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KNOWLEDGE IS FINANCIAL POWER: So, ask away:

In this Economic Meltdown that's destroying retirement dreams, jobs and the hope for prosperity and wealth for hardworking families, more and more Canadians are desperate for financial advice they can trust.

In this forum, Linda Leatherdale, a trusted financial commentator for more than 20 years, will answer readers' questions and help to steer them to where they can get the info they need.

Here are answers to some of the questions sent to her on her popular website, lindaleatherdale.com:

This question is from James Magennis:  He asks,

"Linda, when I retirn in four years I will have in an RRSP the small sum of about $20,000. Do I have to take it out or what can I do, if I want to have a small income from it?"

Dear James:

RRSPs do not have to be cashed out until you turn 71.  At that time you have a choice.  Cash it out and pay the taxman at your income tax rate. Buy an annuity, which can give you a regular income stream.  Or convert into a RRIF (Registered Retirement Income Fund), where Ottawa sets out minimum withdrawals, which can help minimize the tax liability.  If you google Canada Revenue Agency's website, there is a list of RRIF withdrawals. Of course, you can get at the money before you turn 71, but will pay tax on withdrawals, which is explained below in my next answer.

Talk to your financial advisor or bank on how to get an income stream.

Linda Leatherdale.

This question comes from Cindy L.:

"Hi Linda:

My husband recetly gotlaid off but was able to keep his job if he went down to three days and keep his benefits. Due to medical circumstances we decided that this was our only option.  My question is my son is going to be going to college in the flal and we have a GIC RRSP that we would like to cash in to help him.  Our kids have been through a lot due to no fault of their own and we have always promised that if they worked hard and completed high school that we would help them.

My question is should we cash in the $4,000 GIC for him orjust put it on our line of credit?  I don't really want to add more debt to our situation if I can help it.

Thanks, Cindy."

Well Cindy:

First is to clarify whose RRSP is it? It is belong to her husband and he cashes out in 2009, working for only three days a week compared to five days, should lessen his income tax rate and thus the tax he'll pay in cashing out.

If it's Cindy's RRSP and she's an at-home mom, there may not be a tax liability.

Bottom line is RRSP are intended to save money for retirment, and if you cash out before 71, when the money must be converted to an RRIF or annuity (or cashed out) - you pay the taxman.

The good news is on withdrawals of $5,000 or less, the withholding tax in Ontario is only 10%.  So, if Cindy's husband cashes out $4,000, $400 will be withheld.  For amounts over $5,000 to $15,000, the withholding tax is 20%, and for amounts over $15,000, it's 30%.

Now, let's say her husband earns $40,000 a year.  By cashing out $4,000, his taxable income in 2009 becomes $44,000, and that could mean paying almost $1,000 in additional tax when he files his 2009 income taxes.  So helping out the kid means paying the taxman.

Cindy is worried about adding more debt by using her line of credit.  And we know banks have been hiking their rates on lines of credit, even though the Bank of Canada is now at a low of 1%.

Lines of credit, though, could still be cheaper, then putting the loan on a credit card, as long as they're dedicated to paying if off.

The best way to pay for a kid's post-secondary education remains RESPs (Registered Education Savings Plans), but it appears this couple did not invest in one.

Rules have changed for RESPs, making them very attractive.  Also, they come with Educational Savings Grants with the taxman coughing up up to $7,200 in free money for a university education.  Also the taxman can't get his grubby little hands on the gains.

The trick with an RESP is to make sure the money is safe, as the kid gets closer to going to college or university.  You wouldn't want to be cashing out RESP money invested in stocks or mutual funds during their big economic meltdown.  That could cut university savings up to half, right now.  The trick is to convert the money into safer GICs as as the time for university gets closer.

Also, parents should understand they still get a bigger bang for their buck in investing in RRSPs first, then using tax refund money to invest in an RESP.  There are many strategies to be looked at.

For Cindy, the answer may well be cashing in the GIC in the RRSP. Just be aware the taxman will want his money.

Hope that helps, Linda Leatherdale.

This question comes from Randy:

Randy asks, "Linda, I was wondering.  If you have four or five credit cards, are you better to pay whatever you can on all of them, or are you better to focus more on paying them one at a time?"

Well, Randy:  First, I always preach you should only have one credit card, two at the most - with one used for emergencies only.

If you have a balance on all four or five cards, and you start missing payments, it will affect your credit rating and score.  And that will mean you face higher interest rates.

It may be time to consult with a credit counsellor, and the firm I like the best is Credit Canada, which is a not-for-profit organization. Go to creditcanada.com.

If you're using one credit card to pay the minimum payment on another, you are in trouble.  Also, paying rates of interest as high as 30% when the Bank of Canada rate is now at 1% is highway robbery.

Linda Leatherdale

"Hi Linda

It is a pleasure to know that you have your own website now.

We are a family of four with myself, my wife and two boys 20 and 25.  Sholuld we open a TFSA for each one of us?

Just wondering.  Otherwise whether to open for myself and my wife. Advance thanks for any advice you can give us."

The Ashwok family"

This is a question I get asked all the time, since Stephen Harper's Conservatives introduced this new vehicle to encourage overly-indebted Canadians to save.

Effective January 2009, Canadians can open up a Tax Free Savings Account:  Here's how it works.  You can invest $5,000 a year and all the gains of the money - whether it's interest, capital gains, dividends - will be tax free for life.  That's unlike a RRSP, which must be cashed out or converted into a RRIF (Registered Retirement Income Fund) by age 71. Also, you can carry forward unused TFSA room indefinitely. 

But, most Canadians will still get a bigger bang for their buck by investing in their RRSP first.  Why?  RRSPs offer a sweet tax refund when filing yearly income taxes.  For example, if you invest $2,000 by the end of February deadline for the 2008 tax year, and you're in a 40% tax bracket, you'll get a $800 refund.  Like TFSAs, there are many investments that qualify for RRSP tax sheltering - from cash, GICs, mutual funds, stocks, bonds, etc.  So, don't follow the herd mentality of not bothering to invest because of this brutal market meltdown, with trillions wiped from share values around the world.  Simply, put the money in safe GICs for now, which are insured under the Canada Desposit Insurance Corp. up to $100,000 per financial institution.

My advice to this family if they have room invest in their RRSPs, and use tax refund money to open up a new TFSA.  As for the kids, unless they're full-time employees, chances are they are not paying income tax right now anyway.  Still, kids who works a part-time job should file income taxes, so they can start building up RRSP room.  Also, a TFSA makes sense to get them into the habit of savings, and learning you can get a gift from the taxman.

The lesson is all of this, is we have to get Back to Basics and become savers again, just like our grandparents who survived the Great Depression.  Right now, Canadians are drowning in a sea of household debt at a record $1.3 trillion, while our savings rate is in the negative zone.

I've said before, and I'll say it again. Cash is king, debt it out. Teach your children well, and Mama, don't let them grow up to be Credit Junkies.

Linda Leatherdale.

what is a tsfa  account . i  do not fully understand. do i pay taxes on a regular account?   i think you  are great . listen to you  all the time. have a great day 

(More to come)