From: Canadian Living Magazine
Holding your newborn, you gaze lovingly into his eyes and imagine all the things he may one day become. Will he be an architect, an artist, a chef? Then it hits you — how on earth are you going to pay for all his schooling?
When your little one is ready to graduate high school, the projected cost of pursuing a four-year post-secondary education in Canada will be upwards of $55,000, depending where you live (including tuition, fees and books), and a mind-boggling $90,000 or more if junior decides to go away to school. Add in a specialized degree and the costs go up, way up, from there.
So what’s a parent to do? In a word, plan.
Be informed
Patricia Trott, manager, investor communications, with the Ontario Securities Commission (OSC), urges parents to do their homework before opening a Registered Education Savings Plan (RESP) by investigating what kind of plan they want, deciding who is the best provider of that plan and paying careful attention to the fees, limitations and terms involved.
“You want to make sure you understand all the issues, such as can you transfer the plan? What happens if your child doesn’t enrol in post-secondary education?” says Trott. “It’s very important to do your research.”
RESPs
The current darling of saving plans, an RESP allows contributors to sock away as much as they can annually for a lifetime contribution of $50,000 per child (the limit was raised earlier this year from $42,000), non-deductible. The funds grow tax-free until withdrawn (an RESP can stay open for up to 26 years), and the grant and growth portion of the education payments are then taxed to the student who is enrolled full- or part-time in a “qualifying education program.” Luckily, most students typically have little other income, so they’ll pay minimal tax on the money coming their way.
Look at the options
RESPs are available through banks and trust companies, credit unions, investment dealers, mutual fund companies and scholarship plan dealers. While not the only way to save for a child’s education, they are a popular option — more than 1.5 million Canadian children are beneficiaries of an RESP. You must have a social insurance number for yourself and your child in order to open a plan. Don’t have one for your child yet? You can download an application at servicecanada.gc.ca.
Financial institution RESPs
Most financial service providers offer self-directed or money-managed RESP plans. From there, you have two choices: an Individual Plan or a Family Plan. Anyone (parents, grandparents, extended family or friends) can open an individual RESP and contribute money for a child, referred to as the “beneficiary.” In a Family Plan, you can name one or more beneficiaries of the RESP, but they must be related to you. They may be your children — including adopted children — grandchildren, brothers or sisters.
Group (scholarship plan) RESPs
Scholarship plans pool the contributions of many investors. When you join a group plan, you agree to buy a set number of plan units according to a set schedule. Each unit gives you a share in the pooled earnings of the group, which are then paid out when it matures to qualifying students the same age as your child.
Get more money
As if rising tuition fees weren’t enough incentive to stash some cash, depending on your net family income, the federal government could add 40, 30 or 20 cents on the first $500 saved per child up to age 17, for every dollar you save in your child’s RESP. This grant is courtesy of the Canada Education Savings Grant (CESG), — for a lifetime maximum of $7,200. “It’s actually a pretty generous program,” says Trott. Should the RESP not be used 26 years after it’s opened, the amount you saved and the interest earned will go back to you, and the CESG may be used for another child’s education.
On the first $500 you save in your child’s RESP, the Canada Education Savings Grant will give you:
- 40 cents per dollar, if your net family income is $37,178 or less;
- 30 cents per dollar, between $37,178 and $74,357;
- 20 cents per dollar, if your net family income exceeds $74,357.
No matter what your net family income is, the CESG will give you 20 cents for every dollar you save up to $2,500.
To get the CESG in two easy steps, you must:
- Apply for a social insurance number for your child;
- Open and deposit money in an RESP for your child.
Ask your RESP provider to apply for the CESG on behalf of your child. It will be deposited directly into her RESP.
Modest income families may also be eligible for a $500 Canada Learning Bond, plus an additional $100 per year up to age 15:
- If your child was born after Dec. 31, 2003, and
- You receive the National Child Benefit Supplement as part of the Canada Child Tax Benefit (commonly known as “family allowance” or “baby bonus”). This usually applies to families whose net income is $37,178 or less.
Live in Alberta? You’re already ahead. Thanks to the Alberta Centennial Education Savings Plan, any child born in the province on or after Jan. 1, 2005 receives $500 towards her RESP. These kids will also get an extra $100 at ages 8, 11 and 14, provided the parents are residents of the province and their children are enrolled in an Alberta school.
For more information regarding RESPs and the CESG, log on to the Human Resources and Social Development Canada website, hrsdc.gc.ca.
Just in case winning the lottery doesn’t pan out, senior editor Robin Stevenson has started saving diligently for her daughter’s post-secondary education.
Tips to Stash the Cash
- Plough any cash gifts your child receives into an RESP. Ask relatives to contribute to an RESP in lieu of large holiday or birthday gifts.
- Encourage children to allocate a portion of their allowance or any earnings (babysitting, snow shovelling) towards their education. Visit the financial institution to deposit the money together. Remind her that some goals must be saved for in advance.
- Resolve to make cuts where you can this year; even little ones add up. Swap just one high-priced latte each day for the office brew and save $80/month. Brown-bag your lunch just twice a week and save $60/month. Combined, that’s a savings of more than $1,600 a year towards junior’s education.
Sourced from: http://www.canadianfamily.ca/parents/organizing/abcs-resps/