Education is expensive. Get ahead of the game and start saving for your child’s education now.
By Trish MacPherson on 05/26/2015 in
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Being a parent is a great joy and an enormous responsibility. When a child arrives in your life, you immediately start to worry about their future. Is he eating the right foods? Will she need braces? Will they want to borrow the car? Of all the endless worries, one of the most common concerns is how to save for your child’s post-secondary education.
As with most things in life, a post-secondary education gets more and more expensive each year. A recent report by the Toronto-Dominion Bank Financial Group estimates that by 2027 the average four-year undergraduate university program will cost an average of $100,000. This price tag is if your child lives at home, so add another $30,000+ if the university is out of town. Keep in mind as well that there are different tuition fees depending on the type of program. In undergrad, for example, engineering tuition usually costs more than an arts degree. College tuition costs tend to be lower than university, but keep in mind that tuition varies from college to college, and like in university, from program to program.
In addition to tuition fees, your child will need money for housing, food, books, computers, supplies, and trips home if they are out of town. Rather than feeling overwhelmed, start saving as soon as possible. In a recent Globe and Mail article, Sara Kinnear, a senior tax and estate planning specialist with Investors Group in Winnipeg gave the following suggestions to help you save for your child’s future:
• Contribute to a Registered Education Savings Plan and take advantage of the Canada Education Savings Grant. If your child is a Canadian resident 17 or younger in the year, then the first $2,500 of RESP contributions will be eligible for $500 of CESG. The CESG is paid into your child's RESP and grows with your contributions on a tax-deferred basis until your child begins post-secondary education. Don't have the immediate cash to make an RESP contribution? Use the income-tax refund you received when you made your RRSP contribution.
• Contribute additional savings to your Tax Free Savings Account. Your investments will grow tax-free and withdrawals are also tax-free, making TFSAs a flexible savings plan. If your child is 18 or older, they can contribute to their own TFSA.
• Take advantage of the Canada Learning Bond. If your child was born in 2004 or later, and you are receiving the National Child Benefit Supplement to the Canada Child Tax Benefit, then your child is eligible for the Canada Learning Bond, which can be paid directly to an RESP for your child. (Most families earning $37,885 or less meet the income test for the CLB.) The CLB is worth $500 in the first year of eligibility, and $100 per year for up to 15 years, for a total of $2,000. You do not need to contribute anything to an RESP to receive the CLB, just open an RESP and apply for the CLB.
• Encourage your child to contribute to his or her own education. If your child has an after-school or summer job, some of those earnings can be earmarked for future education costs. Ensure your child files an annual tax return with respect to that employment income, so the Canada Revenue Agency can keep track of your child's RRSP contribution room.
• Research scholarships and bursaries. As your child gets older, he or she will have a better idea as to the kind of post-secondary education he or she will want to pursue. Different schools and programs, as well as certain community organizations, offer scholarships and bursaries. Best of all, most scholarships are now received tax-free.