Case 4: RESP/RDSP Case

Hunter and Candace are both professionals who work with large corporate firms. Hunter is a mid-level manager at Technology Inc.; a company that specializes in designing web content for small to medium sized business. Candace, who works at Honda, is an area manager responsible for corporate sales in Manitoba, Canada. They each make $107,500 and $110,200 respectively and expect to receive an increase to their salaries this upcoming year. The couple have excellent savings, no debt and an extensive emergency fund to draw on if required. It has also been confirmed that Candace will be receiving a large inheritance cheque from her late grandfathers' estate by the end of the year.

They have one daughter, Leah, who was born May 2018. Later that same year, they had opened a Registered Education Savings Plan (RESP) and decided to make lump sum contributions of $1,600 annually into the plan on a recurring basis each year for the next 18 years. The contribution will be made on December 31^st of each year. They also calculated Leah's education costs to be $52,750 (today's dollars) when she turns 18. Their investor profile is aggressive growth and they project a 12% rate of return on the RESP.

In early 2023, Chanel realized there were some limitations with what Leah was able to learn and understand. Several months later after numerous testing with a specialist, Leah had been diagnosed with an intellectual disability that affected her cognitive skills making it difficult for her to think, talk and walk. The couple agreed that it was important to have someone be home at all times or at least until they were able to determine the extent the disability was going to impact Leah. That would require one of them to step down from their role completely. Later that same year, the specialist confirmed that this would likely be a prolonged disability which was to progressively get worse.

Hunter had spoken with their Financial Planner who had suggested that the couple consider a Registered Disability Savings Plan (RDSP) given the diagnosis. It sounded like a good recommendation, considering the lucrative grants that are available with such plans. Given the grim diagnosis however, it is not anticipated Leah will be able to pursue post - secondary education in the future. Hunter and Candace agreed to become joint holders and would commit to contributing $1,500 at the end of this year to the RDSP. Any contributions to the RESP would suspend immediately. The income threshold for grants is $108,755. They have an appointment booked with their Financial Planner to complete the necessary paper work.

Today is January 1, 2024.

Question #1: Select the correct statement when comparing a RESP and an RDSP (2 marks):

Hint: Understand the characteristics of both RESP's and RDSP's thoroughly

Question #2: Calculate the annual CESG made into the RESP plan. (2 marks)

Question #3: Calculate the value of the RESP today. (2 marks)

Question #4: Would it make good sense to terminate the RESP and why?(2 marks)

Question #5: Given the facts of the case, who would you recommend stays home with Leah and forgo their income; Hunter or Candace? Support you answer. (2 marks)

Question #6: Calculate the CDSG for 2024 on the RDSP contributions assuming Candace stays home to take care of Leah. (2 marks)

Question #7: The couple decides that Hunter should stay home with Leah and that they will cancel participation in the RESP. They want to take advantage of the Accumulated Income Payment (AIP) rollover option available to them. The AIP is 35% of the plans current market value. Calculate what the RDSP will be worth in 25 years assuming a 10% rate of return. Assume the payment stays the same. (Ignore inflation) - 3 marks