Saving for your children's education may seem like a monumentous task. Money is tight, and when it comes to schooling, there are many unknowns. But by starting early and investing steadily, you can build up those savings that will make things easier later.
1. Invest in RESPs
Registered Education Savings Plans provide a vehicle where you can invest for your children's education. The income on investments inside the RESP accumulate tax-free. When your children withdraw from the plan when they are in school, they will pay tax, but presumably fall into a lower bracket. Perhaps the best part of an RESP is that it helps you qualify for additional government savings programs that help build your children's education fund.
When choosing an RESP, you might want to create a family plan instead of one for each child. That way, any of your children can access the same pool of funds when the time comes.
2. Take Advantage of Government Programs
Those government programs come in the form of additional money put into your children's RESP. The Canada Education Savings Grant (CESG) provides an amount equal to 20 percent of your RESP contributions up to $2,500. That's up to $500 per year, with a lifetime maximum of $7,200. Some families may be eligible for additional CESG contributions of 10 to 20 percent, if they fall under the middle- or low-income thresholds.
The CESG is restricted to those who set up their own RESP. Someone has to make personal contributions into the RESP in order to open up CESG eligibility, but it doesn't have to be the parents -- it can be friends or family as well. That's something to think about the next time you're making up holiday and birthday wish lists.
The government's Canada Learning Bond (CLB) also puts money into an RESP. The CLB is available to families that fall below a certain income threshold. Unlike with the CESB, you don't have to make personal contributions to the RESP in order to be eligible.
3. Plan for Higher Future Tuition
Opting for an RESP may make sense -- but how much is enough when it comes to saving for college? At some point, you may want to decide on a goal for your children. Tuition is certain to rise, and the cost of those fees can vary widely according to your province. Back in 2014, a Global News report revealed parents in Atlantic Canada estimated their child's education would cost upwards of $110,000 including living expenses, while parents in Quebec tagged the figure at just over $33,000.
It may be impossible to predict future costs with complete accuracy. But it may be safer to assume that in the coming years, expenses will only increase.
4. Discuss Risk Tolerance With an Advisor
Since RESPs are an investment vehicle, you'll want to think about what kind of investments to create. These are questions best answered by a financial advisor, who can recommend products that are in line with your tolerance for risk. Regardless of how much you are putting away, you probably want to keep it safe for the time when your child needs to use it.
5. Start Early
It's never too early to start thinking about education. Even if you can start with a modest amount in an RESP, you can slowly build your child's earnings over time.
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