RESP - How Will Your Child Escape Student Loans?
Since our kids are back to school this month, I thought it would be appropriate to talk a bit about college funds and student loans. In the past, post secondary education hasn’t been as necessary as it is today; very few baby boomers actually went to university or college. It's a different world now, and post secondary education could be all that stands between your child and their future. So how do you prepare to manage the cost?
Sending the kids to college
According to a study run by MoneySense magazine, experts forecast that the cost of a four-year university education in Canada, including tuition and accommodation, will run upwards of $100,000 by the time today’s toddlers graduate from high school. This can seem a little intimidating for most, but the good news is that if you start planning while your kids are young, the costs of education can be more affordable than you might expect. The best part about starting sooner than later is that you can guarantee to knock off thousands of dollars in potential student loans for your children. So where do you start?
RESP: Registered Education Savings Plan
A Registered Education Savings Plan (RESP) gives you the opportunity to contribute up to $4,000 a year per child, to a lifetime maximum of $42,000. These funds will grow tax-free, and the withdrawals are tax-free since any of the tax owing is offset by the student’s education credit and personal tax credit. AND each child you build a RESP for will qualify for the Canada Education Savings Grant which pays out $0.20 to every dollar you contribute, up to $2000.
Where can I help?
Your mortgage can also help fund your child’s education. When tuition time comes, you have the opportunity to take out equity and pay affordable mortgage rates instead of expensive student loan rates. If you feel like being a little more forward thinking, start adding annual contributions as soon as your create your RESP by talking to your mortgage broker about different options.