Good financial management consists of two different distinct facets, the first of which is learning how to make the best use out of your limited earned income in order to best meet your current expenses, and the second of which has to do with learning how to implement strategies that will help you achieve both your short term and long term goals.
Planning for your long term goal of building wealth for the purpose of retirement is going to become more important than ever because the money set aside for government pension plans is nearly bankrupted now. There are a number of doubts out there right now that our government will ever be able to take care of the baby boomers who will be retiring come 2010 or so. With all of this uncertainty surrounding the government pension plan concept, savings and investments that make up your own personal retirement plans are becoming the true key to financial health and well being in your retirement years. Let us discuss some of the available options for when it comes to personal retirement plans.
1 - Registered Investments -
One of the most important, most essential components of any financial plan will be learning how to produce strategies for minimizing the impact of taxation. These strategies rely heavily upon your understanding of the different tax treatments for each of the three primary categories of investment incomes, which are: Interest, capital gains and dividends. You also need to learn how to reduce your taxable income, reducing your effective tax rate as a result in addition to referring your taxable income into the future years.
One example is K401 or registered retirement savings plans, which share the same characteristics outlined below:
- The income that is earned inside a K401 in the United States or an RRSP in Canada is completely tax deferred until it is removed through cash withdrawal or from payment from registered retirement income funds or RRIF's, or life income funds or LIFs, or annuities.
- Any contribution that is made to either your K401 or your RRSP within the annual limit amounts is completely tax deductible.
- K401 and RRSP accounts provide tax sheltered compounding, and they are also capable of generating additional capital by way of tax savings.
2 - Non Registered Investments -
Although registered retirement savings plans play important roles in your retirement plan, they also represent important components on successful financial planning. There is a limit to how much you can contribute, and these limits may be reached quickly if you are already being covered by a company pension plan. Non registered investments, on the other hand, pay tax on investment income every year which are ideal for after-tax returns.
3 - Home Ownership as an Investment -
Real estate always remains a solid investment option. With home ownership you may be able to gain extra equity through home equity loans. This loan allows for you to use your home's equity as collateral so that you can borrow money to invest in equity markets. Interest paid on these loans is tax deductible, and the interest rate itself tends to be lower in most circumstances.
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Originally posted 2009-04-02 05:55:49. Republished by Blog Post Promoter
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