RESP: Free Money Folks

Found this classic from many years back (2006). Added a bit of spit and polish and updated the data as well. To get more information and more about how I used the RESP Program, see my RESP page.

For those of you who don’t know about the RESP program (and are Canadian of course) you need to learn about it. It is for folks with kids under the ages of 17. This program is free money from the government for your kids to go to post secondary training program. It is not just University programs, college programs and post secondary technical programs also fit into this. As always, do the research about the programs covered.

The CESG

For up to $2500 you put in every year the government will kick in a percentage of their own depending on how much money you make in the year:

  • If your family income is greater than $98,040 or so, you get a 20% one time kick in from the government. This means if you put in $2500, it turns into $500.00 within 3 months
  • If you make less than $98,040, there is even up to $550 to be had in CESG (Canada Education Savings Grant)
  • If you make less than $49,020, there is $600 available

The maximum CESG for each individual in the plan is $7200.

The Canada Learning Bond (CLB)

…provides an additional incentive of up to $2,000 to help modest-income families start saving early for their child’s education after high school (post-secondary education)

Canada Learning Bond (CLB)

The CLB is available for children from low-income families born in 2004 or later and provide an initial $500 for the first year the child is eligible, up to age 15, plus $100 for each additional year of eligibility, up to 15 years for a maximum of $2,000.

RESP is After Tax Money

So the catch is that an RESP is not like an RRSP, in that the money put in is treated as after tax money. You don’t get to write it off your taxes, like an RRSP. Your kids also have to go into a recognized post secondary training program, or you lose the one time grants as well. However, these things are TRANSFERABLE to other children and even spouses, but they do have a set time period as well (but don’t take my word on this, READ first).

On the positive side, the program pays out in your child’s hands, so taxed at a lower rate (hopefully). The kids pay tax on any growth in the fund, the grants and the bonds added.

Go To a Bank and Open an RESP ?

Bank RESPs, will mean you put your money in Bank Mutual Funds exclusively. I did this, with Canada Trust, in 1992, but I wasn’t as sophisticated back then. My CT Mutual Funds, turned into TD I-Series Funds. These funds have MER’s of around 2%, yearly. I then learned about the TD E-series funds from the Canadian Capitalist. I transferred to those funds, and set up a good portfolio for each RESP.

You might do better setting up an RESP with TD Direct Line, Questrade or similar trading sites. You can then purchase whatever Index Fund or ETF you wish.

Even More on RESPs

Remember I have an entire page dedicated to the Registered Education Savings Plan.

Yeh, That is me, talking about RESPs and Free Money

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For those of you who haven’t had as many financial plans and projects fail as I have, I’d like to share with you the most important variable in all of your plans, and that is Time (no not the magazine, the passing of moments). Time is the most important financial variable , unfortunately.

Time will fix many things, but assuming you can do things quickly is usually the problem that trips up most plans and projects.

Typically a repayment plan will be quite simple:

Payment per Period = Debt / # of periods

However, there are two things wrong with this plan. First is you aren’t taking into consideration that your debt will grow with an interest rate, look up Future Value of Money on-line or look up the PMT() function in Excel to figure out what the debt is going to grow. The other major variable here is the # of periods, and that is where most plans fall over.

Time
If you invested this dollar in 1967 what is it worth now? Time heals all wounds.

People are always optimistic when they start debt pay back schemes (this is my opinion, but based on observation of many friends) and think it will be easy to pay things off quickly, without taking into consideration that Life, Karma, or Sh*t, happens (depending on your religious point of view). If you are overly optimistic with any plan (speaking as a Project Manager now), you will fail, or you will spend all of your time attempting to catch up.

If you are much more conservative in your planning, time can be your friend. This is not to say that you should amortize your car over 10 years, or your house over 50 (if you could), however, don’t get too aggressive in your plans.

Microsoft Canada

Rules of Thumb

A good rule of thumb is to make up a plan initially, and then walk away from it for a day. The day later look at it and ask yourself

  • Can I live with this payment plan? Is this going to hurt a little or be agonizingly painful and will make me miserable?
  • What other sh*t is going to happen? (the realistic answer is “I don’t know”) Plan for bad things, give yourself a little slack (I didn’t say let it fall on the ground, but a little slack)
  • Have I tried this before and succeeded? The answer is most likely Yes and No, since you are doing it again (if you are really good at building up debt and then just as good at paying it off, good on you, but why are you living on a roller coaster?).

Time, it passes very quickly plan accordingly. Time is the most important financial variable , plan accordingly.

Redux

I wrote this about 10 years ago, and I can assure you, Time is an ever dwindling resource in your financial plan.

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Best Financial Decision Ever ?

Whilst wandering through my massive archive of older articles, I tripped across Take the Money or Leave It? I wrote it a month after I got laid off from Nortel. Somehow, this ended up showing the Best Financial Decision I ever made ? Well it certainly looks to be the case. I have a retirement, path to victory.

best decision
Image courtesy of Stuart Miles at FreeDigitalPhotos.net

In that article I mused the following interesting question (remember this was 2008 during the great crash):

The options I have are:

  • Leave the money in my former (or soon to be) employer’s pension scheme and start drawing from it at either age 55 or later.
  • Take the money out and put it into a Locked In Retirement Account (LIRA), or at least the portion that the government allows.

As background my current employers pension plan is under funded, by a fairly large amount. I also have passed a point, so that I can draw from the pension when I am 55.

Thanks to Mrs. C8j, Michael James and a little common sense on my part I ended up doing the second option and it was the best financial decision (read luckiest)  I ever made due to the fact that:

  1. Nortel’s Pension plan was even more under funded than anyone knew and it had serious issues and effectively collapsed. I kept hearing that the Ontario Government had “insurance” to back up the pension, but given the money I took out that “insurance” would not have covered the amount I should have been paid. “There is no way the government would let Nortel and/or its pension fail”? I think we know what happened there as well.
  2. The money I received went into an LIRA in December 2008. This was when stock prices were the lowest, and it grew a great deal, until I took it out to buy into my current employer’s pension plan. Blind luck and no great “market timing” strategy on my part. It was simply me needing to buy, luckily when the market is lowest.

Best Financial Decision Ever?

Many financial decisions cannot be evaluated immediately. Sometimes it takes a while to realize it was the best decision, or a massive blunder.

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Inflation 3.4% April 2021 (Told you so)

For those that have not followed me since 2005, allow me to say, I told them so. Back in 2009, I warned Inflation was coming with all this stimulation, and here it comes (in 2021). Mark my words this is only the beginning.

OK, so I am very much the Blogger who Cried Wolf on Inflation. I am not even sure this is going to be the beginning of an Inflationary spiral.

Stats Canada thinks:

Year-over-year consumer price growth (+3.4%) in April rose at its fastest pace since May 2011 amid the third wave of the COVID-19 pandemic, mostly because prices fell sharply during the early months of the pandemic. As some regions extended restrictions to limit the spread of COVID-19, causing employment losses for some Canadians, prices grew 0.5% month over month in April 2021, the same growth rate as in March 2021.

Prices rose in every major component on a year-over-year basis. Transportation prices (+9.4%) increased in April, mainly because of higher gasoline prices compared with April 2020.

From Stats Canada Consumer Price Index, April 2021

Funny no mention of the Trillions being poured into the Economy by every Government world-wide? Maybe they ran out of ink? The Moore’s Law like growth of Real Estate prices not too much of a factor?

Transportation went up a lot, but Food and Shelter are going up big time too.

The Food thing is going to get worse, with the inability to get the migrant workers that our farms rely on into the country. Is it a good thing we need migrants to do this job? That is for another days discussion. Oh and Electricity prices in Ontario went “back up” when they changed back to a “peak” and “off peak” billing again.

What does the Bank of Canada think about this? Actually using their calculations we are only a little bit above their goals?

 January
2021
February
2021
March
2021
April
2021
 % change% change% change% change
CPI-common3,51.31.31.51.7
CPI-median4,62.12.12.12.3
CPI-trim4,72.02.02.12.3
Consumer Price Index statistics, preferred measures of core inflation – Bank of Canada definitions, year-over-year percent change, Canada

Source(s):Table 18-10-0256-01.

Save up to 50% on life insurance.

Additional Reads From Stats Canada

Previous Rants About Inflation

And that is just scratching the surface.

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TD Direct Investing RDSP Deposits

I write certain articles yearly, as an update on previous articles. Not many things change in my financial world, unfortunately, my ability to deposit in my son’s RDSP is one of those.

Some of my yearly, rants:

RDSP Deposit for a TD Direct Investing Account

For those unsure let me recap. I cannot make a deposit directly to my son’s RDSP (a TD Direct Investing account). I must first put money in my Direct Investing trading account. Once the money is in the trading account, I must then call Direct Investing phone service, to then transfer the money to my son’s RDSP.

RDSP
The Route for Money to My Son’s RDSP

Over the years I have had many reasons given. I received an update from someone who has an RDSP where he is the beneficiary, who can directly deposit to that account. This confused me, so I continue to ask yearly, to Direct Investing, why I cannot do the deposit.

This years response follows:

Only the account holders can transfer cash to the RDSP account.

This would be the same for any registered plan account.

Due to online privacy and security concerns, trade and account related inquiries are handled by our investment representatives. By phone, we can securely access your profile to assist accordingly. If you feel that the representative has not adequately addressed your concern, you may ask to speak with a Manager.

Response from TD Direct Investing

This seems to line up with what I have found out. It does not make me very happy, as I think I can easily deposit into any RESP directly. I did that for my daughters, and am doing it for my son as well.

New Tactic?

Given my son now has a TD savings account, I will test the validity of this explanation. I will attempt to set up a transfer to his RDSP. I will also need to file his taxes for next year, but that is for another story.

Addendum, I forgot that last year two smart folks Bobby Vu and Steven Reeves commented that I could try “Paying it as a Bill”. This would entail setting up a bill payment to TD Direct Investing with my son’s RESP account number. I have set this up and am attempting to see if it works.

Previous Discussions on Topic

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