way, for that special project, there’ll be no need to shell out for the right tool or to spend the high daily rates at the rental store. 

Think how much money and storage space you’ll save without sacrificing your capability of executing that important project.  

Convenient Accounts

Parents would set up joint accounts with adult children so that when the parents died, the funds became the child’s property and not part of the estate.  Now they are deemed accounts of convenience, helping to provide care for the parents.  The remaining assets revert to the estate unless wills are changed to clarify the arrangement.  Joint accounts held between spouses and between parents and minor children aren’t affected – the surviving owner receives whatever remains at the time of death.

Include a clause in the will when the joint account is set up indicating the intent to have the residue revert to the surviving owner.  This will avoid probate fees and ensure faster transfer of monies.  Alternatively, include this instruction in the joint ownership agreement itself.

So, it’s no longer a given that joint accounts between parents and adult children will simply revert to the adult child on the death of the Parent.  You now have a bit of work to do to ensure that.

Life is like riding a bicycle.  In order to maintain your balance you need to keep moving.

Albert Einstein

Look Before You Leap

So, you’ve just retired or are about to. You’re anxious to move to the coast or a country setting. Here are a few points to consider before taking the plunge.

Have there been discussions with partners about relocating and a full understanding of the consequences? Often, when a move is made there can be disappointment. We’ve seen people make major decisions without thinking it through and they've regretted acting too quickly. 

Can friends be made in the new location easily and effectively. Good infrastructure is important too - well maintained roads, good water supply, effective waste removal, acceptable health delivery and airport access. 

Why not try renting close by? If it doesn't seem right it'll be possible to move back to the original home. Your home could be rented out and it might even go up in value.

Often it's best to do nothing for a year, say. See if a new attachment to the old place can occur with the changes in schedules and living patterns. Renovations and changes may make the current home feel like a new space.

If you're determined to move or have already done so, the following link has some great advice on how to network and make new friends..... Building relationships in retirement communities

Unlocking Opportunity

LIRA (Locked-In Retirement Account) allows transfer of funds from a defined benefit pension plan to a self administered savings plan with similar rules.

LIF (Life Income Fund) requires conversion of funds in a LIRA to an income stream at a certain age with rules.

Since January 1st 2008, those who are age 50 and have a LIRA that is under the Alberta jurisdiction, can unlock 50% of this account.  At age of 50 and over, you can transfer your LIRA to a LIF or purchase an annuity. At the time of transfer, you have a one time opportunity of taking 50% of the value of the LIRA as income. You will pay taxes on that income in the year that you remove it from the LIRA. Or, you can transfer that 50% to your RRSP or RRIF.  Doing so will give you more flexibility than leaving that amount locked-in.

At age 71, you have no choice but to convert your LIRA to a LIF or purchase an annuity. You can unlock 50% then.

Different provinces have different rules.  Also, if you already had a LIF when this ruling came out, there’s a chance to unlock some income too.  Be sure to consult with your advisor to clarify these details.  Here’s a link for more information.

http://www.finance.alberta.ca/publications/pensions/pdf/info_accessing_pension_funds.pdf