Blaine and Jenny are having a baby. If it happens this week, “we’ll name her Holly,” he says. I told him that was lame, but you know how new parents are.
Actually there are three things people do when they first have kids. (a) Have a sudden, overwhelming desire to take out insurance. (b) Buy a house with a backyard and four bedrooms. (c) Open an RESP. Only one of these makes immediate sense.
It’s not insurance. This is a 99% emotional buy, since the odds of new parents keeling over or going down on a rogue Airbus are pretty slim. But it’s part of the nesting thing. So just ensure you get the right kind (term, not whole life or universal), and that you do it in a dispassionate way (don’t talk to an insurance salesguy first). You can snorfle up $250,000 worth of it for about thirty bucks a month without a medical, which means this is a pretty cheap emotional baggage solution. Compare the rates at a site like this.
It’s not a big house, either. Baby won’t care if you’re in an apartment for at least two years, and won’t know if you rent or own for another five. After that, why would they care? No newborn requires a swing set or a Jungle Jim, and the parents don’t need a higher monthly or a heaping big mortgage. Besides, real estate is precarious these days even in the top markets, with rates set to rise in 2015 and the oil thing fading the economy. The most responsible action you can do for your family is to stay out of debt, not go shopping for a backsplit.
But an RESP? Well, that makes sense. In two decades the cost of a university education will be staggering, and for many parents today (procreating well after the big 3-0) that could mean putting the kids through school scant years before you start stressing over retirement. The good news is 15 or 20 years is a perfect period of time to be growing a big pot of money. If you do it correctly.
First, never talk to the nice lady or smooth dude who calls you right after the child pops. These are baby vultures, almost always working for RESP-selling outfits with fat fees and low returns. So, never give money to anyone who has the word ‘scholar’ on their business card and drives an Audi. The RESP you want is self-directed, which means it can live at any bank or with any advisor, and into which you can place any investments you wish.
What’s an RESP? It means ‘registered education savings plan,’ and it works like a TFSA but with a few wrinkles. The money you put in there will grow free of taxation, and can be removed without any amount being withheld for tax. But the contributions you make are not deductible from your income. A maximum of $50,000 can go into an RESP, but don’t do it all at once, because you’ll lose a bunch of grant money.
Grant money? You bet. The government will give you money simply for dating, getting hitched, being pregnant for nine months, enduring childbirth and taking on a life-long financial commitment! What a great country.
The grant equals 20% annually of what you contribute, to a max of $500 in one year and $7,200 over the life of the plan. To receive the maximum amount, a contribution of $2,500 per child is required. And if you miss starting an RESP until junior is five years old, you can go back and catch up on those missed years one at a time, so no grant moolah is squandered. (By the way, all financial institutions and advisors will apply for the grant on your behalf.)
The biggest mistake most people make (other than being ensnared by a baby vulture) is not investing the RESP money in the right stuff. Crippled with emotionalism, many opt for the safest assets possible since they fear taking any risk where there kid’s concerned. Ironically, this puts them at greater risk – of running out of money when the little one wants to pursue a doctorate in Blogology.
Here’s the difference: $2,500 a year plus a $500 grant invested in a 2% GIC over 17 years will yield $64,236 by the time little Angelica’s a freshman. But the same money invested in ETFs (balanced, diversified) yielding 7% will equal $101,997 – enough for her to buy a yellow Porsche and disappear in.
In reality, that won’t happen because initial withdrawals from the plan are restricted, and the money has to be used for legitimate schooling. Withdrawals are taxed in the hands of the student, but that usually means nothing is owning. And if you have more than one child, a family plan RESP will let you shift the funds between them, as required. Thus, if one decides to throw his life away by becoming a rock star and earning billions, you can move the money to the more deserving kid.
And what happens if they both choose to eschew school? Then up to $50,000 of the RESP money (your contributions) can be taken out, tax free. The government grant must be returned. And the growth can be rolled over into your RRSP, if you have available room, if the plan’s at least a decade old and your children are 21 or older.
So, there you go. Get insurance and pay money for something you’ll probably never use. Buy a house and know you’re paying too much while walking into a debt morass. Or invest in an RESP, with taxless growth and free government money to enhance your kid’s future. Tough choice.
138 comments ↓
This blog should be part of a financial literacy course taught in our school system…….without the comments section of course.
Keep up the good work Garth and best of the season to all.
Almost makes me wanna have a kid………….
nah, changed my mind.
#1 Dean on 12.21.14 at 6:47 pm
This blog should be part of a financial literacy course taught in our school system…….without the comments section of course.
Keep up the good work Garth and best of the season to all.
……..
Are you completely out of your mind. The herd with knowledge? It would destroy the economy..
The more idiots out there for the tuned in the better.
You bleeding heart liberals…
RESPs and TFSA rock, but so do RRSPs
I maxed out RESPs for my two kids born ’95 and ’96.
And I invested 100% in stocks. They are now in year one and year two of university.
The account topped out this Fall at $100k per kid (which includes the first $10k that went out in 2013). Now the main problem is making sure I withdraw enough each year to minimize the eventual income taxes. Just removed $27k this past week which will be taxed in the kids names for the 2014 tax year. Very little if any will be taxable as I made sure that I took out only what would be tax free after accounting for other income and various tax deductions.
So, agree RESPs rock!
I will address RRSPs next post.
RRSPs also Rock
If anyone doubts this, I explained the math in the last few posts from yesterday. Anyone investing in taxable accounts and thinking they are better than RRSPs ought to read those posts.
Anyone resenting the tax they pay on RRSP withdrawals should also read it.
Anyone thinking that $200k in an RRSP is in any way equivalent to $200k in a taxable acco8unt or TFSA or RESP should also read it.
Hint, when it comes to RRSP you always were poorer than appears.
Even though I have both undergrad and postgrad degrees, I’m still for giving my (as yet non-existent) kids an objective viewpoint of going to further education vs. getting into a trade.
Obviously if they’re brilliant at finance or have a gift for law then I’ll encourage going to school, but on the other hand I will certainly point out the downsides to undertaking a $70k BA in Aboriginal Quilting Studies.
I know tradespeople who are making quite excellent sums of money. If you get into a union that lands public work then you’re laughing. One acquaintance works as a machinery operator on the Vaughan subway project and is knocking on the door of $170k/yr. Not bad. He completed high school and not a lot else.
Another friend is a welder up in Fort Mac (admittedly perhaps not for much longer), $25k/mo – he made hay while the sun was shining.
You can’t offshore a plumber or an electrician. And the cash-in-hand work on the side is a nice little grant by itself.
I’ll set up RESPs to cover all eventualities, but university is by no means something I’ll force upon my kids.
RRSP misconceptions
When it comes to RRSP you always were poorer than appears.
But the tax breaks were larger than appears
Your contribution to the RRSp was smaller than appears (You thought you put in $10k and got a $4k refund. It’s better to think of it as you put in net $6k and own $6k, government put in $4k and owns $4k of your RRSP. Your $6k will grow tax free, governments $4k will grow and they will eventually want it back with interest equal to the growth)
The value to you of the refund was much smaller than appears (try about zero).
See what happens when you start posting on this site? You risk turning into Mark. But again I will only post on the Friday edition or when I am off work the next day (like today)
To the young men on this blog. New year resolutions. Especially for writers.
I will never wear a pink shirt.
I will never hold back a feeling.
I will always stand my ground.
I will learn to lie like Smoking Men
I will put me and my needs first.
I will not try and fit in.
I will do what I want, when I want.
I will come first, not second.
I will disbelieve information.
I will live fearlessly.
Do that, it’s bliss…
Solid advice…and almost a break from the endless ranting about the demise of Canadian real estate. Refreshing!
My New Years resolutions
I will be a giant douche
I will rip off hunter s Thompson persona
I will pretend I’m rich and talk about my book that’s destined to be buttwipe for 3rd world nations or shredded for pet cage lining
I will ramble nonsense
I will pretend to be a giant lush ( a 14 yr old can out drink me )
I will hit up the spray tan booth daily
Another blood bath tomorrow on the TSX
http://in.reuters.com/article/2014/12/21/oil-prices-kuwait-output-idINL6N0U50CN20141221
I love this guy, thank you blog dogs for telling me about him.
Bukowski on Alcohol vs Marijuana: http://youtu.be/FNgmYlGcOrU
Grandparents can run a self directed RESP for their grandchildren too I think
[…] Source: http://www.greaterfool.ca/2014/12/21/urges/ […]
To my dearest God, I’ve changed my mind, I’m not going to knock your teeth in when we meet. If fact I might plant a big ass kiss right on you lips, I’ll hold back the tong, I’m not on that team.
Finally, God damn it, finally I’m not
alone in this world.
Blog dogs, best Christmas present ever.. You guys made me aware of this guy..
Charles Bukowski on dying and how to write: http://youtu.be/MTPxWkBgW6U
#6
“Obviously if they’re brilliant at finance or have a gift for law then I’ll encourage going to school”
Law is becoming more difficult these days. The job market in the USA, Australia and UK has been decimated for new grads. It is happening in Canada as well, although with a slight delay.
Alternative business structures, technology and other developments are taking out a lot of the jobs that used to go to law grads.
Students with connections or special backgrounds (e.g., nursing, electrical engineering) are in a better position. I pity the person with an english or BCom degree that tries to find a lucrative career as a lawyer. It is far harder than it used to be.
Let’s keep in mind that education these days is a gamble. Even professions like Engineering, Pharmacy, Medicine, and Accountancy have their booms and busts.
If you can set up a viable business that is a going concern, eventually buy the building in which it houses, and pass it on to your children – this is a great investment for your children. Degrees – not always – even the best ones out there.
I’ve met many couples that have passed their viable machine shops, construction companies, scrap yards, etc. to their children – and wow they make a good living out of it.
Garth said “Buy a house and know you’re paying too much while walking into a debt morass.”
I have been thinking about the breakout in the USD and the collapse of oil pricing and the CAD and if it gets reflected in some way with respect to Canadian housing prices. So I took my Vancouver, Calgary and Toronto average SFD prices and plotted them in both CAD and USD:
http://www.chpc.biz/canadian-housing-in-usd.html
In the Pit of Gloom in March 2009, housing in Canada was 21% cheaper if denominated in USD.
Now (November 2014 data) housing is 12% cheaper and becoming more so (the FX spread is widening as it did in 2007-2009) and notice that the spread widening does not appear to be recognized yet by buyers of Canadian real estate in CAD.
Good one Mr. T. Did all three. Obviously, managed to escape the sleazy ones (MIL didn’t).
One thing that bothers me for a while, for the less worthy ones. Does it even make sense anymore to push (to be suggestive) anybody for university? Some trades people make 60+/hr. I had to do many years of university, multiple degrees/diplomas/designations, and experience to get there.
“See what happens when you start posting on this site? You risk turning into Mark.”
And what exactly is wrong with Mark?
Very little if any will be taxable as I made sure that I took out only what would be tax free after accounting for other income and various tax deductions.
With that much in the RESPs, and your apparent track record at growing, wouldn’t it make sense to at least take out enough to fully deplete the lowest tax bracket? Presuming your kids go into courses that actually will allow them to graduate and earn a decent income, they may not have many, if any years of minimal income and low tax rates ahead of them.
Another friend is a welder up in Fort Mac (admittedly perhaps not for much longer), $25k/mo
Sounds like another contract welder talking his gross, not his net. Very common for the Fort Mac crowd.
Something to add for the blog dogs: Provincial governments also have an education grants: For one, Alberta gives you 500$ per child born through the ACES grants. To qualify for it, one parent must be Alberta resident. Make it quick though, as the program is supposed to be phase out next year.
As for the RESP that I setup for my son born in July, I put the money in one ETF: CBN.TO which mirrors the Sabient Balanced Growth Index. The MER is 0.80 %, a bit high but for a current balance of 3500 (2500 of my own money, the rest from the provincial and Feds), it’s fine. Once the balance gets bigger, than I’ll make my own ETF mix.
IS has executed 100 foreigners trying to quit: report
http://news.yahoo.com/executed-100-foreigners-trying-quit-report-140040461.html
“#21 Mark on 12.21.14 at 8:06 pm
Another friend is a welder up in Fort Mac (admittedly perhaps not for much longer), $25k/mo
Sounds like another contract welder talking his gross, not his net. Very common for the Fort Mac crowd.”
Out of curiosity, what is the net like for a welder? I want to compare my salary of $105K/yr + pension + benefits as a P.Eng. in Alberta.
“Now (November 2014 data) housing is 12% cheaper and becoming more so (the FX spread is widening as it did in 2007-2009) and notice that the spread widening does not appear to be recognized yet by buyers of Canadian real estate in CAD.”
Or maybe the USD$ is unsustainably high, and ripe for a fall?
The CAD$ is an incredibly attractive proposition at the moment for those looking to flee a USD$ which appears to be very toppy and overbought. CAD$ bonds have not only shrugged off the recent (albeit most likely temporary) devaluation, but are actually at record highs (see XBB on the TSX as a representative ETF).
Canadian oil won’t remain beaten down forever. Awesome article on Zerohedge about what’s going on in the “Shale Patch” these days and how a comeback after the washout-in-progress is incredibly unlikely unless some very severe extremities of oil prices are achieved:
http://www.zerohedge.com/news/2014-12-21/drilling-our-way-oblivion-shale-was-about-land-gambling-cheap-debt-not-technological
Very, very positive for the oilsands over the long term, even if there’s some short term pain.
#6 Ray Skunk on 12.21.14 at 7:15 pm
“…giving my kids an objective viewpoint of going to further education vs. getting into a trade.”
It far, far, far more difficult than it would seem to do this. I tried. My partner and I gave it our best shot – for years – over and over. Didn’t work. You think it’s a good thing to help them develop minds of their own but what do you think happens when you succeed?
“You can’t offshore a plumber or an electrician. ”
No, but you can ONshore the labour under the Temporary Foreign Worker program. I see much much more of that in our future.
“… university is by no means something I’ll force upon my kids.”
Prepare to have it forced on *you.*
Ahhhh, parenting.
#12 JSS
I don’t think this means the TSX is necessarily going to crash Monday. Declining oil prices is becoming ”old news“for investors. I still believe we will have a net increase in the markets ( TSX & US) from now until 2015. Enjoy the ride.
“Out of curiosity, what is the net like for a welder? I want to compare my salary of $105K/yr + pension + benefits as a P.Eng. in Alberta.”
Glassdoor and “Fort McMurray welder” says between $40 and $50/hour for most, as employee hourly-compensated welders with the employer supplying the tools, supplies, and equipment.
http://www.glassdoor.com/Salaries/fort-mcmurray-welder-salary-SRCH_IL.0,13_IC2274645_KO14,20.htm
The “$25k/month welders” in Fort McMurray are contractors, have to pay for their own welding rig, their own accommodations ($$$$), their own diesel, their own welding supplies, etc.
My former neighbour was one. At the end of the day, after all expenses were paid, tools and truck properly maintained and depreciated, etc., his income was similar to someone with a $100k/year local salaried job. With far less job security than your typical $100k/year P.Eng.
This is an important topic for families, Garth.
I know of many struggling families who have been royally ripped off by fees for RESPS charged by non-bank providers.
It seems this part of the financial field is a lot like real estate – low barriers to entry means all kinds of opportunistic people jump in, and there is a lot of lower-educated and recent immigrant folks preying on even lower educated and more recently immigrated folks in flogging the plans that charge huge fees, especially for discontinuation or early closure. People trust them at their peril.
http://bc.ctvnews.ca/mom-disappointed-in-high-fees-for-daughter-s-resp-1.1574303
The immigrants and others less educated I have dealt with are the perfect prey for this sales scam.
I tell them all the same thing: never buy RESPS or insurance from anyone, ever, who comes calling or knocking on your door, ask everyone what their fees are and how they get paid, and set up a self-directed RESP plan only at a major financial institution.
Another friend is a welder up in Fort Mac (admittedly perhaps not for much longer), $25k/mo
Sounds like another contract welder talking his gross, not his net. Very common for the Fort Mac crowd.
……………………………………………………………………..
Don’t think there’s that much difference, you live in a camp, get flown in and out
RESP withdrawals and Tax rates
Mark asked me (or did he really tell me?)
With that much in the RESPs, and your apparent track record at growing, wouldn’t it make sense to at least take out enough to fully deplete the lowest tax bracket?
*****************************************
Indeed yes, and the lowest tax bracket is zero%. And that extends up to roughly $15k or $17k of income depending on deductions other than the personal exemption available for the little rotters. That is, taxable income is zero for gross income below roughly $15 to $17k.
After 0% the rate jumps to 25% on the first dollar of taxable income and then to 32% after taxable income of about $45k (total income of perhaps $60k)
So you see, we are looking at 25% if we trip above the threshold.
With, as you say, my track record I am better off to defer the payment of any taxes as long as possible as it will likely be 25% in any case or at most 32%.
But, we must also remove the grants and gain while the kids are still in school else we could risk the money being taxed in my name or the grants forfeited.
The technique is to pull the grant money out first (nearly done with that) and then the growth and only lastly the principal (which is not taxable).
At the end of the day, if some of the money does get taxed, well there are worse problems to have. But no point getting it taxed just through poor planning or lack of tax rules.
I may not have mentioned the tax rates I mentioned are only for Alberta…
Great title great pic and great Post Garth!
Urges . Yes. Many many many men and women come to realized too late how much these urges destroyed them. Fact. Just look around, or, better yet, simply read all of the Posts on Garth’s Blog. He has laid it all out for us how the majority world wide have been operating in the past, the recent past, and today, in the present. Choose wisely.
“Don’t think there’s that much difference, you live in a camp, get flown in and out”
Camp guys are mostly hourly, not independent contractors. See the Glassdoor link I provided for evidence on what the hourly compensated camp guys are paid. Of course, they’ll typically work 60+ hours a week, with hours over 40 compensated at overtime rates, so they are still making pretty decent money. But that doesn’t vacate the necessity for most to maintain a principal residence for their families, wherever that may be.
The key differentiator between Fort Mac and Ontario tradespeople compensation tends to be the amount of overtime on offer. Actual hourly salaries aren’t much different. Very little OT in Ontario on offer, and as much as you can possibly care to work in the oilsands. Well, up until recently, of course, with OT being one of the first areas that cost conscious managements will be cutting back on.
RESP. Great! Let’s spawn another generation of over educated hipsters :p
RESP, best thing you can do if you have a kid.
Shawn Allen, your RRSP vs taxable account argument is missing some key points. You assume that taxes will not go up when you go to take your money out. If you live in Ontario you know this will not be true. You also assume you’re in the same bracket when you put money in than when you take it out. IMO if you are under 40 or not getting close to your maximum earning potential (granted this will be a guess) you should not use RRSP, but TFSA and then a taxable account. Lastly, cap gains and dividend income tax advantages are killed by the RRSP.
“So you see, we are looking at 25% if we trip above the threshold.”
Oh okay Shawn, my apologies — in the province I’m mostly familiar with, there is an intermediate ~15% tax bracket (which really is closer to a 10% tax bracket because of the way that GST credits operate — increasing until a certain income, and then decreasing over a certain threshold). IIRC, certain combinations of income and eligible Canadian-sourced dividends can even generate a negative marginal tax rate in certain situations at certain, albeit modest incomes. Although probably not of relevance to many 19-year-olds.
You can front-load your RESP without losing out on CESG money from the government.
As Garth mentioned there is a lifetime $50K maximum RESP contribution limit per child. There is no annual RESP contribution limit; as long as one doesn’t go over the $50K lifetime limit per child. One could contribute the entire $50K in the first year if they were able and wanted to (but they would forego most of the CESG grants as those are doled out annually based on that year’s contribution amount).
If one maximizes their $7,200 of CESG grants, then they would have contributed $36,000. It would take a little over 14 years (i.e. max grant per year of $500). The article is suggesting is that there may be merit to front-loading an additional $14,000 to maximize the lifetime limit to take advantage of tax-deferred growth over the next decade and a half.
It doesn’t need to be front-loaded. That was just an example. The $14,000 could be contributed at any time or even in smaller amounts at different times.
Well my ex wife and I did the RESP thing for our kids and I invested very conservatively because I was just after the grant, and she had an advisor and more aggressive investments, and it worked out about the same.
The trick is, if you can get a $500 grant for saving $2000 especially getting closer to the day the kids start post-secondary, it’s a way better return than bonds. Get the grant if your kid is going to school. In my case we always knew this so my ex and I started taking turns which year who put in and now the kids have at least something plus the grants. We tried very hard to get the full $500 every year and mostly did, even if the returns weren’t that great since 2008. I couldn’t bring myself to put their school money in stocks. I do that with my own money. I didn’t want to have to tell them “well the plan was great, but I tried to earn enough to get you a yellow Porsche and now there isn’t any money”.
I gamble on some things but not others.
But they are going to school now and the money is there.
You can front-load your RESP without losing out on CESG money from the government.
As Garth mentioned there is a lifetime $50K maximum RESP contribution limit per child. There is no annual RESP contribution limit; as long as one doesn’t go over the $50K lifetime limit per child. One could contribute the entire $50K in the first year if they were able and wanted to (but they would forego most of the CESG grants as those are doled out annually based on that year’s contribution amount).
If one maximizes their $7,200 of CESG grants, then they would have contributed $36,000. It would take a little over 14 years (i.e. max grant per year of $500 per yr).
There may be merit to front-loading an additional $14,000 to maximize the lifetime limit to take advantage of tax-deferred growth over the next decade and a half.
here is a great read David Collum’s year in review part 1:
http://www.peakprosperity.com/blog/89840/2014-year-review
How is the RESP an option for Canadian parents with kids born in USA? Does anybody know whether it still makes sense?
The camp life can get to you
One room in a mobile trailer, eating the same food every day, around the same people.
I guess that’s why it’s 6 in and 6 out or whatever.
When I was in the Outback in Australia, I was in for 5 months straight. I had enough, couldn’t wait to get out of there and carry on with my travels.
Garth, you must have been spending too much time in the bunker.
In 20 years, all education will be free and will be delivered online with an AI assistant. University buildings will be converted to low income housing.
With regards to front loading the RESP, we did this 4 years ago when our child was born and used the first $14,000 to purchase 100% equities in a self directed RESP. All Disney stock.
RESP experts: Are RESPs bankruptcy-proof like RRSPs (providing they’re not used to explicitly defraud creditors?)?
Seems to me that as housing continues its downturn, and a lot of people find themselves in negative equity and end up defaulting, the creditors (including the CMHC) could be seizing the RESP funds saved up by young Canadian families.
Wow Sir Garth. Big thanks for last 2 blog entries!
Also a thanks to your blog-dog responder Sean Allen (among the others, who know who they are) last few posts.
Mr Allen You helped recover the comedy, um I mean comments section from mediocrity.
Question: income splitting with my new wife. I do not require her to work full time, and wish to share/split my income & business with her. Any paths to follow?
I run a successful and growing business , diversified my business client stream , and I evolved it to be resilient should economics dive badly (I’m not a doomer…no time for it).
Point: We just confirmed/found out happily that we have a New member to our family coming into our life in 7 months! We’ve been married 6 month now .
Also, it may be of benefit for her to work to embrace maternity leave, Paid! Silly to walk away from that perk?
Most appropriate blog tonight. WOW !
Big warm thanks to “Everyone” on your Blog Garth.
29 Carly in Cabbagetown on 12.21.14 at 8:45 pm
I tell them all the same thing: never buy RESPS or insurance from anyone, ever, who comes calling or knocking on your door
====================
Everyone hates salesmen even if they are one. The cruel irony is that nothing much happens without them and, if it weren’t for people who can get other people to buy stuff they don’t need and can’t afford, a lot of the rest of us wouldn’t have jobs. Salesmen are just there to help you manage your feelings of inadequacy.
#6 Ray Skunk on 12.21.14 at 7:15 pm
I’m still for giving my (as yet non-existent) kids an objective viewpoint of going to further education vs. getting into a trade.
—————————————————–
Most of what you say is true but do not forget to tell your kids that if they continue to work at a trade well into middle age instead of becoming an owner with workers– their bodies will be too worn out to enjoy any semblance of retirement. Knees, shoulders, wrists depending on the trade.
Clarification on my $25k welding friend… he is an independent contractor, but he does live on camp. The impression I got is that he doesn’t have to pay for that – but I could be wrong.
RRSP truth and math
Stop Lying at 36 responded to me saying, in part:
you should not use RRSP, but TFSA and then a taxable account. Lastly, cap gains and dividend income tax advantages are killed by the RRSP.
*************************************
Well, thank you for attempting to read and understand what I said.
Your comment here reflects the often repeated dogma.
But the math of the matter is that an RRSP is IDENTICAL to a TSFA if the marginal tax rate is the same and setting aside impacts on social programs.
A few other on this site have explained it.
Imagine you have $6000…
You can put it into a TSFA, no further tax. Say it grows to $60,000 in 30 years, no tax is due.
or put 6000 into an RRSP and borrow $4000 and have $10,000 in the RRSP. Tax man refunds the $4000. Your net cost $6000.
Assuming the same growth rates the $10,000 will grow to $100,000 while the TSFA $6000 grows to $60,000. Years later when $100,000 comes out of the RRSP, pay tax of $40,000 at 40% and you net $60,000 EXACTLY the same as TFSA. So think of the tax on the RRSP withdrawal as the return of the governments 40% share that the government contributed to the RRSP and always owned or at least had a claim on.
Now some logic, remember philosophy 101?
If TFSA is no tax and RRSP equals TFSA (assume same marginal tax rate at deposit and withdrawal times) then RRSP is also NO tax (on your $6000 share).
RRSP does not kill the low rate on capital gains. zero% is actually lower than half the normal rate of tax.
This is the truth and this is the math.
Now what if the marginal tax rate is higher in retirement? Well it has to be a LOT higher before RRSP will not be better than the taxable account.
Wait, is that the sound of a couple of pennies dropping out there, even while most will never accept this truth?
#11 Rambling Man,
did you hear me clapping, wherever you are?
government money is never free.
it is theft.
#6 Ray Skunk
You can’t offshore burger flippers and waitresses either…. oh wait, you can.
Garth, you are the best. The timing of this post is perfect for us. My wife and I are 30, and due to pop out our first child in a month. We currently rent a place well within our means so we are able to add our savings. I bought life insurance before I found this blog (term insurance for a modest amount) because I am one of the few people that as a child had a family that benefited from life insurance.
I have a question. We have an RRSP worth $25,000 that we parked in a GIC to avoid market fluctuations because the plan was to take it out for a down payment when we choose to buy (not in a rush, at today’s prices I’d rather continue to rent than join a race to the bottom). Ultimately the plan is to buy at some point. What should we do with that money in the mean time? We also have almost another $25,000 in savings that we are trying to decide where to park. My wife will be on maternity leave soon, otherwise our incomes are nearly identical. If income-splitting for tax purposes passes for 2015, would it be a good idea to eliminate the RRSP, take the tax hit at a more moderate rate by splitting our income and finding a better place for it?
If housing normalizes we would like to buy in the next year to two. Unless it gets chipped away over the years, I will have a good pension but the wife’s job is strictly money – no pension or benefits.
Love your blog, I refresh it several times a day! Thanks.
Be careful if you have more than one RESP. Isn’t there some kind of government cap on the amount you can take out from multiple RESPs? (even if you meet the eligibility requirements individually) . I got a nasty letter to this effect a few months ago although I haven’t looked into it too much yet.
“Most of what you say is true but do not forget to tell your kids that if they continue to work at a trade well into middle age instead of becoming an owner with workers– their bodies will be too worn out to enjoy any semblance of retirement. Knees, shoulders, wrists depending on the trade.”
But “owners with workers” can only be a small percentage of the overall population out there.
One group that hasn’t been talked about here much is technologists. They tend to, at least for the first decade post-graduation, earn more than engineers (EITs and P.Eng.’s), and they have far better employment prospects up-front as their training is less theoretical and more hands-on. Typically they will be paid overtime as well, while engineers aren’t typically paid overtime and are compensated strictly on salary. They only need half of the coursework of engineers, and employers in technical areas often get the feeling of far superior value for money.
Most industrial firms I’ve dealt with aim for 2-5 technologists for each P.Eng. they employ, but the schools have been producing more P.Eng./EIT-qualified grads than they’ve been producing technologists for many years now.
DELETED
Left hand reaching through my computer screen grabbing the back of Marks head
Right hand reaching through my computer screen
grabbing the back of Shawn’s head.
Finally I bang their heads together!
RESP or in the US we have a similar item. Parents, or Grandparents, aunts, uncles use them for your favorite nieces, and nephews too.
Even $50 a month over a kids growing up years makes a difference.
Soon they’ll need a 4 yr degree to flip burgers, you need one now to manage one of their outlets. (sheesh)
Garth, very well said, thank you!
This article should be shared with expecting parents at Gynecologist clinic, maternity homes and hospitals for their education purposes.
RRSP withdrawal
Cloudy at 54 asked:
If income-splitting for tax purposes passes for 2015, would it be a good idea to eliminate the RRSP, take the tax hit at a more moderate rate by splitting our income and finding a better place for it?
*****************************************
Well, maybe if the tax rate is like or 10 or 15%… or something…
Might be better to leave the $25 k growing (think of it as maybe 60% yours $15k and 40% the governments $10k) Leave your $15k 60% to grow if you can… Get it out of GICs when you can and into a balanced portfolio or, at your age, all equity.
Save aggressively for the down payment and try hard NOT to raid this retirement money via home buyers loan or cash out.
RRSP money should be thought of as untouchable until retirement. Invest for long term growth.
Sounds like you are doing very well. You are way ahead of most 30 year olds. Keep it that way by not raiding the RRSP.
I strongly disagree with your negativity on insurance. “Get insurance and pay money for something you’ll probably never use” is rather the point of insurance. I’m hoping not to ever use my fire insurance either – but it’s still a good idea for all but the independently wealthy. Good friend’s husband died randomly while she was pregnant – being a solo mother isn’t cheap. The little insurance she had was a huge help.
Saskatoon says Taxes are Theft
he said at 52: government money is never free.
it is theft.
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rich people love this taxes are theft stuff. this kind of nonsense helps get middle class support for all the dozens of tax breaks for the rich and relatively rich…
Some tax money is spent wastefully, no doubt about that.
But to say that all taxes are theft (if that is what is suggested) is just silly.
There is a better solution than RESP: do participate in your child development yourself. It is rather involved but does pay at the end in real green bucks: take my example – the kid got through Ivy League with Magna Cum Laude. My net cost is about $10k mostly for home bound travel expenses. Mind you, it is not because I am some freak Maple Leaf slaughter house min wage chum or use creative accounting in finaid applications. I could easily afford the full ticket price, but the whole thing is actually merit based, beleve it or not, so once all your SAT scores are maxed up, and the kid is on the Dean’s honor list term after term, your check book smiles.
#Urges… #SomeParadigmsAreClearlyPastTheirPrime,Or… #TheVernacular?:AllWashedUp
http://youtu.be/xnVVVvNYs4Y
[NoteToHD: I had a weird premonition you’d enjoy that. NoteToGT: SonyVEVO?… One way or another I’m still paying off their SWAG… Next you thang you know, they’ll want to me learn Korean and apply for a ‘tourist’ visa. NFW. Not now. Not ever. We have far, far better thangs to do… Right? Right. Oh yes, “In two decades the cost of a university education will be staggering.” – Hon.GT… Perhaps. Or it may be more like this: http://en.wikipedia.org/wiki/Medieval_university#Characteristics – Think, Walter M. Miller’s “ACanticleForLeibowitz” – Hugo’61. Just sayin’. SpeculativeFiction @ its finest. Well. There it is.]
#47 Andrew Woburn
Everyone hates salesmen even if they are one. The cruel irony is that nothing much happens without them and, if it weren’t for people who can get other people to buy stuff they don’t need and can’t afford, a lot of the rest of us wouldn’t have jobs. Salesmen are just there to help you manage your feelings of inadequacy.
===================================
Your statement is interesting, perhaps a bit tongue in cheek, I am not sure. (And of course the environmental impact of buying stuff we don’t need is a whole other issue that seems to be coming home to roost)
In the case of financial advisers, though, I have to disagree.
“Sales” has utterly corrupted most of the financial planning industry. Most financial planners are actually stuck in what any real profession would recognize as a major conflict of interest with their own clients – they only get paid by pushing sales on their clients, recycling their money even if buy and hold is in their best interest.
As a result, on its own the CFP designation is utterly meaningless and completely untrustworthy. To even get it these days, you have to have fulltime work experience in the field, which for about 99% seems to mean you must work as TNLTB or in a similar role, pushing sales on your clients, and over time you are hopelessly corrupted and compromised into this approach to “financial planning”, which is really only “planning” for sales success for your real employer, the bank or investment company.
Very few have the resources and time to apprentice as impartial, client-centred fee-based advisers, which is riskier than working for a sales unit. (The first thing you hear in courses leading to the CFP is that it is essentially a sales job. That’s the truth.)
In the case of RESPS, the blatant excess fees and charges is the same thing, gone to even greater degree in the case of most of those smaller non-bank companies selling door to door or getting hospital employees to sell them your personal information.
http://news.nationalpost.com/2014/06/04/police-investigating-after-personal-info-of-over-8000-patients-at-scarborough-hospital-sold-to-telemarketers/
The financial planning industry could learn some ethics from CREA.
Now that is sad.
The ONLY type of adviser that is truly ethical and worthwhile is a fee-based adviser who is on your side, charges fees for service and never has an agenda to get you to buy and sell more because it profits them.
That is also precisely the type that Garth suggests here, and it is a sign of his courage and integrity to say so, in my opinion.
I would rather deal with a fee based adviser, even a part timer who has other professional work, than TNLTB who is less well educated and is sales driven, as well as her counterparts at the so-called investment firms.
Sales pressure should have absolutely no place in financial planning.
Your tax dollars, and mine, will end up paying for the losses of all those people pressured into investment products who have to later go onto some form of government assistance to pay their bills as a result of their losses. About 70% have no secure pensions, remember, and if they screw up their investments, we will all pay.
Some tax money is spent wastefully, no doubt about that.
But to say that all taxes are theft (if that is what is suggested) is just silly.
===================================
We have three levels of govt and have trillions in resources which are royalty taxed plus we pay HUGE gasoline prices for a product in our back yard….. yet our medical and education systems suck compared to Europe (post secondary is free there) and our infrastructure is lacking.
So sayin “some taxes area wasted” is the grossest understatement about Canada since it’s inception. We have the most incompetent mismanaged govt in the western world. Its embarrassing to say the least…….
I setup an RESP with Questrade this year. Put the 2.5k in ZCN the TSX composite index. 2.6% yield. It was easier and less annoying than dealing with Rogers.
Meanwhile a family member tells me her RESP put in a GIC won’t cover UoToronto fees in 20 years. But she thinks the stock market is a casino. People still scarred about 2009. Sold in 2011. Might have broke even. Swored not to invest again. I guess it’s not for everyone.
Personnally I am more afraid of walking in Toronto an be hit by a car. Someone just got hit again at the corner.
“rich people love this taxes are theft stuff. this kind of nonsense helps get middle class support for all the dozens of tax breaks for the rich and relatively rich…”
No kidding, high taxes just make it harder for the middle class and the poor, to become rich. If taxes were eliminated, too many investment dollars would exist, and such would suppress returns on investments for the already rich.
Taxes are easy enough to avoid for most Canadians who care to study the system and position themselves to legally take advantage of it anyways.
If you have it, dump in the 45-50K in the first year. At 7% you reap 150K at the end.
And if you’re at the other end and poor, don’t pay tuition first with your savings. Get a student loan and chances are some will be forgiven. Then use the sved money to pay.
My RESP Experience–Kid decided not to attend a post-secondary institution. My money was invested in some financial nonsense called Concentra Financial. Through my bank I received my principal back; but my bank was just as horrified as I was that I was charged a $50 fee for CF processing the cheque. The bank absorbed the $50 charge. The CESG was forfeited. I could not claim the interest called AIP (Accumulated Income Payment) that accrued till 10 years after the opening of the RESP. After the 10 years were up, I applied for the interest. Withheld was 10% resident withheld tax, plus 20% additional tax. I was again charged a fee for processing the cheque. Then on filing my income tax for the year, I had to fill out form T1172 and pay an additional 20% tax for cashing out. Watch out; self-direct your own RESP; the penalty is heavy if your kid does not attend college. I would not recommend an RESP.
RESPs are fine. Slimy RESP-sellers are not. — Garth
or just go to europe where education is free, hence no need for RESP savings (it will cost a fortune here so you can become eventually manager at starbucks for the generation screwed)
One other point about RESPs:
Like TFSAs, RESPs are not recognized as sheltered savings plans by the Internal Revenue Service, if the plan sponsor or the intended recipient are US / Canadian Dual citizens. Gains made from investments within the plan, and the Canada Education Savings Grant will be taxed if the plan sponsor is a dual citizen. As will any provincial grants.
Best to have a Canadian parent or grand-parent sponsor the plan exclusively. To accommodate any foreign contributions have the Canadian sponsor open an in trust account, and direct funds from the trust account to make annual contributions to the RESP.
To all you lovers of the “working class aristocrats” in the oil fields… Garth has a BA in English I recall… and he probably makes way more $$$ than any rig pig.
Besides, a BA is a rite of passage for the middle class.
You might make $100k a year… but without the degree you are still not really middle class. You are just high income working class with probably a pickup truck that is way too big for your needs…
What a nice blog post, sure glad I read it. My wife recently has our first baby boy and soon afterwards met a lady from C.S.T. Consultants at the paediatrician’s office. Apparently she hangs around there often. She is selling the company’s group RESP (www.cst.org) which promises a return of 6%, from reading over the pamphlet however, I am curious how in heaven they can be getting a 6% return when they invest primarily in bonds. Anyway, glad I didn’t sign anything yet, though she keeps calling. Anyone has any opinion on this company?
Education does not guarantee you an income, it simply gives you a choice; if you do a worthwhile degree.
Right place, right time, right service, right contacts is what it is all about.
This greater fool needs some ADVICE:
I am a recently graduated 26-yr student with $20,000 in student loans at 7%.
Would you:
1) Pay down loans aggressively and exclusively, or
2) Pay loan balance down monthly and contribute an equal amount to a “Garth Turner” balanced/liquid ETF-portfolio that is reserved for retirement..….
Thank you, Mr. Turner, for this wonderful blog!
Your comment is awaiting moderation.
MOOC
Pay off the mortgage first. The markets are due for a millennial crash.
invest in RESP only if you could buy back your mortgage in. and pay yourself proper
Good advice for the 1980s! Actually there’s no crash coming and paying off a 3% mortgage when a balanced portfolio yields 7% is myopic. — Garth
The “$25k/month welders” in Fort McMurray are contractors, have to pay for their own welding rig, their own accommodations ($$$$), their own diesel, their own welding supplies, etc.
My former neighbour was one. At the end of the day, after all expenses were paid, tools and truck properly maintained and depreciated, etc., his income was similar to someone with a $100k/year local salaried job. With far less job security than your typical $100k/year P.Eng.
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P.Eng probably inhales less carcinogens too.
“So just ensure you get the right kind (term, not whole life or universal)”
Can somebody please explain to me what makes term insurance better than the other two? Thanks!
RE: #12 JSS on 12.21.14 at 7:33 pm
Another blood bath tomorrow on the TSX
I doubt it. The Australia’s resource heavy ASX is up this Monday by ~2%. Canada is not all about oil despite what the media wants you to believe. The USA produces over TWICE what Canada does.
RE: #69 Mark on 12.21.14 at 11:32 pm
If taxes were eliminated, too many investment dollars would exist, and such would suppress returns on investments for the already rich.
Your kidding right? You are SO off the Mark with this one, it’s laughable.
Did b) in 2008 in Toronto, immediately followed by a) term life insurance for the amount of the mortgage, then c) after kids. Good tip (Leo Tolstoy) on front-loading the $14k as a boost, will plan to do that for older kid first, then the younger. Next priority will be maxing out TFSAs. Then, maintaining annual RESP and TFSA contributions, work towards growth in non-registered investment account & yes, paying down the mortgage.
“The money you put in there will grow free of taxation, and can be removed without any amount being withheld for tax. ”
Beg to differ Garth. My son was fined by CRA $1500 for not having claimed his annual RESP withdrawal ( while a full time uni student) on his income tax filing.
The background is this….CIBC ‘forgot’ to issue RESP withdrawal receipts that year. They admitted it in writing with the proviso that they accepted no liability. My son filed his tax as per usual. The assessment came back and he was assessed the fine for not filing the RESP withdrawal.
Our accountant filed stating that with the banks oversight and that my son had honestly submitted his income taxes if full otherwise in good faith the CRA should show some leniency as they had the paperwork and he didn’t. They could have warned him and asked him to submit. We asked why they hadn’t. The bank was ready to issue a letter supporting the claim.
Nope…not good enough says CRA…..take us to tax court. We appealed a second time along with pmt for the fine. HERES THE KICKER.
They answered that since we could afford to pay the fine then we should have no grounds to appeal as we were under no hardship….if we agreed we could ‘take them to tax court.
In other words they were saying “We’re going to screw you and if you don’t like …screw you…you have the money to absorb our ripping you off in this baldfaced manner. They told me to F off because I could afford to be cheated……Oh Canada.
I had a long talk with the acct over how much it would cost for ‘tax court. It would have added roughly $6000 in fee’s even if we were successful.
I asked the acct..”Who is the tax court?” He said…”Its the CRA.
I asked “Can anyone win”….he said no.
Why would your son take income and not declare it? — Garth
#63 Shawn Allen
when taxation becomes a voluntary phenomenon, only then will it not be theft.
otherwise, taxation IS force and coercion–regardless of how that money is used or spent.
Crap. Taxes are the tithe that democratic people assess upon themselves for services made available within society. If you don’t like it, get elected. — Garth
Shawn Allen
Correct me if I’m wrong, but isn’t tuition tax deductible? So a withdrawal from an resp that pays for schooling is tax neutral. Unless you’re taking the tax break and the kids are paying the lower taxes. CRA might not like that, but I don’t know.
#75 Piky Papa on 12.22.14 at 1:15 am
CST stands for Canadian Scholarship Trust?
I believe the onus is on the taxpayer to declare all income. Even if your son didn’t get the RESP receipt he knew he withdrew the funds, so had sufficient knowledge to file a complete return (yes, CRA expects you to keep your own records. Not most people’s idea of fun, I know.)
An education is a bargain at any price.
If you think education is expensive, try ignorance.
Doctorate in Blogology! That’s some funny stuff…
Smokey, if you like Bukowski, pick up a copy of ‘Barfly’. Ffor years it was the only movie I owned. Rourke is brilliant in it.
‘A toast, to all my friends!’
Don’t let your schooling get in the way of your education – Samuel Clemens
I have three children who are now at various stages of completing university. RESP’s have been an excellent way to save for their education. In fact, they have been such a great savings plan, I have always wondered whether the government would allow them to continue. Imagine giving one free money, $500, to save. The key is to understand how they work. Mine were always invested in a balanced portfolio with a reputable investment firm, then moved to safer fixed income as they started school. Set up a family plan so the monies can be shared if one chooses not to pursue higher education.
My advice, stay away from the scholarship funds you see in malls and doctor offices. They are both fee heavy and very limiting in what education opportunities they allow. More importantly, you lose your funds if your child chooses to not go to school.
And…..get good investment advice, university is expensive.
@JSS, post #12:
Oh, I must be dyslexic. Your post said something about a blood bath on the TSX. When I first read it I saw, in bold capital letters, the words AWESOME BUYING OPPORTUNITY. Speaking of which, there are some amazing deals out there now like HNY and AHY.UN. Yes, the Boxing Week sales have started early this year!
A few posters have been speaking negatively of University in favour of technical education and whatever else. I tend to agree with tomcat that a BA in English is a rite of passage for the middle class. A liberal education is a good thing for people to have.
But, it’s certainly possible that university may not be the best return on financial investment, and many people will for many reasons opt for training elsewhere. Check out the list of eligible educational “institutions” on canlearn.ca. It’s what I would call open-minded. If your kid wants to travel and is a bit off-balance and interested in theology, maybe he could be registered in a correspondence course at the Moody Bible College of Chicago, Illinois while backpacking around Europe? Maybe your daughter would be interested in training to be a “Professional Fitness Consultant” at the Medix School, or exploring scholarly pursuits at the Academy of Hair Passion in Mississauga?
The point is, it’s not a good reason not to use an RESP because you think “university” is “not for everyone.” Of course it’s not right for everyone, but the RESP scheme is so flexible in what it considers to be education that no one is going to be giving this money back. In this day and age, no parent should aspire for his child to pursue no education beyond education, so that argument against the RESP is simply based in an unfamiliarity of the rules.
#9 Smoking Man
So now you’re reading Aleister Crowley?
@Mark
How can you manage to be wrong on so many things at the same time?
Maybe find a mentor or something!
#94 Doug in London on 12.22.14 at 11:49 am
—
Sure, its a buying opportunity just like those plasma tv discounts. Storm the doors of your brokers office.
Then you can actually sit down and figure out why the TSX is super vulnerable to a multi-year shock instead of being a robot, but let me save you some time.
1. TSX heavily weighted oil, financials and construction
2. Oil suffering likely a 2 year bloodbath
3. Rolls into construction and into jobs
4. Which rolls into the banks who raise rates and cut HELOCs and mortgages
6. Which rolls into the consumers face
7. Which rolls into discretionary spending
8. and keeps rolling
Get it now?
http://www.businessinsider.com/canada-oil-sands-and-economy-in-trouble-2014-12
What can mortgage shoppers expect in 2015? Here are five predictions
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/five-mortgage-market-predictions-for-2015/article22147546/
With Ottawa paring down its mortgage exposure, the Bank of Canada estimating up to 30 per cent overvaluation in Canada’s housing market, over-indebted consumers and average home prices incessantly breaking records, policy makers will restrict the mortgage market yet again. New limits on government-backed mortgage funding will make it more expensive for lenders to fund mortgages, or new underwriting rules will make it harder to qualify for a mortgage. Maybe both.
Urges…right. The couple throwing their babies around…she’s lost a grip on that one child, hasn’t she? Pic really sends a message.
#74 Tomcat “…a BA is a rite of passage for the middle class. You might make $100k a year… but without the degree you are still not really middle class.
Hey Tomcat, you’re a obviously a proper City Gent.
But 1850’s London called – they want their bowler hat back.
It’s not different here:
http://www.businessinsider.com/canada-oil-sands-and-economy-in-trouble-2014-12
@ 65 Nemesis on 12.21.14 at 11:26 pm
Uh? Lol. Never heard of those guys before. The lead singer is unexpected for sure ;)
And where the hell is Cramdown?
Best,
HD
RESPs and Tuition Deduction
I’m (not so) Stupid asked me:
Shawn Allen
Correct me if I’m wrong, but isn’t tuition tax deductible? So a withdrawal from an resp that pays for schooling is tax neutral. Unless you’re taking the tax break and the kids are paying the lower taxes. CRA might not like that, but I don’t know.
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Others are much more familiar about this than I am but:
1. Yes the idea is to get the RESP withdrawal out in the kid’s name without paying any taxes if possible.
2. The main reason that can be done is the personal deduction. Also as you say tuition is deductible, to an extent.
3. I believe the maximum tuition deduction may be $5000. And the deduction can be transferred to the parent but I believe (not real sure) only if not needed by the kid. Therefore it might be better to take a smaller RESP deduction so that the full tuition can be transferred to the parent. But that might bite in the end because eventually the withdrawals of the grant and the gains should occur while the kid is still in school.
4. A decent summer job in Alberta can use up the exemptions and put the kid into a 25% tax bracket quite quickly. At that level there is no much advantage of thinfgs being taxed in the kids name and the parent in Alberta is usually in a 32 to 36% tax bracket. Consider taking out $15k (of grants and gains) the first year if the summer job was not much. This applies if you have lots of grant and lots of gains that need to be taken out eventually. You can only get $5k ot the first three months, so you may need to get to the bank ASAP to try to get some more out by year end if you have a first year kid.
5. The point is that minimizing the taxes on an RESP is fairly complicated.
RE: #77 YoungBuck on 12.22.14 at 1:18 am
This greater fool needs some ADVICE:
I am a recently graduated 26-yr student with $20,000 in student loans at 7%.
I’d pay off the loans first. That would be a guaranteed 7% after tax return. Once the loans are payed off, continue to make payments, but into a Garth type portfolio stuffed away inside a TFSA.
And don’t listen to the lady at the TD bank branch in Bby when she told my wife; “you can’t invest the RESP money it has to go into something safe like a GIC otherwise you can’t get the government grant”. More bad “advice” from a know-nothing front-line bank employee. Or she just wanted to sell us a GIC. Where does the bank get these people?
While I agree with almost everything Garth mentioned I still believe it is imperative to get insurance should you have a young family. I don’t think Garth should be swaying the people away from it. While it may be unlikely you’ll kick the bucket soon after having a child, you just never know when your time may come. For a small annual fee it just makes sense to secure your family, especially if there is only one bread winner.
I said term only. In general Canadians are vastly over-insured. — Garth
This Saudi oil minister keeps drilling more nails in Alberta’s coffin.
Half the careers and trades people train for these days will be obsolete in 20 years and that means white collar jobs too. AI, Algos, robots and automation are going to guarantee your kids stay in the basement forever. Household income is going to be a different word in 20 years cause its likely to mean multiple generations existing under one roof to keep it all together.
Anyone that cannot see the trends coming down the pike and is sending their kids on a traditional path that the boomers did is a fool cause its not going to last or be there at all.
Smoking man may be right about education in the end after all.
Thanks for this post a timely answer for our family.
Taxes are the tithe that democratic people assess upon themselves for services made available within society. If you don’t like it, get elected. — Garth
—
Funny, I never got to participate in the fair assessment of my taxation and I don’t abrogate that right or any other just because I checked some box on a piece of paper every 4 years.
Additionally, the same govt that I apparently voted this power to also uses it to keep the status quo and limit my democratic choice and influence.
On top of that, the same individuals that apparently are representing my interests use my wealth and productive efforts to feather their own nest after their stint for the people.
Like becoming a invisible back bencher would do any good. I can see why they sleep back there.
But those days have ended because I have structured my own personal income and my companies income to ensure these corrupt individuals get almost none of my labour. The rules are there, I used them. Everybody else can go vote and pat themselves on the back.
So, we’re supporting you? — Garth
Saudi’s don’t care if oil falls to $20
They want the high cost producers out of the market
Bye Bye Canada
otherwise, taxation IS force and coercion–regardless of how that money is used or spent.
Crap. Taxes are the tithe that democratic people assess upon themselves for services made available within society. If you don’t like it, get elected. — Garth
++++++++++++++++++++++++++++++++++
Everyone knows getting elected means nothing when the system is clearly designed as a dictatorship. No I don’t know the answer to change it. But the way it currently functions is anything BUT democracy.
Wow. Just rebalanced my portfolio on the U.S. side and made a fancy 10% return. I’ll wait for either a U.S. backlash and rebuy, but am also thinking of investing in the oil sector since I can now get in. Any thoughts?
My former neighbour was one. At the end of the day, after all expenses were paid, tools and truck properly maintained and depreciated, etc., his income was similar to someone with a $100k/year local salaried job. With far less job security than your typical $100k/year P.Eng.
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P.Eng probably inhales less carcinogens too.
++++++++++++++++++++++++++++++++++
If everyone pushed a mouse around, who would build “the stuff”? You think like a Public Sector worker.
#88 Happy Renting on 12.22.14 at 10:46 am
Yes CST stands for Canadian Scholarship Trust?
Are they any good ?
@not 1st, post #98:
Yes, but when there’s so much negative sentiment about the TSX (or blood in the streets) that’s the time when the best sales are. Without exception, every time there was a buying opportunity the front page of the financial section of the paper wasn’t full of articles about how great a buying opportunity existed. Instead there was a lot of pessimism about how everything was going to get worse. I mentioned HNY, which is an investment in natural gas. Every time I hear the gas furnace or water heater come on I worry about the future of gas. Every time I use electric appliances during peak power use periods (when gas fueled generation is running) I worry about the future of gas. Speaking of which, every time I read or hear about old coal fueled generating stations in the United States (as well as a few in Canada like the Lennox Generation Station near Kingston, ON) being converted to gas I worry about the future of gas. It’s well worth noting HNY has a generous yield.
As for oil, last week I mentioned I was on the 401 in Mississauga, in bumper to bumper traffic with all those other gasoline and diesel fueled cars and trucks, and watching many planes taking off and landing at Pearson International Airport. I also saw a GO Train and CN freight train, both pulled by diesel electric locomotives, going by. At that time I really wondered if there could ever possibly be a future for oil, and still wonder to this day.
None the less, I’ve been storming Web Broker scooping up these amazing deals.
SAUDI OIL MINISTER: I Don’t Care If Prices Crash To $20 — We’re Not Budging
Read more: http://www.businessinsider.com/r-saudis-naimi-says-opec-will-not-cut-output-however-far-oil-falls-mees-2014-12#ixzz3MetBrIcE
http://www.businessinsider.com/r-saudis-naimi-says-opec-will-not-cut-output-however-far-oil-falls-mees-2014-12
#111 not 1st
an immoral action (i.e., theft) cannot be justified simply because the majority supports it.
#119 saskatoon on 12.22.14 at 3:57 pm
#111 not 1st
an immoral action (i.e., theft) cannot be justified simply because the majority supports it.
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Who said anything about theft?
Legally, I can earn $100k per year in elligible dividends without any taxation at all. On top of that, my incorporated business can earn up to $500k per year and only pay 10% tax which I will knock to zero with some well placed business deductions.
Just working in the system my friend.
#109 not 1st on 12.22.14 at 1:50 pm
Half the careers and trades people train for these days will be obsolete in 20 years ..
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Really??
What trades were you thinking of? Coopers, blacksmiths, candle makers and buggy whip makers?
Construction trades? Nope. unless we are getting robots to build. Should be along about the same time as flying cars.
Maintenance type trades? Nope. Somebody will always be required to maintain and repair the robots and flying cars.
Electronic and electrical technicians? Are you kidding me?
Yes we are losing manufacturing but please elaborate on where we will suffer trades obsolescence?
#111 Not 1st
Sorry, I agree with Garth. Federal taxes are the ‘tithe’ you pay to the country. State, or provincial sales and income taxes the ‘tithe’ you pay to your state/province of residence.
That said, tax ‘avoidance’ schemes are perfectly legal, and should be utilized to your best advantage. HINT: use a CPA or enrolled agent to help you design your best options to minimize the impacts. Are you using your RRSP. TFSA, RESP etc to your full advantage? You do avoid credit card interest, right? If you use a credit card you reap the rewards offered, right? Good if you do, silly if you don’t.
So, the minimized taxes we DO pay is merely the toll for living in our respective places. Is that burden ‘too much’?
Consider your choices carefully when next in the voting booth. nuff said
#99 Victor V on 12.22.14 at 1:01 pm
What can mortgage shoppers expect in 2015? Here are five predictions
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/five-mortgage-market-predictions-for-2015/article22147546/
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you left out the good part;
lower rates – prime -1.5% on variable
#113 saskatoon
Taxation isn’t immoral because the government has the moral and legal right to impose itself on others: the only group that has such power.
If you don’t like it, run for office then!
Well, another decent day in the market! go low oil !!!
US accounting control frauds don’t hurt right now, either…
Government Bashers
Without an economic system which includes the government no one would be more than a hunter-gatherer.
It’s fine to call for improvements and to speak out against waste and abuse.
But to bash all government and all taxes as theft is to bite the hand that feeds us.
Without trade, the rule of law and an organized society including government we would be nothing.
Get in the game. Play to win, not to whine.
#114 Uh Oh Canada
also thinking of investing in the oil sector
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If your portfolio is diversified then you already own the energy sector. There is a certain allure to sectors & commodities. Goldbugs for the most part get the real understanding of risk, then again?
Piky Papa, stay away from CST. I wish we would of. You can get a small return but it seemed to me to just be forced savings. Search elsewhere
Multos timere debet, quem multi timent
Excellent post on the present and future Russia – China rapprochement:
http://goo.gl/0tR2K3
“…Make no mistake, what we are seeing is something unprecedented in history and it is much more than just an “alliance”. After all, an alliance can easily be broken and country A can decide to switch from an alliance with country B to an alliance with country C. In the case of the RCSA what we are seeing is something much more akin to the birth of Siamese twins: in a geopolitical tectonic shift, Russia and China have decided to be shared not just “at the hip”, but with many “vital organs and systems” including energy and defense, of course, but also their economies and long term development policies. Each symbiont will keep its own head and brain, but they will share “torsos”….”
Very long read and well worth it!
#116 Piky Papa on 12.22.14 at 3:31 pm
The paragraph from Garth’s post that you’ll want to reread is below. Learn a bit about index investing and manage the RESP yourself (we’ve got our daughter’s with Questrade). Tell the CST lady you’ve opened an account elsewhere and she’ll leave you alone once there’s no longer a sale to be made.
Congrats on the baby boy and for thinking about his RESP early on.
First, never talk to the nice lady or smooth dude who calls you right after the child pops. These are baby vultures, almost always working for RESP-selling outfits with fat fees and low returns. So, never give money to anyone who has the word ‘scholar’ on their business card and drives an Audi. The RESP you want is self-directed, which means it can live at any bank or with any advisor, and into which you can place any investments you wish.
#128 Extron on 12.22.14 at 5:30 pm
Right on Extron, I am glad I was able to have my wife hold off on it and give it some thoughts. The CST lady actually pulled out the iPad and asked my wife for her driver’s license. I convinced the wife to leave that out for next time when she comes back. She still managed to type the baby’s name and wife’s information into the iPad though. Apparently it’s a way to ensure that other CST agent can’t come in and scoop the deal from her. First agent to enter customer’s information into the system wins. Aggressive sales tactic!
P.Eng probably inhales less carcinogens too.
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If everyone pushed a mouse around, who would build “the stuff”? You think like a Public Sector worker.
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Engineers and robots.
Russian bank gets 30 billion rouble bailout – business live
The Guardian – 16 hours ago
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http://www.economist.com/news/finance-and-economics/21607851-setting-up-rivals-imf-and-world-bank-easier-running-them-acronym
Futher to Garth’s blog……late last week we viewed (no intention to buy at the moment) a home in Calgary.
It had been relisted early last week. They dropped the price 8 percent. Realtor said it was not overpriced, but reduced because of no call during the two weeks that it was listed at the higher price.
The listing realtor wanted to re-list instead of doing a price reduction
#107 Waldo: “I said term only. In general Canadians are vastly over-insured. — Garth”
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‘Decreasing term’ re life insurance when you have a young family is the way to go. It’s cheap. It’s there if you need it.
Re car insurance — I have never had collision/comprehensive. it’s very expensive…and if I’m stupid enuf to CAUSE an accident then I’ll bite the bullet at that time. Chances of that happening are low. Some might disagree…but we CAN be ‘insurance poor’.
Garth, ever considered a comment ranking plugin? I only read posts that search with “— Garth”
Surely I’m missing some useful content but the noise painful.
The RESP is one of the best deals around. Instant 20% return. Ours is 100% stocks for now in TD e-Series. In 10 years each kid should have about $70K in 2014 dollars, which will more than cover tuition and books at the local U. I know the grandparents also have a trust account for the kids. Much better than crappy Christmas toys. However, I am thinking of not divulging the existence of the RESP (or maybe minimizing its true size) until they are ready to start higher education. Worried that it could contaminate their work ethic (desire to work part time jobs, etc.)
Those unions take the competition out of the equation, that is why trades make that much. Take unions out and see how quick those incomes come to balance like all the other work lines out there. Most government workers make over six figures, including receptionists, and yes they are union workers. Talk about self entitlement mentality…Say why would a doctor choose to stay here when the receptionist at city hall makes close to that money?!! You guess it, unions. The entitlement mob.