Canadian Parents Who Didn't Make This Investment Are Kicking Themselves Now
College is cheaper in Canada. Want another reason to envy the country up north? Canadians can get free money for college. That is, if they apply for it.
If you're a Canadian resident with a child 17 years old or younger, you have the option to put your money into a Registered Education Savings Plan (RESP), a tax shelter intended to help save for post-secondary education in Canada. Put money into an RESP and you can not only save money but also get cash on top of that. But if you don't take advantage, it could end up hurting your wallet - badly.
Why Do You Need An RESP?
1. The government will kick in some cash. The first $36,000 (Canadian) you contribute to an RESP will be eligible for a 20% Canada Education Savings Grant, or $7,200 per child. There is no limit to how much you can contribute yearly, although there is a lifetime maximum of $50,000 per child. Use the RESP Calculator from TD Canada Trust to figure out how much you ought to save.
2. You can delay taxes, paying them at a lower rate later. You don't owe taxes on the money in the RESP until you withdraw it. And when you take the money out, it's at the student's (usually much lower) tax rate - not yours. The money can be disbursed to either you or your child.
3. You don't have to worry about not having a lot of money to contribute. But the sooner you start, the more you can save. You can generally start an RESP account with just $500. But you'd have to contribute $2,500 per year to get the maximum grant. You can opt to have deductions taken out of your paycheck, automatically.
4. You have some control over how the investments are made. As with a targeted retirement fund, you can choose how aggressive you want your RESP account to be.
5. There's more money out there. If your child was born in 2004 or later and your family income is less than $43,561 (Canadian), you're probably eligible for a special $500 grant, which would go directly into the RESP. You can also apply for an additional $100 per year, if you have an eligible level of income.
6. Your children can contribute to the RESP. Money from your children's after-school jobs can be earmarked for their future education costs.
As the end of the year approaches, it's an ideal time to start to start calculating your budgets for 2014 - and how investing in an RESP can be part of your investment planning. Canadian parents should talk to a financial expert to find out more about Canada's RESP program.
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