Free Money And Other Secrets To Finance Your Child’s Education

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The promise of a better life and educational opportunities for your children is one of many factors that attract newcomers like you to Canada. One of the best ways to help make that dream come true is to create a savings plan to pay for your child’s education after high school.

While the government pays for children to go to school from kindergarten through high school, education is not fully funded beyond that if your child chooses to go to college or university or a trade school.

“Saving for your child’s future may already be part of your annual financial planning. If that’s the case, you’re ahead of the game. But it’s also not too late to start or to benefit from the secrets to maximizing your investment in your child’s future,” said Christine Shisler, director of cultural markets, RBC.

The Registered Education Savings Plan (RESP) is a smart way to save for your child’s future post-secondary education. Not only can an RESP pay for tuition, it may also fund associated costs such as textbooks or living expenses should your child choose to live independently while at school.

Created by the Canadian government in 1998, RESPs are even more lucrative with the addition of free government money. RESPs will grow faster with the Canada Education Savings Grant (CESG), a federal government grant which will match 20 per cent of the first $2,500 of a family’s annual RESP contribution. A personal savings account is not eligible for this matching grant — that is why it’s important to set up an RESP with an RESP provider to make sure you secure these additional funds.

The federal government can contribute up to $7,200 per eligible child in CESG until the child reaches the age of 18. Besides the basic CESG, other government money is available for qualifying families.

RBC research shows that two-thirds (63 per cent) of young Canadian families have opened an RESP. However, many of those families are not maximizing their contributions each year, putting just under $1,500 per child on average into their RESPs. This shortfall of $1,000 means families may be missing out on $200 of federal government grants every year.

“Don’t leave money on the table,” said Shisler. “With the increasing cost of post-secondary education, get all the help you can. Take advantage of valuable government grants and watch your education fund grow as your child does.”

Other secrets to maximizing an RESP:

  • Invest wisely and regularly: Choose an investment that matches your risk tolerance to help your RESP funds grow. For example, as a very low-risk approach, you could place your RESP savings into a standard savings account, however, investing in mutual funds could earn a higher rate of return. Speak to your financial advisor to find the right solution that fits your needs. Contributions can be made through occasional deposits or set on an automatic prearranged payment schedule.
  • Enjoy the tax benefit: An RESP is a tax-deferred investment plan. Income earned on investments is not taxed as long as the funds remain in the plan. Because students pay the tax on these earnings when they withdraw the funds for their post-secondary education, little or no tax will be paid on these earnings.
  • Get a little help from family and friends: The good news for parents is that they don’t have to do it all on their own. An RESP contribution makes the perfect gift from grandparents, aunts and uncles, to mark a birthday or another special celebration.

“Creating a secure future for a child is a parent’s number one priority. Having an education fund will get your children off to a great start in adulthood and help them graduate as debt-free as possible,” said Shisler.

There are a lot of online resources available to give you more information – one good place to start: http://www.rbcroyalbank.com/save-regularly/resp2.html