I have five children and would like to start preparing for their future, primarily their education e


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Tags: Benefits Budgets Debt Financial Planning Investing Life Events Retirement Saving Taxes

I have five children and would like to start preparing for their future, primarily their education expenses. What do you suggest as the best place for me to start?

Tagged: Life Events Saving

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The most familiar way of saving for your children’s post-secondary education is the Registered Education Savings Plan (RESP). This plan is an important component of education saving. You can learn more about the RESP program in another Ask the Expert answer here. In this article, we’ll explore other tools to save for your children’s education. These tools can also be used for most other savings goals.

You may wish to consider setting up a non-registered savings account specifically for your children’s education and contributing a monthly or yearly sum. As a non-registered account, there is no restriction on the amount you can invest, how it is invested, and how it is spent. The drawback is that the investment income earned on these funds will be taxed in the name of the person contributing the funds. Choose an investment strategy that takes into consideration your time frame and risk tolerance.

A tax-free savings account (TFSA) is another option. In a TFSA, all the growth is tax-free, but you are restricted as to how much can be invested each year. You must be at least 18 years old to set up a TFSA and the contribution limit for 2016 has been reduced to $5,500.

You may wish to consider investing in a whole life insurance policy, which allows you to accumulate excess cash in the policy that can be withdrawn to fund your children’s education. You need time to accumulate the excess cash, and once you put the money into the policy you no longer have control over or access to it, and you can only withdraw the excess cash. You should consider doing this when your children are young so there is time for the excess cash to grow. The growth is tax-deferred.

If you own a corporation (i.e. if you are an incorporated midwife), you can issue shares to your children or to a family trust. Once the children have reach 18 years of age, then you can pay dividends to them and each child can receive up to approximately $40,000 tax free. Using a discretionary family trust gives you control over the assets of your company as well as who the dividends can be paid to. This option is more expensive to set up and there are yearly costs associated with it. Issuing shares to your child also has several considerations and challenges. Both these options should be discussed with a professional advisor.

Once your child turns 15 or 16, discuss how a summer and/or part-time job can help to provide funds towards their educational expenses. Having your child involved in the savings process can help with creating a commitment to their education. You can also use these funds to teach them about budgeting and money management skills.

When your children are in their last year or two of high school, you can begin discussing and investigating the various government financial aid programs such as scholarships, bursaries, grants, and student loans. Most colleges and universities in Ontario also offer scholarships and bursaries. All are excellent sources of funding for postsecondary education. Some may be based solely on financial need, while others may be based on grades and/or community involvement and extracurricular activities. There are even private scholarships available through community organizations or corporations; it’s worth doing some research to see what may be available for your children. Scholarships Canada (www.scholarshipscanada.com) is one source of information on scholarships, bursaries and grants available to students in Canada.

Whatever strategy you choose, the most important aspects are to start early, put money aside on a regular basis using good investing strategies, and involve your children in the process when they are old enough. -JR

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What are the pros and cons of a fixed or variable mortgage?

Tagged: Financial Planning Life Events

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There are several factors to consider in deciding what the best mortgage is for your situation -  the pros and cons of a fixed or variable mortgage is just one.

Variable Rate Mortgage

With a variable rate mortgage, the interest rate is set monthly by the financial institution and fluctuates with the prime lending rate. When the interest rate changes, your monthly payments may stay the same and the amount of interest you pay changes, or your monthly payments may change. There is a higher level of uncertainty that may cause anxiety if rates increase and you’re on a fixed budget.

Fixed Rate Mortgage

With a fixed rate mortgage, the interest rate is set for the term of the mortgage. That means that your monthly payments will be the same regardless of the change in the prime lending rate.  Because there is no uncertainty, it offers you peace of mind and security for the term of your mortgage. However, the rate of interest is usually higher than a variable rate mortgage and the extra interest costs may not be worth the premium.

What factors should be considered when deciding on the best type of mortgage?

Factors to consider include:

  • Your budget
  • Risk tolerance
  • Interest rate fluctuations
  • How long you plan to be in your home
  • Future goals.

Take a look at your budget in order to figure out how much you can afford to pay each month.  The recommended percentage is between 30% and 35% of your take home income.

Tolerance for risk is a very personal consideration.  Do you prefer knowing what you’ll pay each month even if you end up paying more in the long run or can you handle the uncertainty due to fluctuations in interest rate?

If rates are going down, then you may want to consider a variable rate and to take advantage of lower interest costs.  If rates are increasing, then it will depend on your budget and how much additional payment you can afford. As rates increase so will your mortgage.

How long do you plan to be in your home? Based on current interest rates, if you plan on being  in your home for the next five years, a 5 year fixed rate is a good choice.  If you know that you will stay in your home for only a year or two, then a variable rate mortgage may work better because if rates started to increase dramatically, you could always lock into a fixed term at that time.  This would provide you with flexibility when the time to move comes.

What are you future goals? While you’ll always have housing costs, you may want extra cash to put towards achieving other financial goals, such as saving for retirement or a family vacation. In this case, you may want to consider locking in your mortgage to a five year term.  It is important to be able to afford your home and pay off your mortgage but make sure that you are enjoying your journey along the way and not just paying off your debt.

It’s important to work with a qualified advisor to discuss your situation to determine the option that will best suit your needs, both now and in the future.

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I'm retiring soon. How can I determine what is better for me, an annuity or a RRIF?

Tagged: Investing Life Events Retirement

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The money that you accumulate in your RRSP (Registered Retirement Savings Plan) or other retirement saving plans must be transferred into a RRIF (Registered Retirement Income Fund) and/or an annuity by December 31st of the year you turn 71.  Understanding the differences between them will help you decide which will work best for you.


An annuity is a financial product sold by insurance companies that you purchase with a lump sum. An annuity provides steady, guaranteed income over the term of the annuity. Depending on the type of annuity, the income is usually guaranteed for your lifetime or a certain time period, and the income will stay the same throughout this period.

You can’t withdraw any additional money from your annuity.  Once you have purchased the annuity you are locked into it.   The insurance company makes all the investment decisions and you receive the regular payment without having to make any investment decisions.

It is important to understand the rates of returns when purchasing an annuity.  The value for the annuity is set when you purchase it, so in times of lower interest rates, your income will be lower than when interest rates are higher. The timing of when you purchase an annuity can also make a significant difference to your retirement cash flow. For example, an annuity of $100,000 at 2% would provide a yearly income of approximately $5,202 whereas if interest rates were at 5% that same $100,000 annuity would pay approximately $6,760 yearly. Annuities can be purchased at any time and not just when you are retiring.


A RRIF is a tax deferred retirement plan that is registered with Canada Revenue Agency and is usually administered by a financial institution such as an insurance company or bank. Investment decisions with your RRIF are made by you and your investment advisor, which gives you control over your money and investment decisions.

You must withdraw money from your RRIF each year and the minimum amount will change depending upon your age. The government provides a table of the minimum percentage you are required to withdraw each year after age 71. Unlike an annuity, there is not a guaranteed amount and the level of income is dependent upon how well your investments are growing.  However, a RRIF provides flexibility because you can withdraw additional money.

A RRIF is set to decline yearly so that at age 95 it will expire.  You can have multiple RRIFs at various financial institutions.

Which one to choose?

If you’re more comfortable with a steady flow of income, you may want to purchase an annuity. If you want to ensure you have access to additional income for future needs, then a RRIF would be best.  Either way, you should consider the tax implications of both a RRIF and annuity. Both are taxable when received.  A RRIF will continue to grow free of income taxes until you withdraw the funds.  The annuity will be taxable in the same amount each year, unless it is indexed.

There is no one right answer and the important thing to consider are your cash flow needs and how to best fund them with the resources you have.  Working with a qualified advisor will help you determine the best mix for your needs.  You can use both an annuity and a RRIF to provide the security of a steady income stream and the flexibility of having cash available if you require it. -J.R.

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I have heard I can access a first-time home buyer’s program. Can you tell me more about this?

Tagged: Benefits Life Events Taxes

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The Home Buyers’ Plan (HBP) allows you to withdraw up to $25,000 from your Registered Retirement Savings Plan (RRSP) to buy or build a qualifying home if you have not owned a home in the past four years.

If, for example, in December 2007, you sold your home and moved into a rental property, you would be considered a first time home buyer eligible for the HBP as of January 2012, because you have not owned property for four years (January 1, 2008 to December 31, 2011). If you have a disability and are purchasing a home that is more accessible, you do not have to meet the first time buyer condition.   

If you are married or common-law, each partner is eligible separately for the HBP, allowing for a total withdrawal of up to $50,000.  

It is important to review your RRSP to determine the amount of funds available. The funds must be in an RRSP for at least 90 days prior to the withdrawal; therefore you need to plan your contributions to ensure you meet the time requirement. In other words, contributions made within the last 90 days are not eligible for withdrawal for the HBP.

You can withdraw from more than one RRSP, however funds cannot be withdrawn from a “locked in” RRSP. If you are a member of a group RRSP, you will need to check to see if withdrawals are permitted under that specific plan. 

Once you have signed your contract to build or purchase a home, you have one year to withdraw the funds and move into your home. Canada Revenue Agency form T1036 – Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP needs to be completed for each RRSP you are withdrawing from and needs to be approved and submitted to your RRSP provider.  It is very important to ensure you are eligible and meet all the conditions prior to making any withdrawals, otherwise the withdrawal from your RRSP could be considered ineligible and you may be penalized by CRA by being required to claim this withdrawal as personal income on your tax return. 

The amount of money that withdrawn must be repaid to your RRSP over a 15 year period, so if you took the maximum ($25,000) it will need to be repaid, at a minimum of $1,667 each year for 15 years.  Repayments begin the second year. If a payment is missed in a year, then the amount of the yearly repayment will be included in your income for the following year and will impact your RRSP contribution limit.

For complete details, see Canada Revenue Agency (CRA) Guide RC4135 – Home Buyer’s Plan (HBP).  You can access this guide from the CRA website at http://www.cra-arc.gc.ca/E/pub/tg/rc4135/README.html www.cra.gc.ca.

There is also a First-Time Home Buyers’ Tax Credit of $750 for qualified home purchase and the conditions are similar to the HBP.  More details can be obtained from CRA website.

It is always recommended that you speak with a qualified accountant to review your situation to ensure you have considered all the facts and take advantage of any potential tax savings or deferral. - JR

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I want to save money for my children’s education. I understand how RRSPs work, are RESPs similar? What do I need to do to set one up?

Tagged: Life Events Saving Taxes

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A Registered Education Savings Plan (RESP) is a contract between an individual (or the subscriber) and a person or organization (the promoter, such as a bank) for the purpose of saving for the education of one or more beneficiary (the future student).  The plan is registered, meaning that during the period of saving, the income earned within the plan is able to grow tax free.  Limits exist to establish how much you can contribute to the plan for each beneficiary.

Here is an overview of how an RESP generally works:

  1. A subscriber enters into an RESP contract with the promoter and names one or more beneficiaries under the plan.
  2. The subscriber makes contributions to the RESP. Government grants (if applicable) will be paid to the RESP. These grants can be the Canada Education Savings Grant (CESG), Canada Learning Bond (CLB), or any designated provincial education savings program.  The subscriber cannot deduct their contributions from their income on their tax return. 
  3. The promoter of the RESP administers all amounts paid into the RESP. As long as the income stays in the RESP, it is not taxable. The promoter also makes sure payments from the RESP are made according to the terms of the RESP.
  4. When the payments are ultimately made to help finance the student’s post-secondary education, they are made as follows:
    • A return of the subscriber's contributions tax-free.
    • Accumulated income (known as educational assistance payments or EAPs), which is required to be included in the student’s income in the year in which it is received.

A Registered Retirement Savings Plan (RRSP) is a plan that is established to help people save for their retirement.  The plan is registered with the government, and allows you, or your spouse or common-law partner to contribute to it.  RRSP contributions can be used to reduce your taxable income.  Any income earned in the RRSP is usually exempt from tax as long as the funds remain in the plan.  However, when you withdraw the funds during retirement, you have to pay tax on the entire amount withdrawn from the plan.

When we have limited resources, it is always difficult to decide where to put those extra dollars – do we save for retirement, or save for our children’s education?  My recommendation is usually to do both if you can.   I am an advocate of paying yourself first, so I believe that you should just make it part of your monthly plan and budget to contribute to both your RRSP and RESP, saving for both the future of your children and your future retirement.   It is always easy to find other places where you can spend money, but it is so very important to save for the future.

The chart below outlines the similarities and differences between an RRSP and an RESP:

  RRSP (Registered Retirement Savings Plan) RESP (Registered Education Savings Plan)

Annually you can contribute up to 18% of your earned income, plus any unused contributions carried forward

Maximum annual limit for 2014: $24,270

No annual limit

Lifetime contribution is maximum $50,000
Contributor Contributor Subscriber
Beneficiary Contributor or the annuitant (which can be your spouse) Must be a Canadian resident at the time of the contribution, and have a Social Insurance Number.  This would be the student – can be a specific student or a family plan if you have more than one child.
Withdrawals Full taxed

Consists of:

Educational Assistance payments (EAPs) – taxable

Accumulated income payments (AIP) – taxable

Refund of contributions to the subscriber or beneficiary – not taxable
Government incentives Deduction in the year of contributions (reduces your taxable income thereby reducing the income tax you owe)

No deductions when you make contributions.

Canada Education Savings Grant (CESG) = 20% of your annual contributions to a maximum of $500, lifetime limit of $7,200

Canada Learning Bond – additional benefits if you receive the National Child Benefit Supplement.
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I recently received an inheritance.  Is it better for me in the long run to use it to pay down my mortgage, contribute it to a Tax Free Savings Account (TFSA) or put the money into my Group RSP?

Tagged: Debt Investing Life Events Saving Taxes

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An inheritance may be considered a gift from someone special in your life. And as such you may have an emotional connection to it that you should consider – do you want to use it as emotional investment or a practical one?

An emotional investment is using the inheritance in a way that reminds you of that person such as a special piece of jewelry or a cabin on the lake you used to spend time together on. The investment may contribute to your overall net worth while achieving the emotional connection you are looking for.

Or you may choose to use this inheritance on something more practical, such as an investment. How do you choose what to do?  First, evaluate your current financial position. Take a look at what you owe, your investments, and your monthly cash flow. Could you use your inheritance in any of these areas? 

You may be close to retirement and need to reduce your debt so that you’ll be debt free when you retire so that you can use your cash for a better retirement lifestyle. Or, you may have a large mortgage and are struggling to make ends meet. In these cases, consider using the money to pay down your mortgage.  The interest costs on your mortgage may be higher than any income you could get investing the money. Check with your lender about penalties for pre-payments on your mortgage. Consider investing the monthly savings from a reduced mortgage payment into an RRSP or TFSA.

When investing a lump sum amount into your RRSP, the factors you need to consider are:  your current taxable income level, your RRSP limit, and the total amount you wish to put into the RRSP. RRSPs allow you to defer paying income tax until you take the funds out at a later date – preferably when your income is at a lower taxable level. You could put your inheritance into an RRSP and then take the tax savings from this and put against your mortgage allowing you to achieve two objectives – increasing your retirement fund and paying down your mortgage.

When investing in a TFSA, the objective is to earn money that is sheltered from taxes. Unlike an RRSP there is no tax deferral benefit. But putting your inheritance into a savings account earning .5% interest doesn’t achieve much.  Consider working with a qualified investment advisor to ensure you are getting the best return on your investment while considering your risk tolerance.    

If you are in a committed relationship one important consideration is that if you use your inheritance to pay down your mortgage or contribute to a joint asset, then the funds become part of the “family assets”.  To protect these funds in the event of a relationship split, you may want to keep them in a separate investment in your name only. It is important in this case to get legal advice.

There are many variables to consider when it comes to an inheritance, so working with a qualified accountant and financial advisor will help you analyze your situation and options. -JR

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