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RESP AND RRSP advice's !

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  • Jul 24th, 2018 8:51 am
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Member
Nov 9, 2015
369 posts
37 upvotes
ON

RESP AND RRSP advice's !

I'm a new comer, almost 3.5 years in Canada now. I'm have $50,000 CAD in my chequing account and $40,000 CAD in my home country (earned from there). I own a home in Durham region, my first mortgage renewal is coming in 2020, $360,000 balance in my mortgage now. I earn closely 105,000 CAD and my wife brings in $30,000 CAD in part time. We didn't start any RRSP's and RESP's yet because none of the financial advisor's are guiding us properly. I have more than $40,000 RESP room.
Should i invest in RESP and RRSP's ?
or should I go for a second home and rent it out (keep in mind about his crazy market) ?
Finish our mortgage ASAP ?
Kindly advice.
Note: I have two kids (4.5 year's and 2.5 year's old).
Last edited by Guest9283837 on Aug 8th, 2018 2:44 pm, edited 1 time in total.
Be positive & stay blessed :)
19 replies
Deal Addict
Feb 22, 2007
2107 posts
300 upvotes
Mississauga
i would automatically do RESP first right away...
for each kid...
and you can go one year back to get the gov grant.

EVERYBODY (no matter your income level) will get 20% on a max of $2,500 contribution. so 2 kids, 2017 and 2018, $2,500 max = $10,000, put that money in, and you will get $2000 extra right off the bat...invest these in mutual funds/stocks etc. don't leave this money in just a savings account.

Then I would do RRSP or even TFSA - that depends on your tax bracket, getting refunds, your abiliity to save for retirement etc.
Jr. Member
Feb 8, 2018
126 posts
43 upvotes
RRSP - save on taxes now and pay at lower rate later, when you retire. Thats the main idea. So you need to decide when you are going to retire, how much money you will need, calc how much you have to save and invest. Now you are hitting >40% tax bracket, you can put some money into RRSP to lower your taxes today and pay taxes at even lower rate when you have no income. If you put 25K into RRSP now, you will get 9-10K back from CRA because your income will be 80K. Also, due to lower income, you will get more child benefits, However, all the money taken from RRSP will be treated as income - that may affect social benefits when you retire.

TFSA - its your money, all taxes payed off, tax-free (as well as RRSP), e.g. if you invest and get get some gain/dividend/interest, you pay no taxes. If you withdraw monet from TFSA it does not affect any benefits

RE renting property - just sit and calc how much you will get from the rent and how much you will need to pay for mortgage. With probability of 40% you will get negative cash flow, after adding property tax, condo fees, wear&tear, renovations. regular repairing and time when the property is not occupied. Then the taxes come to play. While you can write off interest (not principal), the money from the rent are income and they put you in higher tax bracket - you will get 60% only after taxes.
Deal Guru
User avatar
Jun 26, 2005
10111 posts
1966 upvotes
Toronto
Do all the above. With your salary, you can.

The main question is which do you think has a higher rate of return.

You already mentioned Real Estate because you see how amazing Toronto RE is. Toronto a unique city, like New York, Hong Kong, etc. There will be drops, but in 20-25yrs prices always go up, like crazy as you said.

So the obvious difference is, in RRSP or RESP or any account, you cannot invest in a physical property to rent out.

For your kids, when they grow up, it is impossible for them to own any detached house, townhouse or maybe even condos. From the way prices are going.

They CANNOT rewind time. No one can. Hence, you should seriously think about getting some condos at the very least.

Get a good agent (from friends, etc) and look at buying a condo in a good location. Downtown Toronto, buy 2nd hand ones. New condos math are too crazy. You need 20% or so downpayment, and the rest is mortgage.

Then in a few years, buy your 2nd property, 3rd. You have two kids, so at least two properties would be my goal.

So, calculate how much you can put into RRSP, because that money can no longer be used for RE (without being taxed if you withdraw it).

RESP: do it yourself, don't bother with plans that have rules and such. Its not a lot of money, like $5000 per year, so just buy high quality stocks in USA: Amazon, Microsoft, Apple, Visa, MasterCard, Costco. They have time, any drops they will recover back.

Don't miss out on the unique RE of Toronto. In 25 yrs,when you have 3 or 4 condo units, all mortgage free, you get monthly income, and each will be worth close to 1 million. Read the Real Estate forum on these, all the people who didn't buy a few years ago have lost the opportunity.

Rent ain't getting cheaper, demand isn't dropping, supply isn't rising. Toronto ain't becoming less World class.
Member
Nov 9, 2015
369 posts
37 upvotes
ON
Thank you folks. Yeah last three years I paid lot of taxes since i didn't have RRSP's. I tried to open couple of times but the financial advisor's were giving me heart attack with their knowledge. They didn't know what they were talking about. I am still searching for a good advisor or a good place to start RRSP and RESP. My eyes are wide open for real estate as well.
Be positive & stay blessed :)
Member
Nov 9, 2015
369 posts
37 upvotes
ON
So you are saying real estate is not a great idea ? But over time real estate prices will go high and you get that equity when you sell it right ? I mean even if i'm not getting monthly cash flow, i am getting huge chunk once i sell it , right ?
Be positive & stay blessed :)
Deal Expert
Aug 22, 2011
41788 posts
30051 upvotes
Center of Universe
RESP, followed by RRSP and then TFSA.
Jr. Member
Feb 8, 2018
126 posts
43 upvotes
MathewK wrote: So you are saying real estate is not a great idea ? But over time real estate prices will go high and you get that equity when you sell it right ? I mean even if i'm not getting monthly cash flow, i am getting huge chunk once i sell it , right ?
stock market outperform RE in long time run, less risky and more liquid
Deal Addict
Feb 20, 2005
1864 posts
35 upvotes
Scaborough
I would maximize all the "guaranteed" return options first.
1. Employer stock options / contribution matching savings plans. These may be RRSP or Non-RRSP depending on the company.
2. RESP to obtain the Canada Educations Savings Grant of $500 (20% of the first $2,500 of contributions paid annually)

As for the property, depends how much risk you're comfortable with
The biggest benefits of real estate is the leverage it provides you. Assuming 20% down, what other investment is going to give you a 4:1 leverage on your cash and the chances of a call on the loan are rare. Unless you can't service the loan or there's a change in regulations that require the bank's to re-assess you on renewals, the loan keeps getting rolled. If you're bullish on the RE market, then you benefit from the added exposure due to leverage. If it tanks in the short term you have the option to ride it out. You don't realize the loss unless you sell.

Additionally you can considering paying down your mortgage and then re-advance it through a HELOC to reinvest. The benefit of this would be the interest you would've paid on your mortgage is now tax deductible. Smith Manoeuver
Deal Addict
Jun 10, 2013
3914 posts
2529 upvotes
GrandTheftAutopolis
I'd focus on your retirement first before your kid's education. Your kids can get student loans but no one will give you a retirement loan...Ideally, you'd max your RRSP, use the proceeds to fund the TFSA...both should be invested in stocks. If there is leftover then RESP it.
Deal Fanatic
User avatar
Nov 19, 2004
9356 posts
2208 upvotes
Cambridge, ON
Hobotrader wrote: I'd focus on your retirement first before your kid's education. Your kids can get student loans but no one will give you a retirement loan...Ideally, you'd max your RRSP, use the proceeds to fund the TFSA...both should be invested in stocks. If there is leftover then RESP it.
That will depend on household income at the time. OP is already making a decent income and if it increases and his wife starts making more later on, then the kids won't qualify for much in terms of student loans. So not a good idea to rely solely on student loans for the kid's education.
Sr. Member
Nov 24, 2003
573 posts
258 upvotes
I agree with maxing out RESP for the 20% grant. I would then max out TFSA if you have a DB pension at work if not then a mix of spousal RRSP and RRSP. The benefit of spousal RRSP is you can claim the tax benefits but you can utilize your wife's tax credit on withdrawal
Deal Addict
Jun 10, 2013
3914 posts
2529 upvotes
GrandTheftAutopolis
don242 wrote: That will depend on household income at the time. OP is already making a decent income and if it increases and his wife starts making more later on, then the kids won't qualify for much in terms of student loans. So not a good idea to rely solely on student loans for the kid's education.
Yeah, they'll be excluded from OSAP but there are low-interest LOCs, but then again you won't know the interest rates then...Coop is the other thing, I was able to pay my entire way through coop using bursaries and OSAP for my first year (because my parents were so broke).
Jr. Member
Sep 10, 2017
139 posts
91 upvotes
I would first start with the family RESP and catch up, but I would only put in $12,500 this year for each child to begin with because the max CESG money you can get in a year is $2500. Then next year do the same thing again until you are caught up and after that just do the regular yearly contribution of $2500 to get the $500 grant for each beneficiary.

After you make the yearly RESP to maximize the grant this year, put the rest of the money towards an RRSP because you are in a high tax bracket (I believe third).
Member
Nov 9, 2015
369 posts
37 upvotes
ON
Thank you all. Could you please advice me which option is better for a long run in Ontario,Canada : To do RESP/ RRSP/TFSA etc..... VS Real estate buy few properties rent it out, buy vacant land etc... ?
FYI: We both don't get any pension once we retire !
Be positive & stay blessed :)
Deal Addict
User avatar
Sep 19, 2013
2779 posts
1134 upvotes
Winnipeg
RESP is the first thing you should do, irrespective of other registered account or landlording.
Investing $5K going forward for both kids, you get $1K from the govt. Then you can also catchup for previous years, not sure about all the rules.

Your next decision is whether to invest or go the landlording rout. Based on my experience, I'd say go with what you can do best. If you do anything haphazardly, its not going to help the cause. If you are really unsure, try investing first. Why? Because its easier to unwind investing. But if you buy real estate and dont like landlording, then you might be stuck (especially if there is a downturn). Same is the case with investing, but you can atleast scale in/ scale out with a few thousand.

It is also okay to take your time doing the research. You are not missing out, even if you do, its not a big deal in the long run. This is like a marathon not a 100m sprint. All the best.
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