07/12/2016
Education Savings Planning!
There is definitely something in the water! Babies are being born left right and centre, so here is a post that provides information on two products that are designed for saving for your child's future.
One, more commonly known, is the RESP (Registered Education Savings Plan). The other, lesser known option, is the PWLP (Participating Whole Life Policy)
RESP VS. PWLP
Please have a read through these points to develop a deeper understanding of the better known education planning tool, the RESP, and the 'not so known' alternative option, the PWLP. Feel free to touch base if you would like to discuss these options in more detail.
RESP - (REGISTERED EDUCATION SAVINGS PLAN)
• A Government Program
• The Government gives grants towards the investment every year, up to a maximum of $7200 lifetime per child
• Investment grows in a tax deferred environment
• Sold at banks and through some insurance carriers
• No contract (which means things/rules can change with or without notice)
• Can only be used for school/school ‘necessities’, and only if the child goes to an institution recognized by the government
• If the child doesn’t go to school and chooses a different route, there are two options; The money built up in the RESP can be rolled over into the parent’s RRSP (following some transfer rules), and will then follow the RRSP rules from that point on, OR the funds from the RESP can be taken back into the hands of the contributor, with the income earned being subject to tax. Any grants given by the gov’t would be taken back.
• Return on investment is determined by market growth and fund/stock choices
• Is not exempt from bankruptcy or creditors - May be taken in seizure of assets if the situation arises
PWLP - (PARTICIPATING WHOLE LIFE POLICY )
• An insurance product - Can only be sold by life insurance agents
• Is a Unilateral contract: once it’s signed it can only be cancelled or changed by the owner of the policy (as long as premiums are paid)
• Safe from bankruptcy and creditors
• Has a long standing historical dividend return of 6.5-7% +
• Guaranteed Growth – there is a guaranteed cash value, plus a dividend growth rate
• Investment grows in a tax sheltered environment
• Low Market Volatility
• Can be paid up in as little as 10 years. (The policy can continue to grow for years and years later, even after scheduled payments are completed)
• Parents, grandparents or corporations can be the owner(s) of the policy*. The child is the “life insured” - In addition to the investment, the child will be insured with permanent life insurance that can be passed on as a benefit to their dependents down the road. (*Corporate ownership requires further planning and understanding)
• The growth of the investment can be used for anything. There are no restrictions, and it can be taken out tax free* (*This is a planning strategy that would require further discussion and understanding)
• One recommendation is that a PWLP be set in place with an attainable monthly commitment (as if it were a scheduled bill payment), and an RESP set up as a “catch all” investment for funds that the child may receive from relatives, gifts, extra cash flow, etc.
