You may find that your child’s dreams and aspirations change like the wind. One day your bright teenager will tell you they want to be a lawyer instead of an engineer. Your oldest may decide to go to medical school after graduating from university. As a responsible parent, you’d like to be able to make your child’s career aspirations come true, even if it is more expensive than you originally planned. You also have to consider the extra costs involved with studying out of town or abroad, circumstances you may not know until a few months before it happens. We would like to help you cover for situations like these, so please read further to learn more about meeting your education savings goals.
First step: build an RESP
The Registered Education Savings Plan (RESP) should be the backbone of your education savings. The contribution limit is $50,000 per child. This plan benefits from tax-sheltered investment growth, and any withdrawals made for funding tuition costs is taxed under your child’ s name. If that wasn’t attractive enough, each year the government will deposit $500 into your plan for the first $2,500 contributed. This is called the Canada Education Savings Grant (CESG). The limit is $7,200 per child.
Second step: contribute to a TFSA
The next step is to contribute money into your or your spouse’s Tax-Free Savings Account (TFSA). This is another tax-free vehicle that you should take full advantage of. You can withdraw funds for your child whenever you need them, and you can replenish the account the year after your withdrawal.
Third step: open an in-trust account
It is also a good idea to open an in-trust investment account in your child’s name. You are able to contribute as much money as you like and you have full control in what you invest it in. Any capital gains generated from these investments are taxable to your child and not to you. Any interest or dividend income is taxable to you though, until your child turns 18. It is important to remember that putting money into an in-trust account means that the money now belongs to your child. When they reach the age of majority, you will no longer have legal control over the funds.
If you want to know if your education savings will be enough to meet your child’s education goals, you should talk to a financial advisor at The Beacon Group of Assante Financial Management Ltd. today!