Heritage Group Plan: Payout Options Heritage Education Services
Dec 31, 2015
Heritage Group Plan:Payout OptionsHeritage Education Services
Module Outline
• Objectives
• Concepts
• Payout option details
• Scholarship option(s)
• Self-determined option
• Points to remember
Objectives
• Prepare new representatives for product exam
• Identify payout options available
• Review details of options• Payout schedules & sources• Qualifying criteria
Concepts
• Payout period begins at maturity
• Recognized institutions
• In Canada
• Outside Canada
Concepts
• Principal
• Paid to subscriber or beneficiary on or after maturity date
• Educational Assistance Payment (EAP)
• Paid to qualified students
• Year of Eligibility
Maturity Date
• Usually July 31st of year beneficiary turns 18
• Advance maturity date
• if beneficiary starting post-secondary earlier
• May require interest adjustment
• Delay maturity date
• July 31st prior to 21st birthday if scholarship option
Payout Options
Scholarship Option (SO)
• Best option for programs 2 or more years
• Remain in scholarship pool
• Streams
• Option 1 – two (2) year program
• Option 2 – three (3) year program
• Option 3 – four (4) year program
Scholarship Payout Schedule
• 1st year – Principal returned
• Subsequent year(s) – EAP payment
% of share in scholarship pool paid each year
Yr 2 Yr 3 Yr 4
Option 1 100%
Option 2 50% 50%
Option 3 33% 33% 33%
Scholarship EAP
• Comprised of
• Income from principal investment
• Grants
• Interest from grant investment
• Discretionary payment• Enhancement fund• Return of membership fees
Enhancement Fund
• Used to “top-up” scholarship EAPs
• Discretionary payments not guaranteed
• Includes
• Interest earned on scholarship fund after maturity
• Interest earned on income from terminated plans
• Principal unclaimed five (5) years after maturity
Return of Membership Fee
• Only available with scholarship option
• Discretionary payment not guaranteed
% of fee returned
portion paid each year
Yr 2 Yr 3 Yr 4
Option 1 25% All
Option 2 50% 1/2 1/2
Option 3 100% 1/3 1/3 1/3
SO Qualified Program(s)
• Program of two (2) or more years duration
• Recognized institution
• Full attendance at least six (6) months of year
• Multiple programs also qualify
• Each must be of at least one-year duration
Qualifying for Scholarship EAP
• Must successfully complete preceding year and be enrolled in next year
• Application & proof of registration required by Aug 15th
• $75 processing fee if late
Postponement & Deferment
• Postponement – 1st EAP only
• Up to 2 years
• Deferment - 2nd or later EAPs
• May only request once, for one year
• EAP not taken after one year is lost
• Plan must be completed by 35th year from enrollment
Review Questions
• Refer to Course Book for review Questions
Self-Determined Option (SDO)
• For programs less than two (2) years
• Withdraw from scholarship pool
• May continue contributions to 31st year of plan
• May leave principal in after maturity
• To accrue more tax-sheltered interest
• Default option
Self-Determined EAP
• Comprised of
• Income from principal investment
• Grants
• Interest from grant investment
SDO Payout Schedule
• Upon request any time by subscriber
• Subject to program criteria
• Entitled to one withdrawal per year
• $10 fee for each subsequent withdrawal
• Plan must be completed by 35th year from enrollment
SDO Qualified Program
• Not less than 3 consecutive weeks in Canada
• Not less than 13 weeks outside Canada
• Minimum of 10 hours per week
• Initial EAP limit of $5,000
• After completing 13 consecutive weeks in 12-month period & still enrolled, no EAP limit
• Otherwise, $5,000 limit in 12-month period
SDO Alternative Program
• Not less than 3 consecutive weeks in Canada
• Not less than 13 weeks outside Canada
• Minimum of 12 hours per month
• EAP cannot exceed $2,500 in any 13-week period
• Beneficiary must be 16yr or older
No School
• Options include
• Substitution of beneficiary
• Accumulated income Payment (AIP)
• Transfer contribution income to RRSP
Substitution of Beneficiary
• Under Scholarship Option
• Before any EAP paid
• New beneficiary can not be older
• Before original beneficiary is 21 years of age
• All grants returned unless• new beneficiary is sibling under 21; or• Both beneficiaries under 21 and related to subscriber by
blood or adoption
Substitution of Beneficiary
• Under Self-Determined Option
• May be substituted by subscriber or joint subscriber
• All grants returned to government
Accumulated Income Payment
• Income and grant interest
• Taxable income, plus additional 20% penalty tax
• Subscriber must be resident of Canada
• One of the following
• RESP open at least 10 years, beneficiary over 21 and not eligible for EAPs; OR
• RESP in 35th year; OR
• Beneficiary is deceased
Transfer to RRSP
• Income and grant interest
• Up to $50,000 per subscriber
• Must have RRSP contribution room
• AIP conditions must be met
Review Questions
• Refer to Course Book for review Questions
Points to Remember
• Scholarship option
• For programs of 2+ years
• EAP may include discretionary payments
• Beneficiary must successfully complete prior year to qualify for next EAP
• Two postponements & one deferment of EAP allowed
Points to Remember
• Self-determined option
• For programs of less than 2 years
• No set payout schedule
• Two program types – qualified & alternative• Some maximum payout criteria
Points to Remember
• No school
• Substitution of beneficiary
• Accumulated Income Payment
• Transfer to RRSP
www.heritageresp.com
Thank You