But just when should you start investing in RRSPs? And how much should you put in? That depends on several factors.

Author and financial adviser David Trahair urges you to not borrow to invest if you don’t have the money. The rate of return has to be enough to cover the interest on the loan plus any fees incurred just to break even. So if you borrow at 5 percent and your rate of return is 5 percent, you’re losing money after paying the costs of investing!

Also, if you can pay down your mortgage, do so. People are often advised to put the tax returns from their RRSPs toward the mortgage, but are you actually going to? Or would you use it for something more immediate, like a family vacation or fixing your car? It might be tempting to put off paying down your mortgage when interest rates are low, but remember that low rates are not the norm and can change at any time. Your RRSP rate of return has to be better than the interest you’re paying (and will pay) on your mortgage to be worth it.

That goes for any other debts you have. In fact, paying off your other debts should probably come first, as they likely have higher interest rates. Credit cards generally charge the highest rates, so get rid of these debts before any of the others.

How Much Should You Invest?

How much to invest depends on your current and future spending habits. Most people won’t need millions of dollars, according to Trahair. If you’re debt-free and own your own home and car when you retire, then you’ll likely be okay with having 50 percent of your current income in your retirement years. This will vary with your income level, of course, but you won’t have mortgage or car payments and your children will likely be self sufficient by this time.

You’ll also be receiving Canada Pension Plan (CPP) and Old Age Security (OAS) payments if you’re eligible, so these will lower the amount of savings you need. Currently, the maximum monthly OAS benefit is $524.23 and the average CPP pension is $502.57. Your CPP pension is based on what you’ve contributed to it throughout your employment years, but the average person will have about a thousand dollars per month from CPP and OAS combined. (Look in the overview section of Service Canada’s OAS page to see whether you’re eligible for OAS.)

How much beyond that do you think you’ll need? If you want to have an extra $20,000 each year, you’ll need about $500,000 saved. If you feel you should have more, just to be safe, you’ll have to save even more; but putting it all into RRSPs might not be a good idea.

The year you turn 71, you either have to cash out your RRSPs, convert them to an Registered Retirement Income Fund (RRIF), or purchase an annuity. Cashing out your RRSPs would be a bad idea unless you're not dealing with very much money, since the entire amount is taxable. An annuity is something to consider; you get monthly payments for a set amount of years or for the rest of your life, depending on the type of annuity, but beware the fine print on these.

RRIFs are like RRSPs in reverse. Instead of adding to the account, you withdraw from it. You can keep the same investments you had in your RRSPs and the earnings aren’t taxed. However, you do have to make minimum withdrawals every year (7.38 percent in the first year), and this minimum increases to 20 percent when you’re 94 or older. If you have a lot saved at that point, you’ll be paying big taxes. You might also have some losses if the stock markets are down, but you won’t have a choice when it comes to the timing. OAS pensions start getting deducted once your income reaches $67,668 or more.

These are all things to consider when you’re deciding how much you want to contribute to your RRSPs. It’s a good idea to have some savings in RRSPs, but keep in mind how much debt you have, what the interest rates are, what the retirement programs’ regulations require, and the fees which will be charged later when you want to use the money.

About Author David Trahair wants to reveal the truth behind the myths that are so often pitched to unassuming Canadians who are concerned about their financial future.

His book challenges the self-serving claims of people pushing RRSPs and other “investments” and reveals why you should question their claims. Smoke and Mirrors: Financial Myths That Will Ruin Your Retirement Dreams is available in our Web store.

Purchasing Property in Arizona

Currently, there are two critical factors making Arizona a much more attractive destination for Canadians wanting to purchase US property:

1The disastrous statewide real estate market

2The value of the Canadian dollar staying on par with the US dollar

These two factors have dramatically reduced the cost of a winter vacation in Arizona and/or purchasing property in the state. In Canadian-dollar terms, Canadians can buy Arizona real estate – on average – at just over one third of what they would have paid three years ago for exactly the same property. With patient bargain hunting, many Canadians have done even better by finding homes with crystal blue swimming pools or on golf course property.

It also helps that Arizona property taxes are amongst the lowest of any Sun Belt state, and the cost of living in Arizona is also amongst the lowest in North America.

Canada-Arizona Business Affairs

Canadian businesses and business folks are flocking to Arizona as well. With the establishment of the Canada Arizona Business Council (CABC) in 2005, there has been active trade being promoted between Canada and Arizona on an increasing basis. Some key statistics:

• Trade between Arizona and Canada currently exceeds $2.1 billion per year.
• More than 150,000 Arizona jobs depend on trade with Canada.
• The key exports/imports between Arizona and Canada are in the aerospace industry.
• There are currently 100 major Canadian companies with operations in Arizona.
• Canadian visitors spend more than $500 million in Arizona

Some of the key industries that Canadians are involved in are real estate, tourism, and aerospace. In the real estate field, Canadians have been taking advantage of the depressed real estate prices to make major investments in Arizona, both at the corporate and individual level.

For example, the Walton International Group, a Calgary-based company with offices in Scottsdale, has assembled more than 10,000 acres of land for housing development along the Phoenix/Tucson I-10 corridor in the past few years. And last year, the Statesman Group of Companies, which is also based in Calgary, was the leading builder of multifamily housing units in Arizona while other builders were going out of business or had stopped building altogether.

In addition, Canada's Bombardier Transportation Corp. was contracted in 2009 to build and operate the $118 million automatic train system extending the Valley Metro Light Rail service into Phoenix's Sky Harbor Airport. And, the Light Rail system itself was designed by one of the largest construction companies in the world, Stantec, also a Canadian company.

Arizona and Canada also share a close relationship in the trade and manufacturing of airplanes. In 2007, the state supplied Canada with $141 million in aircraft engines and parts and $43 million in aircraft parts, not including engines. In return, the Canadian aerospace industry, which comprises more than 400 firms, manufactured and supplied the state with $102 million in complete aircraft. In total, the partners exchanged $675 million in components and finished goods from the transportation sector, pointing to the high degree of integration shared by manufacturers on both sides of the border.

Other major indicators of the increasingly strong relationship between Arizona and Canada? Arizona is just one of three states with two Canadian Consulate offices, and the Arizona Tourism Office recently established a full-time representative in Toronto, Ontario to promote Canadian tourism in Arizona. In addition, in 2007, former Governor Janet Napolitano conducted the first trade mission ever by an Arizona Governor, and in 2009, Phoenix Mayor Phil Gordon completed a successful trade mission to Montreal, Quebec to promote trade and tourism between Phoenix and Montreal.

Immigration to Arizona

For those wishing to move to Arizona permanently or at least spend more than six months a year in Arizona, there are numerous new immigration options for retired Canadians, and many business opportunities for those still wanting to or wishing to work or establish a business.

In national tax surveys comparing all 50 US states, Arizona earned “A” ratings based on its forms of income taxes, sales taxes, and property taxes combined, which means Arizona is one of the lowest tax states in the United States. In addition, Arizona is one of the few states that gives Canadians foreign tax credits for income tax paid to Canada.

For purposes of this new tax, “investment income” includes income from interest, dividends, annuities, capital gains, royalties, and rents. For any rents and royalties, the tax would only apply to a net amount (after expenses). The tax does not apply to tax-exempt bond interest and gains from the sale of a principal residence (unless there is a tax due after the exclusion has been claimed). Thus, if you are planning to sell your primary residence in the next year or two and will have a taxable gain (if the gain exceeds the $250,000 or $500,000 exclusion amounts for single or married taxpayers), it would be wise to consider selling the home before 2013 so that the gains are not hit with an extra 3.8 percent tax. The tax savings could be huge, depending upon the extent of the overall gain that is taxable.

This same rule applies to sales of second homes or other investment real estate (not rental properties). Thus, if you are planning on selling a second or vacation home soon, it may make a lot of sense to sell before 2013 if there will be a taxable gain. Given that tax-exempt municipal bonds are exempt from this tax, I am expecting many financial planners to be recommending these tax-favored investments when the new 3.8 percent tax goes into effect. Furthermore, this 3.8 percent tax increase will be in addition to any other tax increases in the future. I continue to expect the tax rates to increase, certainly before 2013. For instance, I am expecting the taxes on long-term capital gains to increase from 15 percent to at least 20 percent. Beginning in 2013 for high-income taxpayers, this tax will actually be 23.8 percent (assuming the 20 percent rate prediction is correct). Thus, this new tax will certainly cause many people to think about selling appreciated assets before the tax increase goes into effect.

There are a few other planning opportunities present here as well. The new tax does not apply to business income earned from a trade or business. It does not matter how the business is set up, as this will not apply to business income from a sole proprietorship, partnership, LLC, or S corporation. It will apply to any business that results in passive income, so entities such as limited partnerships may be subject to this extra tax. Additional IRS guidance on this issue is forthcoming.

\One investment that is specifically excluded is distributions from tax-favored retirement plans, including individual retirement accounts (IRA) and qualified employer plans (such as 401(k) or 403(b) plans). This will make these plans even more advantageous than they are today. If you are not fully funding a retirement plan at work or contributing the maximum to an IRA every year, it would be a good idea to review this plan and see if you can now fully fund these plans.

If you fund a taxable account and then receive dividends or capital gains, this income would be subject to the 3.8 percent tax. But if you make these same exact investments in a retirement plan, these will NOT be subject to the 3.8 percent tax. This again leads us to favor IRAs in general and Roth IRAs in specific, as a Roth IRA will not generate any taxable income in most situations and thus the 3.8 percent tax will not apply to Roth IRA distributions. If you have been considering a rollover to a Roth IRA from a regular, traditional IRA, it again should be done before 2013 as this rollover will count in your overall income for purposes of the threshold for the 3.8 percent tax. Thus, if you are married filing jointly and your income is $250,000 (the threshold), converting an IRA to a Roth IRA would push your income over the threshold and subject some of your investment income to the extra taxes.

Tax planning will become even more key in the upcoming years as we work to find ways to legally minimize taxes payable.

About  Many more helpful ideas for dealing with IRS are addressed in the book Tax This! An Insider’s Guide to Standing up to the IRS, available in our Web store. The author, Scott M. Estill, is a former tax attorney and IRS employee who knows the rules of the IRS game. By informing taxpayers of how tax policies work and the tricks in dealing with IRS employees and the service, he is able to advise you on how to use this knowledge persuasively and to your benefit.

Joint or Sole Accounts?

Author Sylvia Lim, in her book Personal Budgeting Kit, says there are few things to take into consideration, not only when making the decision to either consolidate bank accounts or keep them separate, but also no matter how you and your partner decide to handle your finances moving forward.

Establish Honesty

First, make sure that you are honest with your partner about your current and past financial experiences. Too often, differences in how couples handle their money result in a rocky relationship. Being upfront about your habits and previous mistakes will take the edge off, maintain trust, and establish open communication about money. Lim states that, “before you can draw up an effective budget, you must become aware of your spending habits,” and that by becoming aware of your spending habits, you can share these with one another so you both know how you handle money.

Establish Roles

Another thing to think about is the importance of establishing the role of each person in financial matters. Doing this will help to reduce chances of debt, or at least help to pay off what debt you have effectively. For example, if you live together, how are the bills to be paid and should there be one person held responsible for this duty? If there are no specific roles assigned, then it is crucial to communicate frequently as to how these payments are to be made in order to avoid any disagreement when the time comes to handle these matters.

Establish Communication

Finally, it is important to frequently communicate and review transactions that are made. Lim suggests that this be done daily, weekly, monthly, and yearly. Doing this together eliminates any grey areas when it comes to where certain money is going and to what. This reduces the element of surprise and confusion, which is less than desirable in situations involving money. Reviewing your transactions and analyzing how you handle your money will help you to “plan more efficiently to meet the financial goals that you have set for yourself.”

Once you and your partner have spoken honestly about your financial pasts, established roles for financial matters, and developed a way to continually communicate about finances, you should be on your way  to being able to focus on other important things, such as starting a family, or just moving forward in a healthy relationship.

About The decision to have separate or joint accounts is just one consideration to take into account when dealing with personal finances.

For more about finances and personal budgeting, see the second edition of Personal Budgeting Kit by Sylvia Lim.

You can find it in our Web store where you can preview the initial chapters and read see the complete table of contents.

The IRS, the largest agency in the United States Department of Treasury, is often criticized for not taking fairness or impartiality into consideration when collecting tax money, as well as for keeping taxpayers in the dark on how it works.

“While the IRS is not responsible for the recent tax increases or complexity of the tax laws, it gets most of the blame and is undoubtedly an easy target,” writes Scott M. Estill in his book, Tax This! An Insider’s Guide to Standing Up to the IRS.

Know How to Talk to the IRS

In order to reduce feelings of uneasiness about the IRS and tax collection, it is important to know how to communicate with IRS employees effectively. Estill says that one should never feel uncertain or intimidated when it comes to personal finance and money collection, and what happens to your hard-earned money is not something that should be overlooked. Four basic rules, as outlined by Estill, will make interactions with the service much easier. They are:

1. Follow IRS time deadlines precisely: Being late is never beneficial in any situation. This is true, even more so, when dealing with the IRS and your money. When things are not done on time for the IRS it gives them a reason to treat you in the same degree and gives off the wrong impression about your attitude toward the situation. Being late is an inconvenience for anyone and it does not make dealing with the IRS any easier. Therefore, following deadlines that adhere to the IRS's schedule is crucial.
2. Document any communication with the IRS in writing: Having written records on conversations with the IRS is helpful in a situation where you need to go back and recall an interaction. This is also helpful should there be any miscommunication within IRS departments. Miscommunication often leads to conflicts and mistakes, both of which can be avoided by documenting your conversations in writing.
3. Be specific when communicating to the IRS what you want: Miscommunication arises out of vague statements and ambiguous requests. Because compassion and fairness are not usually associated with the IRS, apprehension toward your rights and tax collection will mostly likely be taken advantage of if you are not confident and specific when discussing your needs.
4. Make statements and get the IRS to agree with you: Confidence in dealing with the IRS seems to be an ongoing theme. In being confident and taking control of the conversation, you can get the IRS to agree to what you want, as opposed to feeling that they have manipulated you. Asking questions allows employees to recognize your insecurities and swing the conversation in their favor. Making solid statements gives the impression that you know what you want and leaves little room for the IRS to gain control over the conversation. This establishes level ground for the taxpayer and increases your chances of getting what you want.

About These four rules, along with many more helpful ideas for dealing with IRS, are addressed in the book, Tax This! An Insider’s Guide to Standing up to the IRS, available in our Web store. The author, Scott M. Estill, is a former tax attorney and IRS employee who knows the rules of the IRS game. By informing taxpayers of how tax policies work and the tricks in dealing with IRS employees and the service, he is able to advise you on how to use this knowledge persuasively and to your benefit.