Heritage Group Plan: Payout Options

1. Heritage Group Plan:Payout Options Heritage Education Services

2. Module Outline • Objectives • Concepts • Payout option details • Scholarship option(s) • Self-determined option • Points to remember

3. Objectives • Prepare new representatives for product exam • Identify payout options available • Review details of options • Payout schedules & sources • Qualifying criteria

4. Concepts • Payout period begins at maturity • Recognized institutions • In Canada • Outside Canada

5. Concepts • Principal • Paid to subscriber or beneficiary on or after maturity date • Educational Assistance Payment (EAP) • Paid to qualified students • Year of Eligibility

6. 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

7. Payout Options

8. 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

9. Scholarship Payout Schedule • 1st year – Principal returned • Subsequent year(s) – EAP payment

10. Scholarship EAP • Comprised of • Income from principal investment • Grants • Interest from grant investment • Discretionary payment • Enhancement fund • Return of membership fees

11. 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

12. Return of Membership Fee • Only available with scholarship option • Discretionary payment not guaranteed

13. 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

14. 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

15. 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

16. Review Questions • Refer to Course Book for review Questions

17. 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

18. Self-Determined EAP • Comprised of • Income from principal investment • Grants • Interest from grant investment

19. 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

20. 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

21. 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

22. No School • Options include • Substitution of beneficiary • Accumulated income Payment (AIP) • Transfer contribution income to RRSP

23. 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

24. Substitution of Beneficiary • Under Self-Determined Option • May be substituted by subscriber or joint subscriber • All grants returned to government

25. 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

26. Transfer to RRSP • Income and grant interest • Up to $50,000 per subscriber • Must have RRSP contribution room • AIP conditions must be met

27. Review Questions • Refer to Course Book for review Questions

28. 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

29. 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

30. Points to Remember • No school • Substitution of beneficiary • Accumulated Income Payment • Transfer to RRSP

31. Thank You