Segregated Fund

How to make the best of segregated funds

Segregated funds, also known as seg funds, are specific insurance products in which your funds are invested in underlying assets such as mutual funds for example. Segregated funds differ from mutual funds, however, in that they have a built-in guarantee for either all or part of your investment, potentially offering a more secure option. Generally speaking, you need to have held the investment for a minimum of ten years for this protection to apply and it often costs extra to benefit from this guarantee. You should also be aware that if you withdraw your funds before the maturity date, you will lose this protection and will only receive the current market value of your investment minus applicable charges.

The difference between retail and group retirement plan segregated funds

Often, workplace pensions constitute segregated funds but they work slightly differently to retail segregated funds that you purchase yourself. They usually do not come with the insurance guarantee, nor do they charge such high fees, though they do offer the potential for creditor protection and the possibility of excluding probate fees where applicable.

Here are some of the pros and cons of investing in segregated funds:

Advantages

  • As mentioned above, one of the main benefits is the fact that between 75% and 100% of your investment is protected,as long as you abide by the rules relating to withdrawalsi.e.: your funds must be held for a particular length of time.
  • In addition, many products offer you the opportunity to allow your beneficiaries to receive between 75% and 100% of the contributions that you have made in the event of your death. What’s more, as long as your beneficiaries are named in the contract, they will not pay probate fees.
  • Many funds also offer creditor protection which is useful for those who run their own business.

Disadvantages

  • You will often pay higher management fees for segregated funds compared with mutual funds, due to the added insurance and protection that they offer.
  • You are likely to be penalised if you withdraw your funds before the contract maturity date. Specifically, you will often pay a withdrawal fee and will also not benefit from the protection guarantee. To avoid this, you usually have to keep your monies invested for ten years.

Latest News

Understanding Taxes Payable at Death in Canada

Discover how taxes impact your estate in Canada and explore strategies to minimize the burden. Learn how to manage earned income, deemed disposition, and withdrawals at death to preserve your legacy.

RDSP Explained

Secure the future for loved ones with disabilities through the Registered Disability Savings Plan (RDSP). Take advantage of tax-deferred growth and generous government contributions to build long-term financial security. Learn how the RDSP can be a powerful tool for your family's financial planning.

Understanding the Registered Education Savings Plan (RESP)

Unlock the power of an RESP to secure your child’s educational future. Learn how tax-deferred growth, government grants, and flexible contribution options can ease the burden of rising post-secondary costs. Plan today for a brighter tomorrow!

What is disability insurance?

Discover how disability insurance can safeguard your income if you're unable to work due to injury or illness. Learn about the benefits, how it works, and why it's crucial for everyone, especially the self-employed.

Empowering Your Family’s Financial Future: A Comprehensive Guide to Budgeting

Secure your family's financial future with effective budgeting. Learn how to gain financial clarity, achieve your goals, and prepare for emergencies in our comprehensive guide.

How To Use Insurance To Provide Your Family With Financial Protection

The best way to provide your family with financial protection is with solid insurance planning. These three types of insurance will ensure your family has the financial resources they need if you die, are injured, or become ill: - Life insurance. - Critical illness insurance. - Disability insurance.

The Health Spending Account for Business Owners and Incorporated Professionals

Discover a game-changing solution to manage medical expenses efficiently - the Health Spending Account. As a business owner, reduce tax burdens and provide tax-free benefits to yourself and employees. No monthly premiums, cost-effective, and hassle-free reimbursement process. Unlock the full potential of your healthcare budget now.

Stay Ahead in 2024: A Comprehensive Checklist for Federal Tax Updates

Explore the upcoming 2024 Canadian tax changes affecting investors, business owners, and high-net-worth individuals. From capital gains adjustments to new incentives, stay informed with our comprehensive checklist.

2024 Federal Budget Highlights

On April 16, 2024, Canada's Deputy Prime Minister and Finance Minister, Chrystia Freeland, presented the federal budget. While there are no changes to federal personal or corporate tax rates, the budget introduces: • An increase in the portion of capital gains subject to tax, rising from 50% to 66.67%, starting June 25, 2024. However, individual gains up to $250,000 annually will retain the 50% rate. • The lifetime exemption limit for capital gains has been raised to $1.25 million. Additionally, a new one-third inclusion rate is set for up to $2 million in capital gains for entrepreneurs. • The budget confirms the alternative minimum tax changes planned for January 1, 2024 but lessens their impact on charitable contributions. • This year's budget emphasizes making housing more affordable. It provides incentives for building rental properties specifically designed for long-term tenants. • Introduces new support measures to aid people buying their first homes. • Costs for specific patents and tech equipment and software can now be written off immediately. • Canada carbon rebate for small business