Train of life | What savings priorities for a recent immigrant family?

Immigrated to Quebec for almost three years, Taha *, 38, his wife Amira *, 36, and their children aged 7 and 5 form a family that integrates into its new living environment.

Martin Vallieres
Press

Both parents each have a well-paying IT job. With government children’s allowances, their gross family income is approaching $ 170,000 per year.

Despite this comfortable family income, Taha and Amira manage their family budget with great care. They focus on meeting short-term family priorities and saving for medium-term plans, while limiting discretionary consumer spending.

Consequently, in just a few years after their arrival in Quebec, Taha and Amira were able to rebuild a savings reserve of $ 50,000 for short and medium term family projects.

Among other things, they want to rejuvenate their motor vehicle very soon; an expense they budget for around $ 15,000.

For next year, at the end of summer 2022, Taha and Amira are preparing the first family reunion trip with their parents and friends in their country of origin since their emigration to Quebec.

The budget for this family trip is expected to be around $ 15,000, mainly consisting of the cost of plane tickets, while family members will be accommodated and transported by relatives and friends for most of their stay.

As for their medium-term priorities, Taha and Amira want to accentuate the constitution of savings reserves for two important projects: the purchase of a residential property and the start of private secondary schooling for their two children. The realization of these family projects is planned over a horizon of five years.

In the longer term, Taha and Amira are also keen to build up good capital in retirement savings.

The questions

In this context, Taha and Amira seek advice in order to properly distribute their savings capacity between the different types of registered accounts (RRSP, TFSA, RESP), which remain unused.

They also seek to maximize the tax benefits associated with these types of registered savings accounts, about which they have little knowledge.

Finally, in terms of long-term retirement savings, Taha wonders about the relevance of participating in the group RRSP offered by his employer, rather than subscribing to a personal RRSP independent of his job.

This is what his wife Amira intends to do because she does not have a pension plan or a group RRSP with her current employer.

Taha’s and Amira’s questions were submitted to Daniel Lanteigne, who is a financial planner and senior partner at Reverber Stratégies financiers associés, in Quebec City.

Mr. Lanteigne is also Chairman of the Board of Directors of the Institut Québécois de Planning Financière (IQPF).

Advice

From the outset, Daniel Lanteigne notes that Taha and Amira’s family income and their well-managed family budget provide them with good savings capacity of around $ 75,000 per year, which is an important asset in terms of financial planning.

“These short-term projects are now covered in the family budget for next year, Taha and Amira can now focus on the financial and fiscal optimization of their savings for their long-term projects: school costs. children in high school and post-secondary studies, buying a family home, saving for retirement. ”

Priority to RRSPs

First, priority is to bail out the registered retirement savings plans (RRSPs) of each of the spouses, which are still at zero balance.

Daniel Lanteigne recommends that Taha participate in the group RRSP offered by his employer, and contribute the maximum permitted of 3.5%. “This will allow him to recover the unused contributions to his RRSP (at $ 1,250), while quickly optimizing the equivalent contribution from his employer and the resulting tax benefits. ”

At the same time, Mr. Lanteigne recommends that Amira quickly make up the approximately $ 18,500 in unused contributions to her personal RRSP. There again, in order to optimize without delay the annual recovery of a significant part of the thousands of dollars in taxes deducted from his salary.

“At the tax level where Taha and Amira are located with their respective salaries, the tax recovery rate for RRSP contributions is 37%. This is significant in their family budget in the short term, but also an accelerating motive for building up retirement savings assets that can be used to finance their plan to purchase a family home, ”emphasizes Daniel Lanteigne ( Withdrawal from the tax-free RRSP under the Home Buyers’ Plan [RAP]).

Children’s RESP

As a second savings priority, Mr. Lanteigne advises Taha and Amira to set up a Registered Education Savings Plan (RESP) for their two children.

“What they must consider in favor of the RESP is that their deposits up to $ 2,500 per child per year are enhanced by a“ tax subsidy ”of 30% of the sums deposited,” recalls Daniel Lanteigne. .

“Furthermore, while RESP deposits may not provide a tax deduction, the grants and the returns they generate will be taxed in the hands of the child who pursues post-secondary education. This usually happens at a time when the recipient has very low income. These amounts then cost little or no tax. ”

In this context, Daniel Lanteigne recommends that Taha and Amira maximize their annual contributions to their children’s RESPs until they reach the maximum amount of current contributions and contributions not used for two years.

TFSA for spouses

As a third savings priority for Taha and Amira, Daniel Lanteigne advises them to direct the cash available in their family budget to their respective Tax-Free Savings Accounts (TFSAs), which are still zero balance.

“Taha and Amira should consider contributing up to their current TFSA limit [6000 $ de 2021, plus les droits de cotisation inutilisés des années passées] », Advises Daniel Lanteigne.

In the meantime, how do you sum up the attributes of the TFSA as a savings account to fund future projects?

“On the other hand, unused contribution room is cumulative from year to year and, unlike RRSPs, withdrawals made one year become contribution room the following year. ”

Subsequent projects

By organizing their short- and medium-term savings priorities in this way, Daniel Lanteigne believes that Taha and Amira will be in an advantageous position to prepare well for the rest of their major family projects: financing their children’s secondary and post-secondary studies, and moving from tenants to owners of their family residence.

“Regarding children’s studies, I advise Taha and Amira to plan an annual budget of around $ 8,000 per child, from their entry into private secondary school until the end of first cycle. [baccalauréat] university studies, ”says Daniel Lanteigne.

“In addition, such budget planning could fuel Taha and Amira’s thinking about the costs of high school to private versus quality programs that would be offered in public schools in their locality. ”

In the same vein, Daniel Lanteigne suggests that Taha and Amira take advantage of their next years in accelerated savings to properly gauge the pros and cons of their plan to purchase a residential property.

“Beyond the dream of owning the family home, it is important to make a good inventory in advance of the costs of the goods and services that will be necessary to realize and live this dream,” warns Mr. Lanteigne.

“For example, if the family budget does not allow the acquisition of a residence close to services and the workplace, the purchase of a less expensive property, but further away from the places of work, study and current activities could lead to a significant increase in transportation expenses over the years, ”explains Daniel Lanteigne.

“In such a situation, rather than contributing to the quality of family life, owning a home at any cost can become a constraint that then forces you to make concessions rather than choices in terms of the family budget. ”

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

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