After a strong rally and finish to the month of July, markets continued to push higher into early August. This was coined by many as a bear market rally, and a regular part of the market cycle. In recent weeks markets have sold off a bit, with the focus on the Federal Reserve meetings starting back up after a summer break. With inflation still a priority, it is likely we continue to see interest rate hikes both here in Canada and south of the border. As a result of this, profits will continue to be squeezed, especially for companies who have larger outstanding debts. Markets are starting to predict what the fall picture will look like, and many eyes will be on inflation numbers and recessionary conditions such as jobs and retail sales.
I'm not sure why it is that so many people refuse to take free money. "Free" isn't often really free, and when it is, we should be leaping at the opportunity - Let me assure you that a Registered Education Savings Plan (RESP) is a fabulous way to save for school. And, yes, you get free money if you follow the rules."
Gail Vaz-Oxlade, Saving for School
Will you take financial RESPonsiblity
of your childs future education?
Not all RESPs are the Same
As soon as someone is expecting, they generally start preparing for the new addition. Buying clothes, decorating the baby's room, and signing up for samples, wish lists and websites regarding pregnancies and babies. Not long after signing up, the information for RESPs inundates their inbox.
As spammy as these emails can be, it doesn't mean that the products they’re trying to sell are inherently bad. What their advertising might be exactly what is wanted, but how can one know without knowing the available options? Not all RESPs are the same. They have different features, fees, and risk structures - it's important to know what is being signed.
So, what are the options when it comes to RESPs? The two main RESP structures are scholarship trusts (or group plans), and individual/family plans (Individual plans name one child as a beneficiary whereas family plans name siblings on the same account). All the options attract RESP grant money from the government - 20% on contributions up to $2,500 annually. They all grow tax-sheltered. Here are some of the ways in which they differ:
||Family and Individual Plans
||Must be purchased from a company that specializes in group RESP plans.
||Can be opened at a variety of places - for instance with us (wink wink) your advisor, a credit union, or a bank.
||Scholarship plans are group plans. You become a member of a group of RESP accounts. Each account in the group names a child with a birthday around the same date as your child.
||Family and individual plans are held with your advisor. It is not linked to anyone else's RESP.
||Front-loaded. I have seen plans in which the first 3-4 years' worth of contributions went to mostly fees - so make sure you carefully read the fee schedule.
||Fees are spread out over the life of the plan. The amount can vary depending on the institution - so always look at the fee agreement.
||The underlying investments are chosen by a professional money manager for the entire group of RESPs.
||Investment options are chosen by you and your advisor and tailored to your risk tolerance.
||Scholarship plans have built-in guarantees on both your contributions and grant money.
They also tend to promise bonuses if you stick to the participation rules, but the amount of the bonus is not guaranteed.
|No guarantees - which makes it important to consult an advisor on these plans.
||Have strict participation rules. If these rules are broken, you will likely be giving up at least part of your guarantee and lose out on and bonuses offered.
||Contributions are dictated by you. The amounts can be changed or stopped at any time.
|Withdrawals for School
||Scholarship plans often have additional rules about how much and how often you can withdraw grant and growth - focusing on contributions first.
There are also more rules regarding which education programs are eligible. Know the rules before you open a group plan.
|Can withdraw a combination of contributions, grant and growth from the account. Having this flexibility allows for better financial planning as growth is taxable to the student and any unused grant must be returned to the government.
No matter the plan ALWAYS look at the fine print. The fine print can make a world of difference in determining what plan is right for you and your children. That said, the choice is yours. To learn more about RESPs for the little ones in your life, contact us at KLT Wealth Management.
Courtney Beach, QAFP
Something to Ponder
An investment in knowledge pays the best interest.
1. Preheat oven to 375°. On a lightly floured surface, roll half of the dough to a 1/8-in.- thick circle; transfer to a 9-in. pie plate. In a small bowl, combine sugars, flour and spices. In a large bowl, toss apples with lemon juice. Add sugar mixture; toss to coat. Add filling; dot with butter.
Dough for double-crust pie (Homemade or bought)
1/3 cup sugar
1/3 cup packed brown sugar
1/4 cup all-purpose flour
1 teaspoon ground cinnamon
1/4 teaspoon ground ginger
1/4 teaspoon ground nutmeg
5 medium apples
- 6 to 7 cups thinly sliced peeled tart apples – Granny Smith
1 tablespoon lemon juice
1 tablespoon butter
1 large egg white
Optional: coarse sugar, ground cinnamon, vanilla bean ice cream and caramel sauce
2. Roll remaining dough to a 1/8-in.-thick circle. Place over filling. Trim, seal and flute edge. Cut slits in top. Beat egg white until foamy; brush over crust. If desired, sprinkle with sugar and ground cinnamon. Cover edge loosely with foil.
3. Bake 25 minutes. Remove foil; bake until crust is golden brown and filling is bubbly, 20-25 minutes longer. Cool on a wire rack. If desired, serve with ice cream and caramel sauce.
Dough for Double-Crust Pie:
Combine 2-1/2 cups all-purpose flour and 1/2 tsp. salt; cut in 1 cup cold butter until crumbly. Gradually add 1/3 to 2/3 cup ice water, tossing with a fork until dough holds together when pressed. Divide dough in half. Shape each into a disk; wrap and refrigerate 1 hour.