Your Financial Future: TFSAs, RESPs, and more
A family is constantly changing and growing – that’s why it’s important to plan for the future. The good news is there are several ways to do this. For instance, the government has savings vehicles such as the Tax-Free Savings Account (TFSA) to help families meet their long-term savings goals. Life insurance is another often overlooked area for parents – it’s important to ensure you have adequate coverage. While family finances can be complicated, they don’t have to be; drawing up a family budget is a great way to simplify your spending and make sure you’re on track to meet your savings goals. Finally, we look at preferred ways to save for your child’s education.
Tax-Free Savings Account (TFSA)
The Tax-Free Savings Account (TFSA) is a flexible savings vehicle that lets families grow their money faster. Contributions to your TFSA grow tax-free, helping you meet your family’s savings needs. TFSAs offer more flexibility than other registered accounts like Registered Retirement Savings Plans (RRSPs) and Registered Education Savings Plans (RESPs). TFSAs are ideal for both short-term and long-term savings goals like the down payment on a home, a new car, or a family vacation. Invest in a wide variety of investment types, including savings accounts, Guaranteed Investment Certificates (GICs) and mutual funds.
TFSAs are perfect for a growing family. If your spouse takes time off work to be at home with the children, funds can be given to them to invest in their TFSA (the income isn’t attributed back to you). For those who qualify for the Canada Child Tax Benefit (CCTB), TFSA withdrawals don’t affect eligibility for means-tested benefits. To determine your TFSA contribution limit, check your latest notice of assessment.
If you have dependants such as children, life insurance is a must. Having adequate life insurance coverage goes a long way to protecting your family’s finances. There are two main types of life insurance: term insurance and permanent insurance.
Term insurance is your vanilla life insurance policy. As the name suggests, you choose an insurance policy for a term or length of time (typically starting at 10 years, to a maximum of 30 years). Term insurance doesn’t come with any investment component.
Permanent insurance comes in two main varieties: universal life and whole life. Unlike term insurance, permanent insurance includes an investment component. The premiums are typically higher than term insurance, so it may not be affordable for a growing family. Life insurance can be complicated, since no two families’ finances are the same, so it’s important to sit down with a financial advisor and determine which product best meets your family’s needs.
Raising a child can be costly. That’s why it’s important to budget for the expenses and a potential drop in income if one parent decides to stay at home with the child. Managing your family’s finances starts with your budget. If you don’t already have a budget, it’s important to create one. A budget should be revisited at least once a year, and also when there are any major life changes, such as marriage or the birth of a child. It’s equally important to track your spending; at the end of each month, add up all your expenses and compare them to your budget to see how you’re doing. Constantly going over budget can mean you won’t be able to meet your family’s long-term savings goals.
Registered Education Savings Plan (RESP)
If you’re looking for a way to save for your child’s post-secondary education, you might want to check out a Registered Education Savings Plan (RESP), which is a great, without a doubt, the best savings vehicle for college and university. when you contribute to your child’s RESP, you can receive a 20% government top-up due to government grants, like the Canada Learning Bond (CLB). You can also contribute $2,500 each year to receive the full $500 Canada Education Savings Grant (CESG), and depending on where you live, you may be eligible for these additional provincial grants: the BCTESG (British Columbia Training and Education Savings Grant), SAGES (Saskatchewan Advantage Grant for Education Savings) or QESI (Quebec Education Savings Incentive). RESPs also have a lifetime limitation of $50,000, which could go a long way towards saving for your child’s post-secondary education.
Visit the Heritage website for more information about RESPs, grants, and eligibility requirements.
While many Canadian families are aware of RESPs, a lesser- known plan is the RDSP (Registered Disability Savings Plan). If your child has a qualifying disability, you can receive a maximum of $3,500 a year and $1,000 in a yearly bond, depending on your household income. A new option was introduced in 2013: the ability to transfer an RESP to an RDSP. There are a number of conditions that must be met to qualify, so be sure to review them carefully. Here’s a great article by one of the other Heritage contributors that goes into more detail on the RESP to RDSP rollover.
Speaking of long-term goals, Heritage Education Funds has some great tools and resources for figuring out what your RESP investment might look like in the future. Head over to the RESP Calculator and try it out; it’s well worth the time. They also have an excellent RESP Guide, which is full of great information that can help you learn more about RESPs.