: to . meet education bcos

15, the RESP planholder, whosetax. |
tate”is 39.8 per.cent, would have.
eamed almost $16,000.in interest -

By Andrew M. Roblin
These days, there are few carecrs
that don’t require some kind of
post-secondary education.. Can-
ada’s chefs, mechanics, secretaries,
- dental assistants and photographers
all benefit from post-secondary
training at community and techni-
cal colleges.

Traditionally, it w was only the doc-

tors, lawyers, and other “profes-
sionals” who needed extensive
savings and loans to cover their
education. Today, the range. of
’ careers that require some type of
post-secondary education has ¢x-.
ploded, and so have the costs.

In the health services industry for .

example, the cosis can. run from
_ $2,500 for an ambulance attendant
(including tuition, books and
travel) to over $45,000 fora doctor
(GP).
To help parents, grandparenis,

‘ " mature students and others plan for

and survive these costs, a new type
of savings program is.now avail-

_ able through financial advisors and |

brokers across Canada. Known as
Registered Education Savings

Plans, these newer ‘plans are -

designed to be more flexible than
the older, more established scholar-
ship trusts.

An RESP is a ‘vehicle i in which

one’s savings for higher education
are put to work until they're
necded, earning interest, dividend
income, or capital gains thatremain

_shelicred from income tax.

The planholder contributes on a
monthly or lump-sum basis, up toa
maximum of approximately

_ $31,000. per plan during a 21-year

period. These contributions are not
tax-deductible and may be
withdrawn, with no tax. penalty, at
anytime. However, the eamings on
those contributions accumulate tax
free and only become taxable in the
hands of the. benefi iciary. when

_ withdrawn.

The one fequirement is that: the
beneficiary must attoid a post-
secondary institution in Canada-or
an approved one abroad, before the
earings can: be released, The
beneficiary may be anyone and can

be changed: atanytime. There are no

age restrictions.

Although there is a maximum
contribution level, it doesn’t take
this amount.to make a RESP
worthwhile. An individual could
pay for higher education on only
the intercst camed on the contribu-
tions to an RESP. If $100 was

deposited on.a monthly basis and ©

for 15 years it carned 8 per cent in-
terest: annually, at the ond of year

CUSY. —

“fall RRSPs~ |
were the same... 6

. # guaranteed

decision™
would be

interest rates,

Me a ed BIOS Mian ae A TE ea tae BR ee ec Ce ec, Ls Sen ol ce

alone and saved up to $8,000 in

‘taxes!. The berieficiary could then

use the $16,000 interest, while the

$18,000 originally contributed by.

the planholder may be reclaimed. .

Although RESPs are similar in, .
many ‘ways, they differ greatly ©

when it comes to features such as

fees and sales charges. There is a - |

range of plans available, so shop:

ping for features is important. -

Selecting the right plan now will
make surviving future tuition fees a
great deal easicr!

‘Andrew Roblin is executive vice-president,
‘Spectrum Mutual F ands, @ subsidiary of Sun-

Life of Canada. -

‘| 2. All earnings in an RESP are tax-deferred. ‘ A.
-13.All earings in anon-RESP investment are subject totax. Tex rate of 39. a per cent cal- :

-F culated for investor with taxable income of $40,000 (tax rate for taxable income ranging:
fram $27,501-$55,000). Esiablished for approximate combined: Federal and Provincial |”

dee ieee Nd Ed Mere a gem Senta BR cat le EE Bade OY ee a ss

Ae:

000

ar esa ae pee om ace meee tees ey oeeee

“After 10 Years . . Aber 15 Years Ales 20 Years

‘Assiimptions:
1. All contributions are made i in » afler- tax dollars,.

Jax rales, including Federal Surtax. The calculation assumes a 50 per cent Provincial tax
raic.

ng tne atte cane

This chart is meant to illustrate the i importanes of tax-deferred accumulation and nat to won

predict future investment results. —

THREE AVAILABLE.

RRSP options at moti

When the time finally comes for
well-camcd retirement or to mature
your RRSP savings to provide in-
come for some other purpose, there
are three main options open. You
can decide the time hascome when-
ever you like, but it can’t be later

71.

“The first option — simply to cash |
_in your RRSP. holdings —- is really
no option at all in normal cir-

cumstances because the full
procceds are all immediately sub-

| ject to tax in one- ear, It would be

a pretty ‘painful experience indeed

for thost people ‘who went! ‘that®

route,
Realistically, the choice is be-

“tween establishing a Registered ©
Retirement Income Pund (RRIF).

and buying a lifetime or “term cer-
tain” annuity. Both have ad-

‘conceivably you might decide to

than the year in which you become

. continue to enjoy the challenges of .
managing your own investments?

vantages and disadvantages; your
individual needs and circumstances :
will decide what's best for you. Or,

combine options,
How much
income?

. Its important to calculate whatin-

come you'll ‘need in‘ retirement.

‘Will you be-carning moncy. from a

part-time job or consulting? Do you
have a steady flow of funds from
other investment sources? How old

. ate you? What's your marital

status? What's your life expectan-
cy?

And perhaps most important of
all; would you be happiest with a
fixed monthly income you don’t
have to worry about?’ Or will you

Loh

635-2387

The Mutual Group

| Frank Donahue
Mutual Life of Canada

Skeena Mall
Terrace, B.C.

Quite Simply _
The Best R.R.S.P..
Options Available

* (4) Trust Companies -
* (7) Investment Funds

* R.R.S.P. Loans
100% of deposit ©

. * Personal Service .

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| enna aos Friday tl pm a
“4817 Gfolp, Teriece, BC. a ee See Se
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Flexible

payout vehicle

The RRIF is a flcxibic payout

‘mechanism designed to help mini-
| ..mize-tax, maximize cash flow and

“fi ght inflation. Income from invest-
‘ments in a RRIF is not subject to

immediate - ax; il can contain. a

range of investments so it can still ©
work for you in retirement, and by
including a proportion of invest-

~ ments with growth potential, itcan

offset inflation, Itdocsn't guarantee

‘an income after age 90.
Annuity ©

fixes income ;

If you choose the. annuity route,
you can sit back and depend on a.
fixed income, although obviously
the amount will depend on the size

of your RRSP investment and the
type of annuity you buy.

‘Unlike a RRIF, however, the rate

~ | .-of retum of an annuity is estab-

|. lished at the time of purchase and is.
fixed from then on. Lifetime (or
’“life survivor” annuities are usual-
‘ly rather more costly than fixed-
term instruments because the.
fifelong versions don’t guarantee
the eventual cost to the firm selling

them. . .
Huge range

of products
There’s an enormous range of

RRIF and annuity products to be»

had out there in the marketplace

and it's the. easiest thing: in the —

world to make an expensive mis-

take you could regret for the rest of -

your life.

For instance, proceeds for even
the simplest annuities vary greatly
among different: insurance com-

panies and the combinations, per-
mutations and payouts available -

among different RRIF packages
can be even more confusing and
‘potentially dangerous.

So when your RRSP maturity

time arrives, it's essential to shop .

around. Do your homework.

|. thoroughly; take all the time you

need; and get advice from

| knowledgeable people you know
“and trust.

Timely tax tip

_ You may transfer pension income

- | nd certain retiring allowances into

registered retirement savings

|. plan. Obtain the Pension and RRSP

Tax Guide for details, If you trans-
fer alarge amount intoRRSPs, you

a may be subject to minimum tax on .
. the transfer. Refer tothe “minimum
tax” section inthe Guide for detail ao

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