Jun 18 2009

Saving for your Childs Education

resp2Registered Education Savings Plans

 

A Registered Education Savings Plan (RESP) is a tax efficient savings vehicle to help you save for your child’s continuing education costs. The current estimate for one year of post secondary education is $4000 per year, not including rent and daily living (http://www.statcan.gc.ca/daily-quotidien/060426/dq060426c-eng.htm), and most programs are 3 – 4 years long.  As costs increase and inflation rises these estimates can only climb in years to come.  That’s why it may be a good time to consider opening an RESP for your children.

Starting an RESP today allows you to start saving for a child’s future post-secondary education immediately.  If you’re wondering how much to save and when to start, the answer is: save as much as you can afford and start today. By starting early, tax-sheltered earnings on your savings have the potential to grow surprisingly quick.

In addition, the Government of Canada will help you with saving incentives that are only available if you have an RESP, including the Canada Education Savings Grant and the Canada Learning Bond.  That means free money towards your child’s education savings.

All your child needs is a valid social insurance number and some one to contribute money.  That’s it!  You can open an RESP through your financial advisor or through your local bank.  Anyone can open an RESP and anyone can contribute to it. This includes parents, grandparents, aunts, uncles, and friends.  This can be a great idea for gifts that actually help a child’s future.

The total RESP lifetime contribution limit for each RESP beneficiary is $50,000.  The maximum annual RESP contribution that will qualify for the 20% grant is $2,500.  These numbers are maximums and people should remember that with tax sheltered growth, even a little contribution goes a long way.  So even a $100.00 deposit gets a $20.00 grant from the government.  And these funds are invested in stocks, mutual funds or cash products of your choice, which could mean quick, tax efficient growth.

Contributions can be made up to the year your child turns 17 to receive the grant, with some restrictions, and the plan must be collapsed after its 35th year.  Although you can still contribute and grow tax free until the 35th year, you can only receive grants till the 17th birthday.

Withdrawals are taxed in the hands of the child with drawing the money for education purposes, which means they are still in school and probably in the lowest possible tax bracket.  The money doesn’t necessarily have to be used for tuition, as it can be used for rent, bills, textbooks or any other issue that may arise.    But what if your child decides against post-secondary education?

You have all kinds of options available should your original beneficiary decide not to pursue a post-secondary education. You can:

  1. Decide to select another beneficiary if it’s permitted by your plan.
  2. Make a tax-free capital withdrawal of all the money you contributed to the plan. However you will be required to pay back the government grants.
  3. Withdraw the earnings as cash (subject to income tax in the year it is withdrawn, along with a 20% penalty).
  4. Transfer up to $50,000 of the earnings in the RESP to your personal or spousal RRSP, provided you have unused contribution room. With this option you will avoid paying income tax on the income withdrawn.
  5. Donate the earnings from the plan to a qualifying educational institution.

There are two types of plans available: the family plan and the individual plan.  Anyone can open an Individual RESP and anyone can contribute to it. This includes parents, grandparents, aunts, uncles, and friends, but the individual plan can have only one beneficiary.  For Family RESP’s, the contributor must be related by blood or adoption to the beneficiaries, but can have multiple beneficiaries. 

There is so much to cover with RESP’s and there can be some complicated issues that arise as well, so careful planning by a professional advisor should be involved.  If you have any questions or require more information feel free to contact me any time at:

Adam Myers

Independent Planning Group

202-223 Colonnade Road South

Ottawa Ontario, K2E 7K3

Phone: (613) 224-5511 x 108

Email: adam@pfip.ca

4 comments
Jun 16 2009

Mortgage Insurance Vs. Life Insurance

posted in Finance, Life Insurance

money houseMortgage Insurance VS Life Insurance

Consider your options…

 

When buying a home or renewing a mortgage, many people think they are obligated to sign up for their banks mortgage life insurance. Don’t rush into buying your bank’s insurance policy until you’ve looked at all the possibilities. You could end up saving money and get added life insurance coverage at the same time by considering a life insurance policy instead.

What is mortgage insurance?
Mortgage life insurance or creditor insurance is offered by most banks and lending institutions. It is a life insurance policy that pays the balance of your mortgage to the lending institution if a person on the mortgage passes away.

 

How does life insurance cover your mortgage?

Life insurance covers you the same way mortgage insurance covers you.  If a life insured passes away, you use the death benefit to pay down the mortgage.  There are several benefits to life insurance for your mortgage, why don’t we compare……

 

 

Mortgage insurance

Life insurance
Your insurance covers only your mortgage balance, and is paid to your lender. You can choose the amount covered and use the money to pay off the mortgage as well as any other expenses you may choose.
Even though your mortgage debt reduces over time, your premiums remain level. Your coverage amount does not decrease over time unless you choose to change it.
The mortgage lender is automatically the beneficiary. You name the beneficiary.
If you take your mortgage to another company, you may lose your existing mortgage insurance and may be required to re-qualify for new mortgage insurance. If you take your mortgage to another company you keep your existing insurance, so you don’t have to re-qualify.
You lose all your coverage when your mortgage is repaid, assumed or in default. Your coverage remains in place, even if your mortgage is repaid, assumed or in default.
You have no flexibility to change your coverage as your needs change. If you decide you need coverage only until your mortgage is repaid but later realize you require coverage for other needs, you can convert your insurance to a permanent plan.

 

Extra coverage with life insurance
Life insurance policies give you added coverage and flexibility over a mortgage life insurance policy;

  • One of the major disadvantages of insurance purchased through the bank is the ownership of the policy. The bank owns “your” policy and has total control over it. The bank also happens to be the beneficiary of your life insurance policy. That means you have no say in who gets the death benefit or what the death benefit is used for. When you die the bank is going to use the proceeds to pay off your mortgage. However with life insurance your family receives the payout from your life policy directly. It may be more advantageous for your surviving spouse or children to use the proceeds to invest and simply continue to pay the monthly mortgage payments. (This would be most appropriate if the current mortgage interest rate is much lower than current investment rates of return. They could simply invest the proceeds and use the investment income to the mortgage payments on a monthly basis.)
  • Mortgage insurance policies only cover you for the amount of your mortgage you owe to the bank. As you pay down your mortgage, your coverage amount decreases with it. This is called a reducing balance. With a life insurance policy, you have a constant level of coverage for the whole term and are getting better value for your monthly payments.
  • With mortgage life insurance, you have to reapply any time you switch lending institutions. But with life insurance, unless you want to increase your coverage or terminate your plan, your policy is stays in force with no medical questions asked in the future years (when some are unable to be covered due to health issues).

 

Shop, compare and save
Depending on circumstances such as age and health, the premiums on mortgage life insurance can be much higher than what you would pay for a life insurance policy. Compare the cost of a life insurance policy to a mortgage insurance policy. Chances are you’ll find a life insurance policy will have lower yearly premiums and offer more coverage and flexibility than a mortgage insurance policy.

Mortgage Amount$250,000 Life Insurance* Mortgage Insurance*
Male, Age 35, Non-smoker $308 $390
Male, Age 40, Non-smoker $413 $600
Female, Age 35, Non-smoker $248 $390
Female, Age 40, Non-smoker $313 $600

 

*All amounts shown are based on a fixed annual premium rate. Does not include

Provincial Sales Tax – Ontario (8%) and Quebec (9%). * The Lenders’ group life

mortgage insurance premium shown is based on the average rate quoted in a survey of

Scotiabank, Bank of Montreal, TD Canada Trust, Royal Bank of Canada, and CIBC conducted

December 30th, 2008 by Empire Life.

 

While getting mortgage insurance through your lender is convenient, a life insurance policy might be the way to go if you’re looking to save money.  I believe it’s an easy choice, so whether you’re looking to save premium dollars or cover more than just your mortgage, a life insurance policy may be the right choice for you.  Dare to compare? I can get you an instant quote today.

Adam Myers

Independent Planning Group

202-223 Colonnade Road South

Ottawa Ontario, K2E 7K3

Phone: (613) 224-5511 x 108

Email: adam@pfip.ca

3 comments
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