Saving for your child’s education is probably one of your priorities along with saving for other short and long term goals. That’s why it’s important to make sure every dollar you put towards your child’s post-secondary education savings goes as far as possible.
Today, Canadian students pay more than $16,000 on average for one year of full-time post-secondary education. That puts a four-year program over $66,000. The cost will likely be higher by the time your child is ready for college or university.
Post-secondary education opens minds—and doors. It can also have a financial payoff. In fact, Canadian college and university graduates earn about 40% more than non-graduates, and they have enjoyed more job security during periods of recession.
When you contribute $2,500 every year to a Registered Education Savings Plan (RESP), you’ll receive the annual Canada Education Savings Grant (CESG). You can accumulate up to $7,200 in CESGs for your child. In addition, your CESG money can grow alongside your own, giving a boost to your education savings.
Contribute up to $50,000 per child to an RESP, or up to your personal limit in a Tax-free Savings Account (TFSA), and you’ll enjoy tax-free growth as long as your money stays in the registered account. Because you don’t have to pay tax every year on capital gains, dividends and interest income, more of your money keeps growing towards your goal.
When your child withdraws money from an RESP to pay for education, he or she pays tax—but likely at a lower tax rate than yours. There is no tax on withdrawals from a TFSA.
Investing in a diversified portfolio lets you choose solutions that provide growth potential while managing risk—these may include mutual funds and segregated funds. You can also match your portfolio to your time horizon (the time before your child starts school) and tolerance for risk. As your child gets older, you can adjust your investments based on market activity and to mitigate risk.
To ensure that you’re making the most of the opportunities to grow your child’s post-secondary education savings, you may want to speak to an advisor. They can help you combine these strategies and maximize your child’s education savings and their potential for success.
Read more on this topic:
Consider a step-by-step approach if you need to look at other options for your child’s RESP.
Learn how 3 strategies can help build flexibility into your education savings plan.
Make a plan to help you anticipate and manage these highest-cost years with your kids.
