Investing in the future
Set your children up for success by investing in their education
As a parent, paying for your child's education has likely been on your mind for years. The cost of a quality education is a hefty expense and can be overwhelming if you're not prepared.
According to Statistics Canada, undergraduate tuition fees for full-time Canadian students averaged $5,959 for the 2014-2015 school year.* Add in residence or rent, books, food and other expenses, and the average Canadian student pays $15,000 per year for a university education. That’s $60,000 for a four-year program.
Of course, costs vary by province. The Investor Education Fund has a great online calculator that can help you get a closer estimate depending on where you live and what your child plans to study.
Looking ahead, if education costs increase by just 4% per year, kids entering university in 2030 can expect a bill of well over $100,000.
Why RESPs make sense
A Registered Education Savings Plan (RESP) isn’t the only way to fund your child’s education. Your child might qualify for a scholarship. They could take out student loans. Or you could save money in a non-registered account, like a regular savings account.
Then again, your child might not be one of the lucky few to get a scholarship. Student loans have to be paid back with interest. And with non-registered investments, you’ll miss out on two of the key benefits of RESPs: government grants and tax-deferred earnings growth.
With an RESP, you can take advantage of the Canada Education Savings Grant. For the first $2,500 that you put into your child’s RESP each year, the government will contribute 20% (or up to $500) per year. That means the government will pitch in up to $7,200 through the Canada Education Savings Grant to help pay for your child’s education! In addition to federal grants, several provinces (British Columbia, Alberta, Saskatchewan, Quebec) have their own grant programs. For more information and details on eligibility and grant amounts, visit the provincial websites.
Depending on your income, you might qualify for an additional CESG of $50 to $100 per year. You might also qualify for a Canada Learning Bond (CLB) grant of up to $2,000 (lifetime).
Plus, an RESP is a registered investment, so you don’t pay tax on your investment earnings until your child is ready to withdraw money from the account. When they do, they’ll pay tax on any earnings growth, as well as on CESG or CLB grant money provided. However, your child isn’t likely to have significant income as a student, so the taxes owed may be minimal. They also won’t pay tax on your original contributions, because you made those contributions with after-tax dollars.
To learn more about making the most out of your RESP, please call our office today.
* Source: http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/educ50a-eng.htm
The Penney TeamScott Penney, Steve and Jennifer Penney
4310 Sherwoodtowne Blvd, Suite 304
Mississauga,ON, L4C 4C4