Take note of these great tips and you can get the most from your RESPs so that your child can worry about their grades and not about paying tuition!
After your child is born, you will probably find yourself worrying about many things. One of those things is likely about your child’s education and whether or not you should invest in RESPs (Registered Education Savings Plan). The high cost of getting a post-secondary education can be extremely stressful for both students and their families. If you don’t feel concerned about it, maybe you should be. After all, students enrolled in a undergraduate program in Canada during the 2015/2016 school year paid an average of $6,432 in tuition fees, higher than the previous year. Just think about what the cost may be in 18 years.
Don’t panic yet. There is no need to cancel vacation plans and funnel every last dime for the next 20 years or so into savings for your child so that they can enjoy a debt-free education. Instead, when it comes to saving for a child’s post-secondary education, a Registered Education Savings Plan (RESP) is the best way to go.
An RESP offers tax-deferred growth that can help you save for a child’s post-secondary education. Earnings on the contributions in the form of capital gains, dividends and interest will accumulate tax-free until withdrawn. When that portion of the funds are paid out, they are included in your child’s income. Fortunately, your child will fall into a low or zero-tax brackets so that little, if any, tax will ever be paid on the earnings when withdrawn.
The other benefit is the Canada Education Savings Grants (CESGs), equal to 20% of the annual contributions, to a maximum of $500 (or $1,000 if there is unused grant room from previous years). In some provinces, the provincial government contributes too.
Take note of these great tips and you can get the most of your RESPs.
1. Start now and enjoy a higher return in the long run. You can open an RESP as soon as your child is born and you apply for (and receive) their Social Insurance Number.
2. Maximise contributions from CESGs by contributing $2500 annually until your child turns 17.
3. If you can’t maximize contributions in a given year, take advantage of carry-forward CESGs.
4. When it is time to withdraw from the RESP, be sure to specify if withdrawals are from contributions, or non-contributions. There are two parts to an RESP account: The contribution amount, which is the money you have put in, and the non-contribution amount, which is the grant money as well as any investment gains.
5. If your student completes a post-secondary program and there is still a non-contribution amount remaining in your RESP, you may trigger a CESG repayment. Avoid this by withdrawing non-contribution money as soon as possible.
6. Don’t withdraw more than $7,200 of grant money per beneficiary, which is the lifetime limit for any one child.
7. Wait until your student begins school to withdraw contributions as taking them out earlier may trigger a CESG repayment.
8. Spread out withdrawals over the expected length of your child’s post-secondary educational program. By not taking out a huge lump sum, you will avoid creating a huge taxable income in their first year. Instead take advantage of your child’s lower tax rates over the course of several years.
9. Any contribution amount that remain unused in your plan after your child graduates can be transferred to another child’s plan or withdrawn for your personal use.
10. Take advantage of bonuses offered by providers of RESPs – for example, Children’s Education Funds Inc. is currently offering 25 Air Miles ® reward miles in celebration of Children’s Education Funds Inc.’s 25th Anniversary to anyone who opens a new CET Plan in 2016. Plus, all of their plans offer the ability to collect Air Miles ® reward miles when you make eligible contributions.
RESP investments are a great idea for providing your child and your family much needed financial relief. You will definitely want to take the time to talk with a professional advisor who can help you to make the best decisions when it comes to giving your children a debt-free education. They can worry about their grades, and not about their growing debt.
When shopping around, may I suggest checking out Children’s Education Funds Inc. They are Parent Tested, Parent Approved so you know that you can trust in them for a reliable and high quality service.
Visit cefi.ca or call 1 (800) 246-1203 to find out more about RESPs and to book a consultation now. While visiting the site be sure to enter the CEFI promotion to win an additional 10,000 Air Miles® reward miles and the contest to win a Disneyworld vacation.
Disclosure: Although this post has been generously sponsored by Children’s Education Funds Inc., the opinions and language are my own.
Elizabeth Lampman is a coffee-fuelled Mom of 2 girls and lives in Hamilton, Ontario. She enjoys travelling, developing easy recipes, crafting, taking on diy projects, travelling and saving money!