Education and Investment Planning Flashcards
What are the Additional CESG tiers?
The Additional amount of CESG may be: up to $100 if the 2021 adjusted income is $49,020 or less ($500 x 20% = $100) up to $50 if the 2021 adjusted income is greater than $49,020 and up to $98,040 ($500 x 10% = $50)
What is the Lifetime Max RESP?
$50,000
What is the Max CESG contribution and does it include additional grants?
$7200 and Yes includes additional grants
What is the actual max contribution in any one year?
- $5000…because you are able to recover 1 year of carryforward room.
- Normally the limit is $2500 for a $500 CESG match.
Not including additional grants
What are the additional contribution amounts and the income thresholds associated with them?
- $100, income < $47,630 …(calc $500 x 20%)
- $50, income range $47,631 to $95,259…(calc $500 x 10%)
What is the annual maximum contribution limit?
Trick Question!!
- There is no annual limit..only a lifetime limit.
- You can put in as much as you like but the CESG is capped in the year but not contributions below the lifetime limit.
What clues will I look for when given the family income so I know what the grants will be
Rule of thumb!!
Below $90,000 then you get at least 10% of $500
Below $45,000 then you get 20% of $500
When is the deadline to contribute to RESP?
Contribute until the end of the calendar year child turns 17 since the plan was established before 15 years of age.
How do you calculate the need for educational funds?
- Use TVM and find PV.
- also to find i when you want to know what rate of return you need to have the funds when the funds are needed.
- Watch for risk tolerance as the ROR might be too high or even too low to reach their goals and below the risk tolerance.
Planning for Educational requirements…what do you do with inflation?
You may have to first calculate what will be needed in the future as inflation will need to be factored in.
CMPT FV, i = inflation rate
Look out for Amounts given that were deposited prior to the current calculation and need to know the amount it has today. What do you do with that?
PV amount deposited at the beginning
Rate of return =i
CPT FV and use that as the PV for the initial amount to use for calc
then Calculate the rate of return
Calculating the Shortfall
- You may need to calculate the need or the Current value of the money market fund…so the FV of what was initially invested.
- Then calculate the scenario to see what it produces …the FV of the account
- and then calculate the shortfall
FP CANADA Short RESP Method
- Take the initial amount 5400 x (1.0215)3 = $5755.84
$5755.84 x 20% = $1151.17
500 x 10% =$50
$5755.84 + $1151.17 = $6957.01 initial amount - Subsequent Deposits
Basic CESG =20% x $1800 = $360
Additional CESG = 10% x $500 = $50
Total subsequent deposits = $1800 + $360 + $50 = $2210
What are the MAX yearly CESG amounts for the 3 segments?
$600/$550/$500
20% +20%/ 20% +10%/ 20%
$500 + $100 / $500 + $50 / $500
What is CLB and requirements?
- Is money that the government adds to an RESP for children of a low-income family
- less than $48,535
- born after Jan 1, 2004
- resident of Canada
- Valid SIN number
- named in an RESP
What does the government of Canada contribute?
- $500 first yr of eligibility
- $100 each yr…up to 15 yrs old
- MAX $1500
What is the First Time Home Buyers CREDIT?
- A Non-Refundable tax credit that either person can claim but not both
- Max claim is $5000 x 15$ = $750
How does the First Time Home Buyer’s tax credit affect purchases made by and for disabled persons?
The qualifying requirements are waived which makes it first-time persons.
What is the Max amount for HBP
- $35,000 each
- new home buyers
- or new home buyers who have previously participated and prepaid their loans, and have not owned a home in the past 5 yrs.
- if buying again for a disabled person 5 yr rule is waived.
How many yrs is the income generated by an RESP sheltered for a beneficiary and for a beneficiary who is disabled?
- sheltered income for 35 and then 40 yrs
- Contributions can be made up to 31st yr or 35th yr for a disabled beneficiary
What are your options as a subscriber with withdrawal and transfer of funds?
- Transfer RESP contributions to the subscribers RRSP if they have room
- only up to $50,000 can be transferred to RRSP
- Withdrawals are taxable to the subscriber except for contributions
- Could transfer the funds to another beneficiary
- a Disabled beneficiary may have the RESP funds to his RDSP if he has room
- Income and earnings can be transferred however CESG is given back. and CLB repaid as well.
What is the Lifetime Limit for an RDSP?
$200,000
What is the last yr can contributions be made to an RDSP?
59
49 for government matches
What are the government matches on RDSPs and what is the benefit called?
- CDSG (Canadian Disability Savings Grant)
- 100% / 200% / 300% (income dependent)
- up to max $3500 per year
- $70,000 lifetime
- until age 49
CDSG Contribution Limits?
Family Income is $93,208 or less
- On first $500 contribution - $3 for every $1 up to $1500/yr
- on next $1000 contribution - $2 for every $1 up to $2000/yr
Family Income is more $93,208
- On first $1000 contribution - $1 for every $1 up to $1000/yr
If contributing $2500 to an RESP or an RDSP for someone above $94,000 what are the grants?
RESP $2500 x 20% = $500
RDSP $2500 $1 x $1000 = $1000
For these plans what is the family income calculation based on?
Based on the income information used to calculate the CCB for that beneficiary.
What is the CDSB, who pays it and how is it delivered?
- It is the Canadian Disability Savings Bond
- the government pays it
- right into the RDSP
- They will pay up to $1000 per year to low income Canadians with disabilities
- No contributions are necessary to receive the bond
What is the lifetime limit on the CDSB?
$20,000 and can be paid until the beneficiary is 49
no bond paid to families over $45,282 net income
What is The HATC, who is it available to, and the $ limit?
- Home accessibility tax credit…for renovating a current home for someone age 65 and over.
- not for moving to a new one… as that is a different tax credit
- not more than $10,000
- $10,000 X 15% = $1,500 federal credit for HATC
Can the Disability Tax Credit be received in addition to the CCB? and how much if so?
YES and $236 per month in addition to the DTC
How do you handle an “Ethical Dilemma” if presented with one
i.e. conflict between two clients married example
- Listen to both
- recognize there is conflict between their views
- Summarize the assets and liabilites and cashflow in order to present facts to both
- not pass judgement regarding their desires
- present all relevant information in an unbiased and objective way
- make sure they have all the required information to make an informed decision
When it comes to the Clients objectives what should you not do?
- Do not prioritize the client’s objectives as they need to do this
- this will introduce the planner’s biases
- DO NOT SAY ANYTHING LIKE…I suggest you pay down the mortgage first etc.!!!!!
How do you calculate the tax deduction on an RRSP contribution?
Tax deduction = contribution amount x MTR
example $5000 x 40% =$2000 Savings
If you want to calculate the deferred FV of an RRSP or TFSA, how do you do that?
- TVM of both and can compare FVs
- Then calculate the tax upon withdrawal for the RRSP.
- FV withdrawal x MTR then Subtract tax from FV to get after-tax amount
- Can take the total TFSA + RRSP- tax from RRSP = Total After-tax proceeds.
As a client grows in knowledge, investment income, and experience what should you look out for?
- You should be prepared to reevaluate the client’s risk tolerance by performing an updated risk profile.
- The risk tolerance will have likely increased
When it comes to Risk Tolerance how should you proceed and make the client aware?
- Do they have the financial ability to accept the higher risk?
- do they have the willingness to accept more risk?
- They need to be made aware that an incorrect assessment of their risk tolerance could lead to an allocation that is not optimal and potentially not adequate to achieve any future goals they may have.
- They should be made aware that accepting more risk does not guarantee higher returns
With regards to making prepayments on a mortgage, what amount is it based on?
It is based on the original borrowing amount, not the current balance
Making Prepayments allowable 10% each year
It is based on the original borrowing amount, not the current balance
Example $220,000 x 10% = $22000
$22000 x 3.8% for 5 yrs
now TVM calc
END
PV= $22000
I= 3.8%
PMT=0
N =5
CPT FV = $26,510
$26,510 -$22000 = $4510 of interest saved if paid the max allowable amount
Retirement Income shortfall calculations steps?
- know the income required
- Add all retirement income sources together net of taxes
- Then subtract to get the shortfall
- Next determine the length of retirement in yrs
- Calculate the PV (Begin of retirement) FV is zero
- Next, determine how much client must save at begin…PMTs
- This is the additional savings required per year or per month to have $ gross income per yr in retirement needed
- Watch for BEG mode words
HPR Calculations Formula?
HPR% = (Ending value - Beginning Value)
Beginning Value
- When Comparing which has the higher or better return or which has the greatest loss
How do you analyze the HPR%?
- multiply the HPR% x 12/#months in the holding period
- or 365/#days in the holding period
When do you want to annualize the HPR%?
- Held for different amounts of time in the year
- could be full years for some and partial years for some
- sell the worst performer example
When comparing stocks how is tax calculated?
It is calculated on the actual loss not the annualized loss
eg. 9.95-9.15 = 80 cents per share
80 cents per shares x 500 shares = -$400
-$400 x 50% = $200 taxable capital loss
if asked…amount of tax if loss applied against a capital gain 200 x 44% NOT THE TAX THAT WOULD BE SAVED ($88 TAX SAVED)
What do you do if two mining stocks are held for different lengths of time and want to compare them?
- You must annualize one or more of them so you know the true yearly return
- then you can project what each will do over a certain amount of time.
- TVM using annualized returns
To calculate PV of Strip bonds what compounding and time period do you use?
Semi-annual compounding unless otherwise stated.
PMTS ZERO
TRICKY!! Time period eg 800 days/365 days= 2.1917 yrs
then 2.1917 x 2 = 4.3834 N
What type of risk can be reduced by diversification and has 3 names?
Unsystematic risk…aka specific risk…aka unique risk
The more holdings you have the more diversified….to an extent
Systematic Risk is also known by these other 2 names
Market Risk and Non-Diversifiable Risk
Driven by fluctuations in the market as a whole
Adding more securities cannot reduce systematic risk
The Average Annual Return is another way of saying what?
Weighted Average Return
Portfolio return = ∑ (W)(R)
W = Security’s Market Value/ Total Portfolio Market Value
R = Security’s Return
After-tax real returns can be done with the exact and simplified versions. What are the formulas and what should you be sure to tell the marker so you can get marks?
EXACT: ATRR = [1 + ( return x (1-MTR)/(1+inf)] -1
or
APPROX: ATR - [Return x (1-MTR)] - inflation
*Note Tell the marker which method you used
- both take tax and inflation into account
- Tax adjustment first as taxes are based on the nominal return rather than the real return
