Notes

Savings Vehicles See Strength in Numbers

Content of the article Canadians have a myriad of investment options at their disposal that range from Retirement Savings Plans (RSPs) to Registered Education Savings Plans (RESPs) and Tax-Free Savings Accounts (TFSAs). If used in isolation, these instruments provide excellent options, but when used together they can offer more.



Article content Parents who plan for their children's education should be aware of these points. Utilizing strategies that link the advantages of RRSPs and TFSAs to RESPs, parents can greatly improve the funding available for future education.



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Consider an investor making $100,000 per year, who contributes $14,000 to an RRSP. The investor could save $6,077 in the event that the RRSP contribution was fully tax-deductible.



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Article content The investor can utilize the tax refund to increase the positive impact of the original RRSP contribution by placing the $6,077 it in a TFSA that is up to the limit they are allowed. They can then put the money into a TFSA and watch the tax deduction grow tax-free.



The money that is growing in the TFSA can be contributed to the RESP of the child where it can earn interest tax free and also be eligible for cash from the government. The Canada Education Savings Grant program will grant a grant to the RESP of 20%. This grant could amount to up to $500 per year for RESP beneficiaries under 18 years of age and the maximum benefit for life at $7,200.



Content of the article Parents must file tax returns for their children as soon as they can. Even if it's a few hundred dollars from babysitting or an online route, it is important to do so as soon as you can. One advantage is that the child begins accumulating RRSP contribution rooms, which can be used later in life.



When the child reaches 19, because they have filed an application, they will be able to apply for the GST/HST credit, that generates quarterly payments from the government. The credit payments can be added to savings.



If the child is able to earn enough money from summer jobs and can contribute to an RRSP to aid in their education expenses. RRSP contributions can be withheld without penalty under the Lifelong Learning Plan should an RESP not provide sufficient education funding.



The investor has benefited greatly by increasing their retirement nest egg through their RRSP, receiving a tax refund and seeing it grow tax-free within their TFSA and then finally funding an RESP that did not generate any income through the federal government’s CESG program.



The child gained valuable lessons about saving, investing, and looking for every opportunity to earn free money from various sources.



Kim Inglis is an investment advisor, CIM with Canaccord Wealth Management, an affiliate of Canaccord Genuity Corp. Inglis can be reached at reynoldsinglis.ca.



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