The next section of the Action Financial Group Orientation Series will deal with Investment Account Types.
An account is not an investment; it is a container that holds one or more investments. Different containers have different features such as size, shape or colour, one hole in the bottom or none, a lid or no lid; different accounts have different features too, such as tax treatment, size limitations, or rules about contributions and withdrawals. Not all accounts are suitable at different life stages or circumstances and it’s always best to seek advice.
Registered Education Savings Plans
RESP = Registered Education Savings Plan is an account type used to accumulate savings to be used for post-secondary education including college, university, trade schools, and some other types of eligible education both in Canada and abroad. The government (Human Resource Development Canada) provides a grant (Canada Education Savings Grant) and a bond (Canada Learning Bond) in addition to the contributions made by the contributor (usually a parent or grandparent, but can be any other individuals wanting to save for a student’s education).
The basic grant is 20% of the contribution each year up to a maximum of $500. There are provisions for catching up for previous years if the maximum annual grant has not been made each year. Lifetime contributions are limited to $50,000 per “beneficiary”. In this account, the beneficiary is the student. Plans can be individual, meaning one beneficiary or family, meaning multiple beneficiaries. Lifetime grants are limited to $7,200 per beneficiary.
Withdrawals are made once the student is enrolled in an eligible program. The original contributions are not taxable. Investment growth and income within the plan accumulates tax deferred. All grant money plus growth and income in the plan are taxed to the student in the year they are withdrawn. Over-contributions are penalized at the rate of 1% per month on the excess amount. An RESP can be open for 35 years from when it is originally set up. Then it must either be used up or closed.
Additional funds in the form of the Canada Learning Bond are added to the plan if the contributing family meets the criteria. Income and the number of children in the family are taken into consideration. Up to $2,000 can be paid into an RESP for a child without any contribution from the family, if the conditions are met.
There are still more Investment Account Types to review, please keep an eye out for more information to come. We hope you will find this information valuable and will increase your financial confidence. You can always find these articles on our website www.actionfinancialgroup.com.
Karin Rimnyak, Certified Financial Planner®
David Dryburgh, Certified Financial Planner®
Ian Barrie, Certified Financial Planner®
This information has been prepared by Karin Rimnyak who is an investment Advisor for iA Private Wealth. Opinions expressed in this email are those of the Investment Advisor only and do not necessarily reflect those of iA Private Wealth. iA private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.