This is a guest post by Lloyd Burrell.
Even if you have just a lot of house bills and other things accumulated, wouldn’t you be better off with something that resembles a home office? But if you have a hobby that generates a lot of paperwork or maybe a part-time work at home job that tops up your pension, there comes a point when a few shoe boxes and an old fax machine won’t last any longer.
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It is good to be on-guard against Get-Rich Schemers and Their “Money Making Programs”. They usually claim to have the secret to making money fast with very little effort or time. Usually there is a catch if you look closely.
One get-rich scheme for seniors that was somewhat curious but did not have an obvious catch appeared some three years ago. Terry Savage in the Chicago Sun Times is describing how those seniors are now facing a devastating future. His article describes how a Risky insurance plan has seniors spinning with many now on the hook for huge loans – and taxes.
The arrangement was called “Spin Life”. Agents encouraged older people to take out huge life insurance policies on themselves, even though they didn’t need the insurance and couldn’t afford to pay the premiums. Investors would lend them the money to pay the premiums for the first two years, until the policy was past the “contestability period.” Then the policy would be sold to an investor, who would continue to pay the premiums, hoping to collect on this “bet” on the senior’s longevity.
Somewhat macabre but the senior citizen was tempted by an upfront “bonus” – ranging from thousands of dollars to expensive cruises — just for letting the investor bet against the insurance industry’s mortality tables and eventually collect the policy proceeds when the senior died. They were promised more money when the policy was sold after two years to investors. In some cases, the insurance companies decided that the insured should guarantee at least 25 percent of the premium loan but the seniors were assured there was no risk since well-known names in financial services were raising money to buy these policies.
With the credit crunch, the pools of investor money predicted to buy these policies has dried up and there is no money to complete the deal. Even if the insurance companies forgive the loan, the senior is liable for taxes on the forgiven loan.
To simply walk away from this deal, the policy buyer would owe huge sums – half in guarantees to the lender, half in taxes to the IRS. Or the senior could keep paying the large premiums hoping to find a buyer who would pay something for the policy with a large payout when the senior died. That’s a no-win situation.
TFSA (Tax-free savings accounts) are now available according to Meagan Fitzpatrick in the Vancouver Sun today:
For Canadians whose New Year’s resolutions involve saving more money, the introduction of the federal government’s new tax-free savings account is good timing. It’s one of several new tax measures that took effect Thursday, but is the biggest one that will affect the most Canadians. The new tax-free savings account is being billed by the government as "the single most important personal savings vehicle" since the registered retirement savings plan was created 50 years ago.
Canadians 18 years old and over can deposit up to $5,000 every year in a TFSA and although the contributions are not deductible, income earned and withdrawals made from the fund will not be taxed. Funds can be taken out at any time, for any purpose, and unused room in the account can be carried over to the next year. The government says the TFSAs offer flexibility because the full amount of withdrawals can be put back into the account later.
As she goes on to explain:
Seniors, sometimes frustrated by the rules governing RRSPs and registered retirement income funds, are expected to particularly enjoy the flexibility of the new bank accounts. When seniors turn 71 they are required to transfer their RRSP fund into an RRIF and use it as income. They are also required to make minimum withdrawals every year. With a TFSA, there are no such requirements.
The Vancouver Sun had a complete guide to TFSA’s (tax-free savings accounts) by Joanne Chianello on December 20, 2008. You can also download a pamphlet on TFSA’s from the Federal Government.
The arrangements for setting up a Tax-Free Savings Account (TFSA) are fairly straightforward but there is a website that can provide other helpful information at taxfreesavingsaccountinfo.com.
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