Question
Rosie and her life partner Susan had $100,000 of unregistered funds which they were planning on investing in an annuity. Their friend, Thomas, told them
Rosie and her life partner Susan had $100,000 of unregistered funds which they were planning on investing in an annuity. Their friend, Thomas, told them that he was pretty sure that he had heard that there were both prescribed and non-prescribed annuities available. Rosie and Susan are both about to celebrate their 50th birthday next week.
A) What is the difference between the two types of annuities from an income and tax standpoint? Use a 5% per annum interest rate (payments to be made at year end) on both types of annuities in your comparison. For this part of the question, assume that the two annuities are both 8 year, term certain.
B) Janice was a big believer in life annuities as she was always fearful of running out of money and believed that such an annuity would provide her appropriate protection from this risk. She told Rosie and Susan that both types of annuity contracts were available as life annuities with at least a 15 year guarantee period and annual indexing to CPI. She also suggested that either type would be available on a joint and last survivor basis and could be included in an RRSP or could be purchased with funds from an RRSP. Is Janice correct in her opinions? Explain.
C) In the 2022 Federal Budget, the government proposed the introduction of the Tax-Free Home Savings Account (FHSA). One of the interesting things about this program is that it has some similarites to both a TFSA and an RRSP. Identify 3 distinct characteristics that the proposed savings plan has that resemble a TFSA, and 3 distinct characteristics in which it is similar to an RRSP.
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