Lifestyle | New parents seek advice

For a few months now, parents Alexandre*, 28, and Antoinette*, 27, have been wanting to update their financial planning in order to optimize their newly gained savings capacity after a few years of budget turbulence.

Posted at 6:00 am

Martin Vallieres

Martin Vallieres
The press

The situation

Whether it was the end of Alexandre’s studies and the associated debts, the first years of working on favorable terms in the banking sector, the financing of the first real estate purchase and the birth of the first child: the lives of Alexandre and Antoinette and their financial and budgetary agendas were in the last anything but quiet for years.

Now that it’s stabilized a bit, they find that their family budget is heading towards free cash in the region of $2,000 a month. You want to optimize the use of this money to replenish the savings that are still badly depleted, taking into account short and medium-term tax considerations.

“Financing our first home has been well established for over five years before a fixed rate of 1.79% was secured last year just before interest rates spiked to counter inflation,” states Antoinette The press.

“But going forward, we’re hesitant about our next personal financial priorities. For example, we want to set up a registered education savings plan [REEE] for our child. However, it is advisable at this time if our savings accounts are registered [REER et CELI] stay very bare with tax benefits on large unused contributions on both sides? asks Antoinette.

“If we set up an RESP for our child, would there be tax considerations between my spouse and I depending on where the contributions came from? Once our child’s RESP has contributed to the annual maximum, how should we prioritize contributions between our RRSPs or our TFSAs? »

In addition, the couple is wondering how to properly factor into that financial planning the start of principal repayments on Alexandre’s $70,000 student loan balance next January.

These debts will initially be financed at the prevailing key interest rate plus 1%.

Counting

Antoine, 27 years old

earned income:
$72,000

Private assets:
MSRP: $5,500
TFSA: $15,000
Defined benefit plan: estimated pension at age 65 at $84,000 (61% of projected salary).
Unregistered Savings Account: $15,000

Alexander, 28 years old

earned income:
$62,000

Private assets:
MSRP: $0
TFSA: $15,000
Defined benefit plan: estimated retirement at age 65 at $60,700 (approx
Personal Debt: $70,000 student loan (repayments begin January 2023)

Common non-financial asset

Family residence: approx. $500,000
Common Liabilities: $435,000 mortgage loan (5-year fixed rate of 1.79%)

Main expenses from the family budget

Residence: $35,000/year
Lifestyle: $25,000/year
RRSP, TFSA, and future RESP contributions: Approximately $24,000 expected in 2022

The situation and questions posed by Alexandre and Antoinette were submitted to Julie Tremblay, Financial Planner and Financial Security Advisor at the offices of IG Gestion de patrimoine in Quebec and Lévis, for analysis and advice.

Julie Tremblay also served on the Board of Directors of the Quebec Institute of Financial Planning (IQPF) from 2019 to 2022.

advice

“According to their budget, young spouses have $2,000 a month in savings capacity. It’s an excellent start to update their financial priorities,” notes Julie Tremblay.

First, now that they’re parents, “starting RESP contributions for their child is an extremely beneficial way to save and invest,” confirms Msme Tremble.


PHOTO ERICK LABBÉ, LE SOLEIL ARCHIVE

Julie Tremblay, Financial Planner and Financial Security Advisor at IG Wealth Management

“You can contribute up to $2,500 a year; an amount for which they can apply for subsidies from 30% of the governments. If your child returns to post-secondary education, the amount accumulated in the RESP may be deducted as partially taxable income. [subventions et plus-value cumulatives] on behalf of the child. Parents can either reclaim the capital or give it to their child,” explains Julie Tremblay.

To set up this RESP, she recommends that Alexandre and Antoinette start making a “scheduled contribution” of $208 per month from their savings capacity immediately.

Second, regarding the young couple’s still-open RRSPs and TFSAs, Julie Tremblay suggests a similar approach between the spouses, but with a specificity for Alexandre because of his student loan balance.

“For Antoinette, I recommend withdrawing her assets in a TFSA [15 000 $] and add $1,000 in cash to contribute to the maximum amount allocated to her RRSP of $16,000 for tax year 2022. She will receive a substantial tax refund next year, which will allow her to salvage some of the amount deducted from the TFSA. »

Incidentally, “As her RRSP contributions will be current, Antoinette will be able to continue contributing but respect her annual limit resulting from the pension adjustment resulting from her participation in an employer pension plan yields,” specifies Julie Tremblay.

In the case of Alexander, Mr.me Tremblay recommends that he “do the same transaction as his spouse and use all of his $15,000 in TFSA to contribute to the RRSP.”

However, considering her high amount of unused RRSP contributions ($41,000), Julie Tremblay suggests she increases her subsequent contributions as cash becomes available in her budget.

“The tax refund [des cotisations au REER] used again next year to contribute to the RRSP each year, and so on until the amount of unused contributions is exhausted,” explains Msme Tremble.

Also, “If Alexandre and Antoinette contribute a total of $31,000 to their RRSP this year, it will result in a significant increase in their family allowances over the next 12 months. And these increased allowances can then be used to contribute to their child’s RESP without too much budgetary investment.”

Also, Julie Tremblay points out, Alexandre will need to adjust his “catch-up” RRSP contributions to reflect the start of minimum student loan repayments in early 2023.

“The student loan must be repaid over a maximum period of 10 years. But at least the interest [à taux fixe ou variable] are tax deductible. »

* Although the case highlighted in this section is real, the first names used are fictitious.

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