| It always makes me laugh to see the Staples’ back-to-school commercial showing parents dancing down the aisle to ‘It’s the most wonderful time of year’ as they throw school supplies into their buggies. It is hard to believe the kids are heading back to school next week. But with summer vacation over, it might be a good time to review your Education Saving Plan. Saving for your child’s post secondary education may seem daunting on top of daycare, extracurricular activities, and the simple costs of raising children. However, parents of toddlers can expect to pay as much as $150,000 for an undergraduate degree in 2031 if their child decides to live away from home. Registered Education Savings Plans (RESPs) RESPs are one of the best vehicles to help save for your child or grandchild’s post secondary education. Probably the biggest benefit of an RESP is that the government will match contributions up to 20% of the first $2500, or $500 annually. If you don’t maximize your contributions each year, you can carry forward the grant and receive a maximum payment of a $1000 per year, per beneficiary. Accounts are usually set up by parents or grandparents and contributions can be made monthly or by lump sum. Contributors do not receive an income tax-deduction; however, the income and capital gains as well as the grant monies will grow tax-sheltered until withdrawn. When the funds are withdrawn, they are taxed in the hands of the beneficiary, who are very likely to be in a much lower tax bracket than their parents/grandparents. Additional Facts RESP savings can be placed into a wide variety of investments. Over the lifetime of a beneficiary the maximum amount that can be contributed is $50,000, the maximum CESG (Canada Education Savings Grant) paid by the government is $7,200. Depending upon family income, you may be eligible for the Canada Learning Bond (CLB) which provides a benefit of $500 per child and an additional $100 per year until the child reaches the age of 15. Once a beneficiary turns 16 or 17; they will only receive CESG if there has been at least $2000 or $100 per year contributed into an RESP, and there have been no withdrawals. Children of the same family can share their CESGs for education expenses using a Family RESP account A maximum of $5000 is allowed to be withdrawn from Grant and Growth within the first 13 weeks of full-time study. Additional amounts can be withdrawn if they are specified as contributions, subject to plan rules. Any withdrawals to pay for educational expenses must be authorized by the subscriber (parent/grandparent). If the beneficiary does not pursue post-secondary education, there are several options available for closing the RESP. As always if you want more information; or would like to set up an RESP for your child or grandchild, give me a call. Hope you and the kids enjoy the last long-weekend of the summer, Tracey |
Sources: Fidelity Investments Website, Advisor.ca article posted 13-09-16 by Frank Di Pietro, and on 07-7-15 and 04-28-15 by staff, and Dynamic Funds, MT2016 -09 14, MT09-02-22
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