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Canada
Kim Inglis
very year many Cana-
dian families are faced
with paying for a large
portion of their child's post-
graduate education. A study
conducted by BMO Global
Asset Management found
that 70% of parents are wor-
ried their children will not be
able to afford university or
college. As a result, they are
expecting to pay close to half
(42%) of their kids' expenses
including tuition, books, sup-
plies, and living costs; with
the balance funded through
government student assis-
tance, student savings, and
scholarships.
Fortunately, Canadian
parents have many invest-
ment vehicles at their dis-
posal to help pay for their
children's higher educa-
tion, ranging from Retire-
ment Savings Plans (RSPs)
to Registered Education
Savings Plans (RESPs) and
Tax -Free Savings Accounts
(TFSAs). Used individually
these tools provide
excellent options but,
when used in combina-
tion, they can do much
more.
Consider a parent who
contributes to an RRSP
and receives a tax refund.
This parent can make use
of the tax refund by invest-
ing it in a TFSA, up to their
allowable limits, and grow
the funds tax-free. At the
end of the year those
funds, plus the gains, can
be contributed to their
child's RESP where they
can grow tax-deferred. The
RESP will also be eligible
for cash donations from
the government.
Under the Canada Edu-
cation Savings Grant
(CESG) program, the RESP
would receive a basic
CESG of 20% of annual
contributions that the par-
ent makes to the RESP; up
to $500 per year until the
end of the calendar year in
which the child turns 17,
to a maximum lifetime
benefit of $7,200.
Parents must then
decide how to invest the
RESP. If the RESP is set up
when the child is a baby,
parents generally know
that they have approxi-
mately 18 years to grow the
funds. With that in mind,
they should aim to invest
more aggressively early on
and slowly move the port-
folio into a more conserva-
tive asset allocation as the
child nears post -graduate
education. Capital preser-
vation will become more
important at this time
because the child will need
the funds and there will
not be time to withstand
any negative effects of
market volatility.
One of the simplest ways
for investors to manage
RESPs is to use target -date
funds, which are struc-
tured so they make the
necessary shift in asset
allocation automatically
based on a set date in the
future. For instance, par-
ents with children entering
post -graduate education in
2030 can purchase a 2030
target -date fund. The fund
will start out heavier in
equities and eventually
shift to mostly fixed
income and money market
investments as 2030 nears.
There are a variety of
target date funds and they
do simplify asset allocation
but, like any investment,
there are risks associated
with them. To find the best
vehicle for their family's
objectives, parents should
take the time to check such
things as underlying
investments, fees, and
fund manager styles.
Kim Inglis, CIM, PFP,
FCSI, AIFP is an Invest-
ment Advisor & Portfolio
Manager with Canaccord
Genuity Wealth Manage-
ment, a division of Canac-
cord Genuity Corp., Mem-
ber - Canadian Investor
Protection Fund. www.
reynoldsinglis.ca. The
views in this column are
solely those of the author.
Keep your
funny -bone
in shape!
4
Sharing a
Laughing has proven stress -release and Healthier ‘oi
health benefits. Funny how that works, eh? Future
with
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