Janea Bellay

The Cost Of Your Children’s Education Is Skyrocketing

Are you hoping your children will go to university or a technical institute someday? The total cost for a diploma/degree can be terrifying, and that doesn’t include living expenses, books, accommodations or meals. Assuming inflation continues at 3% per year, a four year undergraduate degree in 2015 will cost more than $67,000.

Moreover, the potential for government cutbacks and tuition costs constantly rising means fewer loans available. Should this trend continue, many students will not be able to afford a post secondary education. Only the wealthy, those on scholarships and children whose parents planned ahead will be able to afford the costs of getting a degree.

How To Pay For Schooling

How will you pay for your kids’ education?
You have three choices:

1. You can pay after they are finished school – By taking out loans, you will have to repay the loan after they have finished school. This is the most expensive option.
2. If you pay during school years, you will have to cope over a few years – not easy when you have normal living expenses to pay and you probably will be geting ready for retirement.
3. This leaves one sensible option: Begin saving now, invest your money and watch it grow. And allow the government to pay a portion of it.

The Best Option – An RESP

The best option is a Registered Education Savings Plan (RESP). An RESP is a government approved plan that permits earnings to compound on a tax deferred basis. You do not gain tax deductions for your contributions like an RRSP. However, the earnings (capital gains, interest and dividends) grow tax-free. When the earnings are withdrawn, the student pays the taxes, usually at a much lower rate. The non-taxable contributions can be returned to you at any time.

An RESP also offers the potential to build a larger pool of savings over the long term through a variety of investment vehicles. In the event that the beneficiary does not go to college, university, or other qualifying institutions, you can generally transfer the fund to another eligible full-time student or your RRSP (if you have available contribution allowance).

Click here for an FAQ on RESPs.

Government Grants

You can contribute up to a lifetime limit of $50,000 for each child. Click here for more information on the Canada Education Savings Grant.

On the first $500 you save in your child’s RESP, the Canada Education Savings Grant will give you:

• 40 cents per dollar, if your net family income is $37,885 or less
• 30 cents per dollar, if your net family income is between $37,885 and $75,769
• 20 cents per dollar, if your net family income is more than $75,769
• No matter what your net family income is, when you save more than $500, the Canada Education Savings Grant will give you 20 cents for every extra dollar, up to $2,500, for a lifetime maximum of $7200.

How Much Should I Save?

For example, let’s say you put $500 into an RESP that earns 6% in interest and every month after that you contribute $50 per month. By the time your child is 20 years old, you will have saved $25,296.93. PLUS, the government will have provided you over $2500 through the Canada Education Savings Grant. If your child decides NOT to go to school, simply return the Canada Education Savings Grant and keep your money.

Three Reasons Why RESP’s Make Sense

1. Through Canada Education Savings Grants, the government pumps up your contributions by 20% per year
2. Your investment grows tax-free until it’s withdrawn
3. Income from the plan eventually is taxable in your child’s hands, at a time when his or her tax rate is likely to be low income splitting.

How Would an RESP Work For You?

Ask me how! Email me at janea@janeabellay.com or click here for an FAQ on RESPs.