Lifestyle |  New parents ask for advice

Lifestyle | New parents ask for advice

Parents for a few months, Alexandre*, 28, and Antoinette*, 27, want to update their financial planning in order to improve their newfound savings capacity after a few years of budget turmoil.

Posted at 6:00 AM

Martin Valeris

Martin Valeris
Journalism

posture

Whether it was with the end of Alexander’s college studies and the debts that come with it, or their early years under favorable conditions in banking, financing their first real estate purchase, and the arrival of their first child: Alexandre and Antoinette’s lives, and their financial and budgetary schedules, they were absolutely calm in their Last few years.

Now that they’ve settled down a bit, they’ve found that their family budget is headed toward free cash in the $2,000 per month range. They want to make better use of this money in order to replenish still very depleted savings assets, with short- and medium-term tax considerations.

“Financing for our first home is already well established over five years, before getting a flat rate of 1.79% last year before the sharp price hike in order to counter inflation,” Antoinette points out Journalism.

“But going forward, we are 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 wise at this time when our savings accounts are registered [REER et CELI] With the tax benefits still very bare and with large amounts of unused contributions on both sides? asks Antoinette.

“If we set up a RESP for our child, will there be tax elements to consider between me and my wife depending on the origin of the contributions? Also, once our child’s RESP contributes to the annual cap, how should we prioritize contributions among our RRSPs or TFSAs?”

Furthermore, the couple are questioning the proper way to include this financial planning early January to pay off the principal on Alexander’s $70,000 balance in student loans.

Currently, this debt is funded at the prevailing base rate plus 1%.

Numbers

Antoinette, 27 years old

Job income:
$72,000

Personal Financial Assets:
RRSP: $5500
TFSA: $15,000
Defined Pension Plan: An estimated pension of $84,000 (61% of expected salary) from age 65
Unregistered savings account: $15,000

Alexander, 28 years old

Job income:
$62,000

Personal Financial Assets:
RRSP: $0
TFSA: $15,000
Defined Pension Plan: An estimated $60,700 pension (about 49% of expected salary) from age 65
Personal Liabilities: $70,000 student loans (repaying beginning January 2023)

Common non-financial assets

Family residence: about 500 thousand dollars
Common Liabilities: $435,000 Mortgage Loan (5-year fixed interest rate of 1.79%)

The main expenditures from the family budget

Residency: $35,000/year
Lifestyle: $25,000 a year
RRSP, TFSA, and future contributions to RESP: approximately $24,000 expected in 2022

Alexandre and Antoinette’s case and questions for analysis and advice were provided to Julie Tremblay, a financial planner and financial security consultant at the IG Gestion de patrimoine offices in Quebec and Levis.

Julie Tremblay was also a board member of the Quebec Institute for Financial Planning (IQPF) from 2019 to 2022.

Tips

“Based on their budget, young couples make $2,000 a month in terms of the ability to save. It’s an excellent start to refresh their financial priorities,” notes Julie Tremblay.

First, after they become parents, “initiating contributions to a rehabilitation response plan for their children is a very beneficial way to save and invest,” stresses Ms.I Tremblay.


Photo by Eric Labe, Le Soleil Archives

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

“They can contribute up to $2,500 per year; an amount for which they can seek support from 30% of governments. When their child returns to post-secondary studies, the amount accumulated in the health insurance plan can be withdrawn as partially taxable income. [subventions et plus-value cumulatives] On behalf of the child. As for the capital, parents can choose to take it back or leave it to their children,” explains Julie Tremblay.

To set up this program, Alexandre and Antoinette recommends making a “scheduled contribution” of $208 per month immediately out of their ability to save.

Second, regarding RRSPs and TFSAs for the still-empty young couple, Julie Tremblay suggests a similar approach between spouses, but with Alexander’s peculiarity due to his student loan balance.

“For Antoinette, I recommend withdrawing her assets at TFSA [15 000 $] And add $1,000 in cash in order to contribute to the maximum RRSP of $16,000 for the 2022 tax year. She’ll get a big tax refund next year that she can use to save a portion of the amount withdrawn from the TFSA. »

For the rest, “As her RRSP contributions will be up-to-date, Antoinette will be able to continue to contribute, but with attention to her annual limit set by the pension adjustment resulting from her participation in her employer’s retirement plan.” , defines Julie Tremblay.

In the Alexander case, A.I Tremblay recommends that he “make the same treatment as his wife and use every $15,000 in TFSA to contribute to the RRSP.”

However, given the large amount of unused RRSP contributions ($41,000), Julie Tremblay suggests increasing her subsequent contributions when cash becomes available in her budget.

Tax refund [des cotisations au REER] Next year may be used again to contribute to the RRSP each year, and so on until the amount of unused contributions has been exhausted.”I Tremblay.

Furthermore, “If Alexandre and Antoinette contribute a total of $31,000 to their RRSP this year, it will result in a significant increase in family allowances over the next 12 months. These increased allocations can then be used to contribute to the RESP for their children without making Too much effort in the budget.”

Also, Julie Tremblay asserts, Alexander will then have to adjust his “catch-up” contributions to the RRSP in accordance with the start of his student loan minimum repayment, at the beginning of 2023.

The student loan must be repaid within a maximum period of 10 years. But at least the interest fee [à taux fixe ou variable] Tax-free. »

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

Are you planning a project that requires a judicious use of your money? Do you have financial problems?

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