t is hard to believe, but the summer months and school vacations are rapidly coming to an end. For some, it will be the beginning of a new adventure, college or university. For others, the thought of seeing your child off to college may seem quite distant.
Entering this new phase of life comes with great expectations. Education will lead to knowledge. Knowledge will lead to skills and skills will assure your child to fulfill her dreams of career and employment. Unfortunately, post-secondary education is not free. Higher education can cost a bundle.
You may be surprised at the cost of post-secondary education. It is estimated today that the first year of tuition, rent and food can cost $13,000. Assuming a modest inflation rate of 3% over the next 17 years (probably not realistic), it may cost as much as $21,500 to send your child to college for her first year.
A good way to prepare financially, is to open a Registered Education Savings Plan (RESP). A RESP is a government-sponsored program to help you save money for post-secondary education. You can make annual contributions to a maximum of $4000.00 per child. The federalgovernment will deposit a grant equal to 20% on the first $2,000 of contributions each year. To qualify for the grant, both the contributor and the beneficiary must be Canadian residents. Beneficiaries must have a social insurance number.
Like a RRSP, the RESP grows tax free. The interest income is taxable in the hands of the beneficiary when used for post-secondary education. Because students earn little or no income, it is possible they will owe very little tax on the income withdrawn. Contributions to the RESP are not tax deductible and can be withdrawn at any time by the contributor. There is no restriction on the type of investment for RESPs. You can hold 100% in foreign funds in your RESP.
The RESP can be a valuable tool when preparing for the financial impact of paying for your child's education. Learn and familiarize yourself with the many rules regarding the RESP and the grant before you start your savings plan.
This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, R.F.P. with your topics of interest at 798-2421 or e-mail at rick@invested-interest.ca.