RESPs – it pays to know how and when to make withdrawals.

Your child or grandchild is heading off to a university or college this fall and it’s time to take advantage of all that money you’ve prudently accumulated in their Registered Education Savings Plan (RESP). It’s also time to make some decisions that can help maximize the plan’s value to your newly-minted post-secondary student. The right withdrawal strategies can minimize the taxes your student pays and gain the maximum benefit from Educational Assistance Payments (EAPs) which are made up of the Canadian Education Savings Grant (CESG), the Canadian Learning Bond (CLB) and income earned on the money you’ve saved in the RESP.

Withdraw income before withdrawing contributions. As the subscriber to your student’s plan, you can elect to withdraw the income as an EAP in the hands of your student because he or she is likely to be in a lower tax bracket.

Avoid withdrawing contributions before your student begins school. Otherwise, you will trigger a repayment of the CESG.

Spread out the EAPs over the expected length of the educational program instead of taking an all-at-once lump sum. This avoids burdening your student with a huge taxable income in the first year and takes advantage of his or her (presumably) lower marginal tax rates over a number of years.

Limit initial withdrawals. Most plans restrict withdrawals to a maximum of $5,000 in the first 13 weeks of your student’s program. You can exceed the $5,000 limit by requesting permission in writing from the Minister of Human Resources within those first 13 weeks. This allows you to avoid having to pay the extra expenses out of your own pocket (which you can recoup through later RESP withdrawals) or withdrawing plan funds as an Accumulated Income Payment(AIP) (and potentially having to repay some of your CESG monies).

Make the right withdrawals to avoid paybacks. You may be required to refund some of the CESG grant money if there are any earnings remaining in your RESP plan after your student completes (or leaves) their post-secondary program. To avoid a potential CESG payback, be sure to use up your RESP earnings first.

Be sure you’ll have the money when you need it. Before releasing an EAP, your RESP carrier will require proof of enrollment (a letter of acceptance or an invoice) – so get that documentation to your carrier as early as possible.

Years ago, you made the right decision – an RESP is essential to offsetting the rising cost of education. A professional advisor can provide you with the information needed to make informed decisions to help achieve financial stability for you family and a debt-free education for your children or grandchildren.

For more information contact Kevin J. Zakus @ (250) 768-4546 or email.

This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice.

Insurance – the basics and beyond.

Most people think of insurance as essential protection for their loved ones and the things they own, like their home – and it is. But it may be time for you to look beyond the basic role of insurance and see it in a new light: As a powerful estate planning tool that will complement your overall financial picture and enhance your legacy. Let’s see how that might work for you.

Term insurance is basic protection – the economical life insurance most people choose when they are starting out. But the coverage and the premium rate are fixed only for a specific ‘term’– 5, 10 or 20 years. Once the term expires, renewing the policy usually costs substantially more. There are no cash values and coverage typically ends at age 75.

Permanent insurance can be a good option if your needs have evolved and your income has grown. Coverage remains in effect for your entire lifetime, so long as you continue to pay the premiums.

Permanent life insurance also adds these unique benefits:

• Tax-deferred growth, much like the growth within a RSP, but without the deduction.
  
• A growing cash value you can access at any time for any reason.
  
• Supplementing your estate – your beneficiaries receive 100 per cent of the insurance proceeds tax-free.

These are the two most popular types of permanent insurance:

• Universal Life is a blend of life insurance protection and tax-advantaged investment. Part of your premium pays for insurance and the rest is invested where it grows tax-deferred (subject to certain limits). You play a role in choosing your investments selected to match your tolerance for risk. You can usually adjust the frequency and level of premium payments as your financial circumstances change. The growing cash value can be used to pay part or all of the cost of insurance or left to accumulate and increase the death benefit.
  
• Participating Whole Life (also called ‘Par’ insurance) is life insurance that pays dividends and includes a non-volatile tax-advantaged investment component. You do not have any say in the day-to-day management of the investments, an investment expert chooses them. Basic cash values and basic death benefits are guaranteed.

One or more of these permanent insurance options may be a useful financial planning tool for you if you wish to leave an estate to your beneficiaries the essentials of your overall financial picture and have already been taken care of. Your professional advisor can take you beyond the insurance basics to uncover the right estate-enhancing opportunities for your situation.

For more information contact Kevin J. Zakus @ (250) 768-4546 or email.

This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice.

Time to step away from your business?

Maybe not today or tomorrow, but one day in the not so distant future, you’re going to do it:  Step away from your business and hand the responsibility for its operation to someone else.

But who will it be and how will you do it?  There are plenty of tax, legal, financial and estate issues to consider – and that’s where business succession planning comes in.  Here are some of the key elements you need to consider.

Don’t leave things to chance.  To avoid the loss of your business or its forced sale at substantially reduced value – and to ensure your family will have sufficient income to sustain the lifestyle you want for them – look to disability, critical illness and life insurance as a means of protecting what you’ve built.

Make it legal.  Establish a buy-sell agreement that sets out the terms and conditions under which your share of the business will be acquired by co-owners, partners or other stakeholders.

Plan for retirement.  If you will be relying on your business as a source of retirement income, you need a plan for converting its value to cash when the time comes.  There are three basic ways to do that:  Sell your business as a going concern to an outsider wind it down while you slowly deplete its investments in a tax-efficient manner or pass it on to a relative, co-owner or key employee.

Prepare for the tax burden.  The proceeds from the sale or transfer or your business could be subject to income and capital gains taxes.  By planning now, you can minimize the tax that will be paid by you, your estate, or your heirs.  For example, a family trust or estate freeze could effectively reduce taxes when you transfer ownership to family members.

Life insurance can be a cost-effective way of financing the succession without saddling the business with the need to borrow money.

Put your wishes in your will.  It’s critical that you make provision for the disposition of your business in your will, especially if you’re planning on passing it on to a family member after your death.  Set out how the family member will acquire the business and avoid disputes by ensuring every family member is taken care of in an equitable way.

The ‘exit strategy’ you choose should be right for you and your family.  To be sure you’ve got it ‘right’ get input from your accounting, legal and financial advisors and your family – that’s the best way to a successful succession.

For more information contact Kevin J. Zakus @ (250) 768-4546 or email.

This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice.

RESPs are now an even better way to save for an education.

It's difficult to quantify the value of a post-secondary education. There is the strong potential for increased lifetime earnings, of course. But there are also the invaluable life lessons, experiences and relationships that are an integral part of the post-secondary experience.

What is much easier to quantify is the cost of a post-secondary education: Expensive and getting pricier every semester. You know that and you want to get your children to graduation day without hefty debt – that's why you invest in a Registered Education Savings Plan (RESPs). Good choice! RESPs are a proven and effective way to build a college and university nest egg in a tax-advantaged fund that takes advantage of the power of compounding.

And RESPs are becoming an even better way to save. Recent enhancements have been made to Registered Education Savings Plans (RESPs) and the Canada Education Savings Grant (CES Grant)[1] program that can help you grow an education fund to offset the future cost of education. These changes are effective for 2007.

The $7,200 lifetime maximum for the CES Grant has not increased, but the Income Tax Act changes to the RESP provisions will allow a child to reach that lifetime maximum sooner – and benefit from additional time for growth.

Here's a brief look at the changes:
 
Maximum annual contribution Former: $4000 New: No Annual Limit
Maximum lifetime contribution Former: $42,000 New: $50,000
Maximum lifetime CES Grant Former: $7200 New: $7200
Maximum Basic CES Grant Former: 20% New: 20%
Maximum annual contribtuion eligible for Basic CES grant in current year:
Former: $2000 New: $2500
Maximum annual Basic CES grant amount for current year:
Former: $400 New:500
Total maximum annual contribution eligible for Basic CES grant:
Former: $4000 New: $5000
Total maximum annual Basic CES grant amount:
Former: $800 New: $1000

If your contributions in previous years weren't sufficient to receive the maximum annual Basic CES Grant in each year, you can catch up in later years by making additional contributions. However, only the first $5,000 of contributions to an eligible child's RESP in a given year will receive a 20% or $1,000 Basic CES Grant.

For more information about RESPs and how they can help your children get full value from their post-secondary experience – without hefty debt -- talk to your personal financial advisor.

[1] CES Grant is sponsored by Human Resources and Skills Development Canada.

[2] While the legislation has been passed, financial institutions are required to follow the “former” annual and lifetime contribution limits until Human Resources and Skills Development Canada has distributed an updated procedures guide to financial institutions. The updated procedures guide will be used to update RESP administrative systems.

For more information contact Kevin J. Zakus @ (250) 768-4546 or email.

This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice.