Does Your Education Savings Strategy  Make the Grade? Effective to December 31, 2010
<ul><li>Turenne Joseph </li></ul><ul><li>Security Financial Advisor, Mutual Funds Representative </li></ul><ul><li>  Licen...
<ul><li>Importance  of planning for a child’s education and the methods in which you can save </li></ul><ul><li>Cost of ed...
<ul><li>The cost of post secondary education is skyrocketing </li></ul><ul><li>Opportunities for better employment usually...
Source:  Statistics Canada, The Daily, October 18, 2007 4 524 $ 535 $ 865 $ 2 023 $ 3 749 $ 0 $ 500 $ 1 000 $ 1 500 $ 2 00...
Average earnings based on highest level of schooling: Less than high school $21,230 High school and/or some post secondary...
<ul><li>You can pay for a post-secondary education from one of three sources: </li></ul><ul><ul><li>current income </li></...
<ul><li>Investment in the name of the minor </li></ul><ul><li>Formal trust </li></ul><ul><li>Informal trust (“in trust” ac...
<ul><li>Advantages </li></ul><ul><li>Inexpensive </li></ul><ul><li>Child pays tax on capital gains and compound income </l...
<ul><li>Advantages </li></ul><ul><li>Control </li></ul><ul><li>Child pays tax on capital gains and compound income  (if ir...
<ul><li>Advantages: </li></ul><ul><li>Inexpensive </li></ul><ul><li>Can use funds for any purpose  (not necessarily educat...
<ul><li>Advantages </li></ul><ul><li>Inexpensive </li></ul><ul><li>Control </li></ul><ul><li>Tax  </li></ul><ul><ul><li>No...
<ul><li>Tax deferred accumulation of earnings </li></ul><ul><li>Ability to split income with the beneficiary </li></ul><ul...
<ul><li>The person who establishes an RESP is called the subscriber: </li></ul><ul><li>Subscriber contributes to the RESP ...
<ul><li>Maximum per beneficiary: $50,000 lifetime </li></ul><ul><li>No contributions are permitted after the 31 st  year  ...
<ul><li>Paid to RESPs for children who </li></ul><ul><ul><li>Will turn 17 or younger in the year** </li></ul></ul><ul><ul>...
<ul><li>Child generates Basic CES Grant room of $400/year from 1998-2006 and $500/year from 2007+. </li></ul><ul><li>Maxim...
<ul><li>Maximum annual Basic CES Grant is the lesser of: </li></ul><ul><ul><li>20% of contributions, or </li></ul></ul><ul...
<ul><li>The federal government will pay a Canada Learning Bond* (CLB) to RESPs for children where: </li></ul><ul><ul><li>T...
<ul><li>Child’s parents must be resident in Alberta </li></ul><ul><li>One-time ACES grant of $500 – child must have been b...
<ul><li>Child must be eligible for Basic CES Grant, and  a Quebec resident at the end of the year in which the contributio...
<ul><li>Contributions are not tax deductible. </li></ul><ul><li>Growth accumulates on a tax-deferred basis. </li></ul><ul>...
The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect futur...
<ul><li>Beneficiary must be enrolled in a post-secondary program at a post-secondary educational institution. </li></ul><u...
<ul><li>Subscriber may  </li></ul><ul><ul><li>change the beneficiary of the RESP* or </li></ul></ul><ul><ul><li>withdraw t...
<ul><li>Does Your Education Savings Strategy Make the Grade? </li></ul>“ RESPs: Does your education savings strategy make ...
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Does your Education savings strategy make the Grade?

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Does your Education savings strategy make the Grade?

  1. 1. Does Your Education Savings Strategy Make the Grade? Effective to December 31, 2010
  2. 2. <ul><li>Turenne Joseph </li></ul><ul><li>Security Financial Advisor, Mutual Funds Representative </li></ul><ul><li> Licenced in Québec, Ontario and British Columbia </li></ul><ul><li> Investors Group Financial Services Inc. </li></ul><ul><li>(in Québec, a financial services firm.) </li></ul><ul><li>[email_address] </li></ul><ul><li>Is provided by Investors Group Financial Services Inc. (in Quebec, a financial services firm). </li></ul><ul><li>Is specifically written and published by Investors Group and intended as a general source of information only, and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide legal advice. Clients should discuss their situation with their Investors Group Consultant for advice based on their specific circumstances. </li></ul><ul><li>Trademark(s) owned by IGM Financial Inc. and licensed to its subsidiary corporations. </li></ul>
  3. 3. <ul><li>Importance of planning for a child’s education and the methods in which you can save </li></ul><ul><li>Cost of education </li></ul><ul><li>Methods of saving for post secondary education </li></ul><ul><li>Features and Benefits of RESPs </li></ul>
  4. 4. <ul><li>The cost of post secondary education is skyrocketing </li></ul><ul><li>Opportunities for better employment usually increase with higher education </li></ul><ul><li>Long-term planning can overcome the financial burdens of higher education </li></ul>
  5. 5. Source: Statistics Canada, The Daily, October 18, 2007 4 524 $ 535 $ 865 $ 2 023 $ 3 749 $ 0 $ 500 $ 1 000 $ 1 500 $ 2 000 $ 2 500 $ 3 000 $ 3 500 $ 4 000 $ 4 500 $ 1972 1982 1993 1998 2007
  6. 6. Average earnings based on highest level of schooling: Less than high school $21,230 High school and/or some post secondary $25,477 Trade certificate/diploma $32,743 College certificate/diploma $32,736 University certificate/diploma/degree $48,648 Source: 2001 Census – Statistics Canada. Last modified 09/01/2004.
  7. 7. <ul><li>You can pay for a post-secondary education from one of three sources: </li></ul><ul><ul><li>current income </li></ul></ul><ul><ul><li>borrowed funds </li></ul></ul><ul><ul><li>savings </li></ul></ul>
  8. 8. <ul><li>Investment in the name of the minor </li></ul><ul><li>Formal trust </li></ul><ul><li>Informal trust (“in trust” accounts) </li></ul><ul><li>Registered Education Savings Plans (RESPs) </li></ul>
  9. 9. <ul><li>Advantages </li></ul><ul><li>Inexpensive </li></ul><ul><li>Child pays tax on capital gains and compound income </li></ul><ul><li>Can use proceeds for any purpose when child reaches the age of majority </li></ul><ul><li>Disadvantages </li></ul><ul><li>Loss of control </li></ul><ul><li>Parent/grandparent pays tax on income (unless it’s the child’s money) </li></ul><ul><li>Parents may not approve of use of proceeds </li></ul>
  10. 10. <ul><li>Advantages </li></ul><ul><li>Control </li></ul><ul><li>Child pays tax on capital gains and compound income (if irrevocable) </li></ul><ul><li>Can use proceeds for any purpose outlined in trust document </li></ul><ul><li>Disadvantages </li></ul><ul><li>Expensive </li></ul><ul><li>Parent/grandparent pays tax on income (unless it’s the child’s money or a testamentary trust) </li></ul>
  11. 11. <ul><li>Advantages: </li></ul><ul><li>Inexpensive </li></ul><ul><li>Can use funds for any purpose (not necessarily education) </li></ul><ul><li>Disadvantages: </li></ul><ul><li>May lose control at age 18/19 (is it an irrevocable gift?) </li></ul><ul><li>Lack of certainty on who pays the tax (is it an irrevocable gift?) </li></ul><ul><li>Parents may not approve of use of proceeds </li></ul><ul><li>In Quebec, it is preferable to open a minor account </li></ul>
  12. 12. <ul><li>Advantages </li></ul><ul><li>Inexpensive </li></ul><ul><li>Control </li></ul><ul><li>Tax </li></ul><ul><ul><li>No tax until withdrawals begin </li></ul></ul><ul><ul><li>Child pays tax on growth, grants </li></ul></ul><ul><ul><li>Contributions come out tax-free </li></ul></ul><ul><li>Can use contributions for any purpose </li></ul><ul><li>Potential for government grants </li></ul><ul><li>Disadvantages </li></ul><ul><li>Use of growth, grants restricted </li></ul><ul><li>Contribution limits </li></ul>
  13. 13. <ul><li>Tax deferred accumulation of earnings </li></ul><ul><li>Ability to split income with the beneficiary </li></ul><ul><li>Government grants </li></ul><ul><ul><li>Canada Education Savings Grant (CES Grant)* </li></ul></ul><ul><ul><ul><li>Basic </li></ul></ul></ul><ul><ul><ul><li>Additional </li></ul></ul></ul><ul><ul><li>Canada Learning Bond (CLB)* </li></ul></ul><ul><ul><li>Alberta Centennial Education Savings grant (ACES)* </li></ul></ul><ul><ul><li>Quebec Education Savings Incentive (QESI)*. </li></ul></ul>*The CES Grant and CLB are provided by Human Resources and Social Development Canada. * ACES is provided by the Government of Alberta. * QESI is provided by Revenue Quebec.
  14. 14. <ul><li>The person who establishes an RESP is called the subscriber: </li></ul><ul><li>Subscriber contributes to the RESP </li></ul><ul><li>Subscriber does not have to be related to the beneficiary </li></ul>
  15. 15. <ul><li>Maximum per beneficiary: $50,000 lifetime </li></ul><ul><li>No contributions are permitted after the 31 st year following the year of the plan’s establishment.* </li></ul><ul><li>Plans must terminate before the earlier of: </li></ul><ul><ul><li>The end of the 35 th year following the year in which the plan was established * * , or </li></ul></ul><ul><ul><li>90 days after the end of the year in which an Accumulated Income Payment (AIP) was first paid out* * </li></ul></ul>*36 th if a specified plan for disabled beneficiary * * End of the 40 th if a specified plan for disabled beneficiary
  16. 16. <ul><li>Paid to RESPs for children who </li></ul><ul><ul><li>Will turn 17 or younger in the year** </li></ul></ul><ul><ul><li>Are resident in Canada, </li></ul></ul><ul><ul><li>Have a Social Insurance Number, and </li></ul></ul><ul><ul><li>Have made an eligible RESP contribution </li></ul></ul><ul><li>Don’t have to be an RESP beneficiary to generate CES Grant room. </li></ul><ul><li>Basic CES Grant available for contributions in 1998+. </li></ul><ul><li>Additional CES Grant available for contributions in 2005+. </li></ul>*CES Grant is provided by Human Resources and Social Development Canada ** Special rules for children turning 16 or 17 during the year
  17. 17. <ul><li>Child generates Basic CES Grant room of $400/year from 1998-2006 and $500/year from 2007+. </li></ul><ul><li>Maximum Basic CES Grant paid in a year is $1,000 if the child has that much room. </li></ul><ul><li>Unused Basic CES Grant room carries forward. </li></ul><ul><li>Some children also eligible for Additional CES Grant (maximum either $50/year or $100/year). </li></ul><ul><li>Additional CES Grant room does not carry forward. </li></ul><ul><li>Lifetime CES Grant (Basic + Additional) = $7,200 </li></ul>
  18. 18. <ul><li>Maximum annual Basic CES Grant is the lesser of: </li></ul><ul><ul><li>20% of contributions, or </li></ul></ul><ul><ul><li>Lesser of: </li></ul></ul><ul><ul><ul><li>$1000 or </li></ul></ul></ul><ul><ul><ul><li>unused CES Grant room. </li></ul></ul></ul><ul><li>Maximum annual Additional CES Grant is either: </li></ul><ul><ul><li>20% of the first $500 of contributions (max $100), or </li></ul></ul><ul><ul><li>10% of the first $500 of contributions (max $50). </li></ul></ul>
  19. 19. <ul><li>The federal government will pay a Canada Learning Bond* (CLB) to RESPs for children where: </li></ul><ul><ul><li>The child is a Canadian resident; </li></ul></ul><ul><ul><li>The child is born in 2004 or later; </li></ul></ul><ul><ul><li>The child’s family is receiving the National Child Benefit supplement to the Canada Child Tax Benefit; and </li></ul></ul><ul><ul><li>The child is 15 years of age or younger. </li></ul></ul><ul><li>Amount = $500 in first year + $100/year for remaining eligible years to a maximum of $2,000. </li></ul><ul><li>Not a matching program; no contributions required. </li></ul><ul><li>Unclaimed CLB carries forward until 21 st birthday. </li></ul>Canada Learning Bond is provided by Human Resources & Social Development Canada
  20. 20. <ul><li>Child’s parents must be resident in Alberta </li></ul><ul><li>One-time ACES grant of $500 – child must have been born in 2005 or later. No matching requirements </li></ul><ul><li>ACES grant of $100 – child must be turning 8, 11, or 14 and be enrolled in school in Alberta. 100% match on $100 ACES </li></ul><ul><li>Lifetime maximum = $800 </li></ul><ul><li>ACES is provided by the government of Alberta. </li></ul>
  21. 21. <ul><li>Child must be eligible for Basic CES Grant, and a Quebec resident at the end of the year in which the contribution is made. </li></ul><ul><li>Contributions made after February 21, 2007 will be eligible to the QESI. </li></ul><ul><li>QESI amount = 50% of the CES Grant amount** </li></ul><ul><li>The QESI can reach a cumulative maximum of $3,600 per child. </li></ul><ul><li>EAPs to a beneficiary can only include QESI if the beneficiary is a Quebec resident at the time of the EAP. </li></ul>The QESI is provided by Revenue Quebec * At the time of writing, QESI legislation was not yet finalized (although Bill 79 was tabled on May 8, 2008), nor had Revenue Quebec communicated all its requirements to the financial institutions. ** Subject to some minor exceptions
  22. 22. <ul><li>Contributions are not tax deductible. </li></ul><ul><li>Growth accumulates on a tax-deferred basis. </li></ul><ul><li>Growth and government grant money are fully taxable once withdrawn. </li></ul><ul><li>Growth and government grant money paid to the beneficiary as an educational assistance payment (EAP) is taxed in his/her hands - resulting in income splitting with the subscriber. </li></ul>
  23. 23. The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of your RESP or returns on investment 114 969 $ 87 141 $ - $ 10 000 $ 20 000 $ 30 000 $ 40 000 $ 50 000 $ 60 000 $ 70 000 $ 80 000 $ 90 000 $ 100 000 $ RESP Regular Income Basic CES Grant Contribution ( pretax) RESP : Contributing $208.33 at the start of each month for 18 years and 20% grant at the start of each month for 14.4 years and earning 8% “before taxes” over 18 years. Regular Investment : Investing $208.33 at the start of each month for 18 years earning 8% (a portion of the earnings is subject to annual taxation).
  24. 24. <ul><li>Beneficiary must be enrolled in a post-secondary program at a post-secondary educational institution. </li></ul><ul><li>The program must either be: </li></ul><ul><ul><li>a “qualifying educational program” (QEP), or </li></ul></ul><ul><ul><li>a “specified educational program” (SEP). </li></ul></ul><ul><li>A QEP requires at least 10 hours per week in course work or study. </li></ul><ul><li>An SEP requires at least 12 hours per week in course work or study. </li></ul><ul><li>Educational Assistance Payments (EAPs) may be limited to $5,000 in the first 13 weeks (QEPs) or $2,500 per 13 week session (SEPs). </li></ul>
  25. 25. <ul><li>Subscriber may </li></ul><ul><ul><li>change the beneficiary of the RESP* or </li></ul></ul><ul><ul><li>withdraw the contributions tax-free and pay the RESP income to himself/herself, either: </li></ul></ul><ul><ul><ul><li>in cash, subject to taxation plus a special penalty tax in the year of withdrawal, or </li></ul></ul></ul><ul><ul><ul><li>directly to an RRSP, subject to a maximum of $50,000 and having available RRSP contribution room. </li></ul></ul></ul><ul><li>*Certain conditions will apply. </li></ul>
  26. 26. <ul><li>Does Your Education Savings Strategy Make the Grade? </li></ul>“ RESPs: Does your education savings strategy make the grade ?” © Investors Group Inc. 2007 (03/2008) C3147 Call me, to talk further!

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