MONEY MATTERS

(NC)-A recent survey by ING Direct finds many Canadians don't understand the basic rules of the tax-free savings account.

The majority of Canadians indicated they have a vague idea (37%) or don't understand how the TFSA works (14%), and many Canadians were not able to properly identify who was responsible for tracking withdrawals and contributions or whether or not TFSA contributions resulted in a tax deduction.

To ensure you're taking full advantage of your tax-free savings account and not being penalized for saving, here are some do's and don'ts to keep in mind when managing your TFSA:

Do keep track of your own contributions and withdrawals.

One of the benefits of a TFSA is the ability to re-contribute money you've withdrawn from your account, though not until the following year. If you're making multiple contributions to and withdrawals from your TFSA, it's important to keep records of your transactions so you aren't charged a penalty for over contributing to your account.

Remember that although the government will determine your remaining available TFSA contribution limit for the coming year when you file your tax return, it is your responsibility to track your withdrawals and contributions so you don't exceed your annual limit.

Don't treat your TFSA as a regular savings account.

Treating your TFSA as a regular savings account can not only result in over-contributions from the constant withdrawals and deposits, but you also lose out on the benefit of compound interest - interest that is also tax-free.

Do manage multiple TFSAs wisely.

Over a quarter of Canadians (27%) think you can only have one TFSA, but Canadians can have TFSAs with more than one financial institution. Keep in mind the annual contribution limit is $5,000 per year, not per account, so with multiple TFSAs it's even more important to keep detailed records of contributions and withdrawals so you don't exceed your limit

Do focus on the "tax free" part, not just the "savings account"

The term tax-free "savings account" is something of a misnomer since Canadians can hold a variety of investments within a TFSA, including GICs, mutual funds, ETFs and stocks and bonds.

A majority of Canadians (47%) have their TFSA funds invested in a savings account, followed by mutual funds (19%), GICs (13%) and stocks and bonds (10%). To get the best bang for your buck, look for investment options with low-fees and no commissions. Because the money in your TFSA is earning interest tax-free, you won't have to pay income tax on the earnings you make through these various investment products.

Do understand the tax implications of a TFSA.

Over a third of Canadians (35%) said they were unsure whether or not they receive a tax deduction for contributions to a TFSA, while 8% believe they do. Unlike an RRSP, contributions made to your TFSA don't result in a tax deduction.

One in 10 Canadians believes they have to pay tax when withdrawing funds from a TFSA, while a third of Canadians said they weren't sure. Contrary to RRSP rules, you don't have to pay income tax when you withdraw funds from your TFSA since contributions are made with after-tax dollars. In addition, TFSA withdrawals don't affect your ability to qualify for federal benefits, so you're not penalized for saving.

(NC) - While most Canadians hope to be retired at 65, with plenty of time to enjoy the finer things in life, today's savings habits suggest this won't be a reality for many of us.

Statistics Canada shows that only a third of Canadians are saving regularly in a registered retirement savings plan, and 74% of people who filed taxes didn't even make an RRSP contribution.

Statistics also show most Canadians are only using 5% of the available contribution room in their RRSP, meaning many Canadians are missing out on opportunities for increased savings.

Here are three ways to ensure you have enough savings in your RRSP:

Pause before making costly purchases: The allure of a new car or a fancy vacation is enough to make people part with their hard-earned money without thinking twice. Making small sacrifices, like buying a used or floor model car, or taking a trip closer to home, can result in sizeable savings. Instead, take that "extra" money you would have spent and channel it into your RRSP.

Don't leave money on the table at work: Many companies offer retirement contribution matches for employees who contribute to a retirement savings plan.

In many cases, your contributions can be matched up to 100%. That's doubling your money, for nothing. The puzzling thing is that many people don't participate in these plans. If you're not already taking advantage of this free money, march into your human resource department today and find out what benefits you're missing out on.

Set up an automatic savings program to make regular savings a breeze: Setting up an automatic savings plan (ASP) ensures that saving for retirement is a priority. Putting that money into a high-interest savings account, like ones offered by ING Direct, mean you can comfortably save for your future, and the automatic regular withdrawals ensure you don't feel the pinch of setting money aside.

If paying extra money each month sounds like an odd way to save money, keep in mind that paying ahead on loans can substantially reduce the amount of interest that accrues over the course of the loan. Some loan agreements include prepayment penalties that actually penalize customers for paying ahead. But if the loan agreement has no such penalties, sending a little extra each month reduces the loan's principle faster, meaning borrowers will pay less in interest and pay off their loans faster.

Saving money is something many people insist they will start doing tomorrow. But it's the little changes you make today that can add up to significant savings down the road.

(NC) - With RRSP season gearing up, many Canadians are re-evaluating their investments and wondering what options are best for them. A key part of the analysis is the great debate on what investment tool is better: the Registered Retirement Savings Plan (RRSP), introduced decades ago in 1957; or the newer Tax Free Savings Account (TFSA), introduced in 2009.

"RRSPs and TFSAs are both valuable, tax-advantaged investment tools, each providing unique benefits," said Tina Di Vito, Head of the BMO Retirement Institute. "Depending on an investor's individual circumstances, one might be better suited than the other. It is best to discuss your options with a financial professional who can help guide you in the right direction."

How does a TFSA differ from an RRSP?

Contributions:

Contributions to RRSPs are tax-deductible, while contributions to TFSAs are not.

Contribution room:

With an RRSP, you must have earned income in order to accumulate contribution room.

With a TFSA, you do not need any income to accumulate the $5,000 per year contribution room.

Withdrawals:

Withdrawals from an RRSP are taxed in the year of withdrawal (with the exception of withdrawals made under the Home Buyer's Plan and Lifelong Learning Plan which are not taxed, provided they are repaid on schedule). Withdrawn funds cannot be added to your contribution room in the following year.

Withdrawals from a TFSA are tax-free. Any amount withdrawn is then added to your contribution room in the following year allowing you to re-contribute that amount at a later date.

Conversions:

An RRSP must be fully withdrawn or be transferred to a Registered Retirement Income Fund (RRIF) or annuity by the end of the year in which you turn 71. There is no age requirement to withdraw or close out a TFSA.

For more information on TFSAs and RRSPs, visit www.bmo.com or speak with a financial professional at your local BMO branch.

(NC) - With the RRSP season upon us, Canadians will be making their annual contribution to their Registered Retirement Savings Plan before the 2011 tax year deadline of February 29, 2012.

But RRSP investing isn't limited to one annual contribution. Retirement investments, just like any other investments, need constant monitoring and updating. It's vital to revisit your investments often, to ensure you have the right mix.

In order to determine what is right for you, it is important to look at what you already have in your RRSP, your comfort with investment risk, and your investing timeline including the target end date of your investments.

"Once you have made your initial investment, it is important to continue to monitor and update it as your needs change," said Serge Pépin, Head of Investments, BMO Investments Inc. "If your target end date is your retirement, then the mix in your portfolio will need to be adjusted as time passes. Your investing needs at age 30 are different from your needs five years from retirement."

While some people may be comfortable with constantly updating and changing their investments, others are not. For those who are not, BMO recently introduced BMO LifeStage Class Funds, a suite of mutual fund portfolios - each with a specific target date - that are managed to become more conservative over time as the target date approaches.

These funds allow investors to sit back and watch their investments automatically evolve.

For more information on how to ensure you have the right mix of investments, visit www.bmo.com or speak with a financial professional at your local BMO branch.

(NC) - Mutual funds are among the most popular investments in most retirement portfolios, but a survey by ING Direct finds that many investors aren't aware of even the basic cost of holding mutual funds in their RRSPs.

Statistics show Canadians pay among the highest mutual fund fees in the world, with an average management expense of 2.34%. According to ING Direct's survey, 45% of Canadians are unsure of the annual management expense they are paying for their mutual funds, meaning nearly half of Canadians are letting their retirement savings slip away.

With the thousands of mutual funds available, many do-it-yourself investors are confused about what to buy. The best place to start is to look for a fund that charges a low MER (management expense ratio) - at least half or less than the average of 2.34% An index-based investment strategy is also a good idea since research shows that 80% of actively managed funds don't beat the index. Why pay more for the same performance that tracking an index provides? Balance and diversification are also important when choosing a fund, another advantage of the index-based approach.

Making automatic, regular contributions to your mutual fund RRSPs also helps to decrease the overall cost of investing over time, while allowing investors to benefit from dollar-cost averaging. Combined with a low MER, this strategy means more money stays invested to compound and grow, giving investors the potential to earn much more over time.