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As students prepare to begin their first year in university, there can be plenty for parents to consider when it comes to managing their personal finances. Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, discusses what to keep in mind, including changes to RESP regulations.
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* For parents who have children starting at college or university in September, there can be plenty to consider from a personal-finance perspective. Here to discuss is Nicole Ewing, Director of Tax and Estate Planning at TD Wealth. Nicole, thanks for joining us today.
* Oh, it's my pleasure.
* So Nicole, if you've got a child enrolled in college or university-- we know about RESPs, but can you remind us what we should know?
* So we're thinking then that, presumably, all of our contributions have been made, and now, we're in the moment we need to start thinking about withdrawing that, and we want to do that as effectively as possible to get the biggest bang for the buck. So just to level set, there are two types of payments that can be withdrawn from your RESP. You have the contributions that you have put in yourself, and then you have the investment growth and the grants that have been paid on that.
The treatment, or the tax treatment, is different, depending on how you are designating that withdrawal. So if it's a contribution, that will come out tax free. That goes-- that's a contribution.
The investment growth and the grants are going to be-- there are certain limits around that. So these are educational-assistance payments, and they are limited in the first 13 weeks of the school year at a qualified educational institution. And we have to make sure that we're following all of those, that criteria, but we want to really think about how we're going to pull that money out and what the income of the individual student is going to be at that time.
* We have to be thoughtful about how we pull that back out.
* We do, because the goal is to get it all out tax free. That's the idea here, or the minimum amount of tax possible. So the government has, for the first time in 25 years, I believe, upped the amount that you can take out in that first 13 weeks. The reason there's a limit at all is they don't want people signing up and taking all their money, and then immediately withdrawing from school.
So they put that 13-week limit on there, which is usually how long you can't come out of school. You can't drop out without being on the hook for the money. So that has increased from $5,000 to $8,000 for full-time students and $4,000 for part-time students. So it's a really-- we want to get those educational payments out as quickly as possible.
They're going to be taxed in the hands of the student, and presumably, they're going to be in a lower tax rate than they otherwise would have been or you would have been. And with the $15,000 amount that they're able to earn tax free, we shouldn't have too many taxes on that. So we want to think about, when are we pulling it out, and try to get those educational-assistance payments out as quickly as possible, of course, without draining the funds that we're going to need for future years, but be mindful that that's-- we get those out more quickly, more quickly.
* OK, so now, other than withdrawing from your RESP, what else should we be thinking about?
* Well, for many students, this is their first time being away from home, or even if they're still at home, but being faced with a whole bunch of choices that they may not have had before. So we really-- if we can have people really understanding early the impact of debt, that would be-- if there was one thing I could tell the students going to school is be wary of people who are standing out front, offering you to sign up for a credit card without really thinking through what that is, what your repayment schedule would be for those sorts of funds. So debt, be really careful about that.
Also, if we're now turning 18 then we can start thinking about TFSA contributions. So if there's any part-time jobs and we do have some excess money, we want to be mindful about how we're using that and earning income on that. So the financial literacy part is going to be really important, I think, for students to be aware of. And a great way of doing that is having a budget and thinking through what expenses you're likely going to have, and if you're a parent, helping your child understand what that means.
* How to manage your money in university, because that's very critical, as you said.
* It is, and I say-- but the credit card-- I was one of those people. I signed up for it, and I thought that would be great. The other thing, if you're a student who is on a bursary or a scholarship that is related to your academics, helping your student understand that losing that has a cost. And if you are losing it, because you want to have a part-time job that really isn't going to advance your career in any way or your scholastics, you're giving up, potentially, the grades that will maintain your scholarship for some spending money.
And that's something I, unfortunately, saw a lot of the students I went to school with who came in with these tremendous scholarships, and they were great. But they weren't able to maintain them, because they were doing these other extracurricular type activities. So just be really mindful of the dollar amount and how, if you lose that scholarship, what's it going to take to get you back in line?
* OK, now, I want to talk a little bit about housing, because we've heard so much about the shortage of housing given the new influx of immigrants, international students. What should parents be aware of when it comes to student housing?
* Well, I mean, there's a lot of different options, and students are-- you know, they might be coming from other jurisdictions. And they're here for the first time. So I'd say getting familiar with what the landlord and tenant laws are in the province that you are in, because they are quite different, so being aware of when you're signing that lease, what you're signing up for, and the financial obligations that come with it.
So if we are having roommates, for example, what does our lease say about if that-- are we on the hook for the entire amount, or are we only responsible for our share? Many parents, of course, think purchased homes or condominiums if they have multiple children. It sometimes makes sense to do that and to purchase a condominium or a home that your child will stay in and rent out those other rooms. Again, very cautious about understanding what the financial obligations are.
If you've got hydro bills and telephone-- probably not landlines. I'm dating myself. These are the sorts of things that we want the students to really understand. These are contracts with financial consequences, really, to be aware of what those extra costs are. And depending on the type of home that you might get, there might be those additional costs.
So is it inclusive? Is parking included? Is there transit nearby that can help you cut down on some of the costs that you would otherwise be incurring? So there's a lot of factors that go in, depending on what type of housing unit your student finds themselves in.
[MUSIC PLAYING]
* Oh, it's my pleasure.
* So Nicole, if you've got a child enrolled in college or university-- we know about RESPs, but can you remind us what we should know?
* So we're thinking then that, presumably, all of our contributions have been made, and now, we're in the moment we need to start thinking about withdrawing that, and we want to do that as effectively as possible to get the biggest bang for the buck. So just to level set, there are two types of payments that can be withdrawn from your RESP. You have the contributions that you have put in yourself, and then you have the investment growth and the grants that have been paid on that.
The treatment, or the tax treatment, is different, depending on how you are designating that withdrawal. So if it's a contribution, that will come out tax free. That goes-- that's a contribution.
The investment growth and the grants are going to be-- there are certain limits around that. So these are educational-assistance payments, and they are limited in the first 13 weeks of the school year at a qualified educational institution. And we have to make sure that we're following all of those, that criteria, but we want to really think about how we're going to pull that money out and what the income of the individual student is going to be at that time.
* We have to be thoughtful about how we pull that back out.
* We do, because the goal is to get it all out tax free. That's the idea here, or the minimum amount of tax possible. So the government has, for the first time in 25 years, I believe, upped the amount that you can take out in that first 13 weeks. The reason there's a limit at all is they don't want people signing up and taking all their money, and then immediately withdrawing from school.
So they put that 13-week limit on there, which is usually how long you can't come out of school. You can't drop out without being on the hook for the money. So that has increased from $5,000 to $8,000 for full-time students and $4,000 for part-time students. So it's a really-- we want to get those educational payments out as quickly as possible.
They're going to be taxed in the hands of the student, and presumably, they're going to be in a lower tax rate than they otherwise would have been or you would have been. And with the $15,000 amount that they're able to earn tax free, we shouldn't have too many taxes on that. So we want to think about, when are we pulling it out, and try to get those educational-assistance payments out as quickly as possible, of course, without draining the funds that we're going to need for future years, but be mindful that that's-- we get those out more quickly, more quickly.
* OK, so now, other than withdrawing from your RESP, what else should we be thinking about?
* Well, for many students, this is their first time being away from home, or even if they're still at home, but being faced with a whole bunch of choices that they may not have had before. So we really-- if we can have people really understanding early the impact of debt, that would be-- if there was one thing I could tell the students going to school is be wary of people who are standing out front, offering you to sign up for a credit card without really thinking through what that is, what your repayment schedule would be for those sorts of funds. So debt, be really careful about that.
Also, if we're now turning 18 then we can start thinking about TFSA contributions. So if there's any part-time jobs and we do have some excess money, we want to be mindful about how we're using that and earning income on that. So the financial literacy part is going to be really important, I think, for students to be aware of. And a great way of doing that is having a budget and thinking through what expenses you're likely going to have, and if you're a parent, helping your child understand what that means.
* How to manage your money in university, because that's very critical, as you said.
* It is, and I say-- but the credit card-- I was one of those people. I signed up for it, and I thought that would be great. The other thing, if you're a student who is on a bursary or a scholarship that is related to your academics, helping your student understand that losing that has a cost. And if you are losing it, because you want to have a part-time job that really isn't going to advance your career in any way or your scholastics, you're giving up, potentially, the grades that will maintain your scholarship for some spending money.
And that's something I, unfortunately, saw a lot of the students I went to school with who came in with these tremendous scholarships, and they were great. But they weren't able to maintain them, because they were doing these other extracurricular type activities. So just be really mindful of the dollar amount and how, if you lose that scholarship, what's it going to take to get you back in line?
* OK, now, I want to talk a little bit about housing, because we've heard so much about the shortage of housing given the new influx of immigrants, international students. What should parents be aware of when it comes to student housing?
* Well, I mean, there's a lot of different options, and students are-- you know, they might be coming from other jurisdictions. And they're here for the first time. So I'd say getting familiar with what the landlord and tenant laws are in the province that you are in, because they are quite different, so being aware of when you're signing that lease, what you're signing up for, and the financial obligations that come with it.
So if we are having roommates, for example, what does our lease say about if that-- are we on the hook for the entire amount, or are we only responsible for our share? Many parents, of course, think purchased homes or condominiums if they have multiple children. It sometimes makes sense to do that and to purchase a condominium or a home that your child will stay in and rent out those other rooms. Again, very cautious about understanding what the financial obligations are.
If you've got hydro bills and telephone-- probably not landlines. I'm dating myself. These are the sorts of things that we want the students to really understand. These are contracts with financial consequences, really, to be aware of what those extra costs are. And depending on the type of home that you might get, there might be those additional costs.
So is it inclusive? Is parking included? Is there transit nearby that can help you cut down on some of the costs that you would otherwise be incurring? So there's a lot of factors that go in, depending on what type of housing unit your student finds themselves in.
[MUSIC PLAYING]
