Canadian Finance Blog » RESP

Alberta Centennial Education Savings (ACES) Plan

Tom Drake — Mon, 20 Jul 2009 09:00:15 +0000

With our first child on the way, I’ve been looking into Registered Education Savings Plans (RESPs) with a plan of making the $2,500 annual contribution necessary to receive the maximum Canada Education Savings Grant (CESG) of $500 each year. While researching this, I found out about another grant called the Alberta Centennial Education Savings (ACES) Plan.

At birth, the ACES will pay $500 into the RESP of any child, born 2005 or later, who has at least one parent who is a resident of Alberta. You are not required to match this grant, though you may have a minimum contribution required by the bank to open an RESP.

When your child turns 8, 11 and 14, they may also be eligible for a ACES grant of $100. These grants require that the child is attending school and that you have contributed $100 to the RESP within the year prior to the application.

While the CESG provides a maximum of $7,200 in grants into your child’s RESP, the additional $800 in ACES grants from the Government of Alberta is an extra incentive to get parents investing in their children’s future education. While this grant may only be available to residents of Alberta, readers from other provinces may want to write their local MLA to suggest a similar program to encourage further education in their province.

Registered Education Savings Plan (RESP)

Tom Drake — Tue, 14 Apr 2009 10:00:46 +0000

A Registered Education Savings Plan (RESP) allows you to save for a child’s post-secondary education. You can start saving for your child right from birth, you just need to get a Social Insurance Number for your child first as the RESP will be registered to that SIN.

RESPs are similar to RRSPs or TFSAs in that they can include various investment products in a government plan to shelter tax and encourage saving. Unlike RRSPs, but similar to a TFSA, you do not get a tax deduction when you contribute, but there is no tax withheld when you withdraw the money.

RESPs have a lifetime contribution limit for each child of $50,000. There is no annual contribution limit, but you may want to use $2,500 as your annual goal due to the Canada Education Savings Grants (CESG).

The CESG is a grant equal to 20% of your contribution, up to $500 each year. The lifetime maximum of the grant is $7,200 per child. Because of this $500 grant limit, you should consider only contributing the $2,500 a year necessary to receive the grant.

What if your child does not attend post-secondary education? After the age of 21, you can transfer up to $50,000 to your own RRSP. You do have to return the grant money though.

Looking for a simple, diversified portfolio to use in a Registered Education Savings Plan? I’d suggest an even split of the four TD e-Series Funds I’ve mentioned previously. As and example, you could contribute $100 every 2 weeks, $25 into each index fund.

How To Setup and Rebalance TD e-Series Funds

Tom Drake — Thu, 26 Mar 2009 10:00:23 +0000

There is a bit of effort you need to put in to invest in TD e-Series Funds, but it is worth it. First of all, you need to apply using the pdf available on the TD Canada Trust website.

The Account Application is pretty straightforward. You’ll need to provide information like your name, SIN, date of birth, and banking information.

The next couple pages are the Wealth Allocation Model and then the Investor Profile. Fill out the Wealth Allocation Model to provide your Total Point Score. This score will show you which asset mix would be right for you. TD will review this and want the asset allocation to match your score. Because of this, if you are quite sure of what allocation you want, you may want to adjust your score to match that.

The Portfolio Worksheet is where you enter the exact asset mix you want and the amount you are investing, both as a lump sum and pre-authorized purchase plan. To keep it really simple, many investors with a long enough investment time frame might benefit from a equal split into:

Fixed Income 25% – TD Canadian Bond Index
Canadian Equity 25% – TD Canadian Index
U.S. Equity 25% – TD U.S. Index
International Equity 25% – TD International Index

Next is a simple Understanding & Consent form to sign. In the Transaction Form you have to re-enter the information from the Portfolio Worksheet. These two asset mixes do need to match.

Then mail it in to TD e-Series Funds Administration. The full address is on the first page of the pdf. Once everything is setup, TD will mail you your login information.

Once a year, you should rebalance your portfolio back to your original asset mix. Using my example above, if you have a certain amount available to invest, put it into the under performing funds to bring them back up to 25%. If you do not have enough new money to re-balance, you can sell some of the better performing funds and put it back into the others. By rebalancing, it forces you to buy low and sell high.

These steps will provide a diversified portfolio, investing in the entire index that the funds track. You can rebalance it yourself and you will be paying a Management Expense Ratio (MER) of less than 0.5%.

TD e-Series Funds

Tom Drake — Wed, 25 Mar 2009 10:00:17 +0000

TD e-Series Funds may be the simplest way for someone to invest in a diversified portfolio with low Management Expense Ratios (MERs). Below are the four funds that you can use to build a rather complete portfolio and would work well for regular contributions into an RRSP or RESP.

TD Canadian Bond Index tracks the performance of the DEX Universe Bond Index. The Universe Index is comprised of Canadian investment-grade bonds which mature in more than one year. It has a MER of 0.48%.

TD Canadian Index tracks the performance of the S&P/TSX Composite Total Return Index. The S&P/TSX Composite Index is comprised of Canadian issuers traded on the Toronto Stock Exchange. It has a MER of 0.31%.

TD U.S. Index tracks the performance of The Standard & Poor’s 500 Total Return Index. The S&P 500 Index is comprised of 500 widely-held U.S. issuers. It has a MER of 0.33%.

TD International Index tracks the Morgan Stanley Capital International Europe, Australasia and Far East Index. The MSCI EAFE Index is a broadly diversified index consisting of equity securities of companies domiciled in developed markets outside the U.S. and Canada. It has a MER of 0.44%.

Not only do these four funds invest you in the entire index, their MERs are about 2% lower than the average mutual fund. This 2% advantage can go along way when investing over a long term.

Tomorrow’s post will detail some of the advantages that the TD e-Series Funds have over other mutual funds and show you how to open this type of account.