According to MoneySense magazine, experts forecast thtat the cost of a four-year university education in Canada, including tuition and accommodation, will run upwards of $130,000 by the time today’s toddlers graduate from high school. But if you start planning while your kids are young, the costs can still be aggordable. Plus, you’ll save them from being burdened with thousands of dollars in student loan debt! Here are just a few ways to start saving:
A Registered Education Savings Plan (RESP) is an excellent place to start.
You can contribute up to $4,000 a year per child, to a lifetime maximum of $50,000. You don’t get a tax break for the money you put in, but the funds grow tax-free. Since withdrawals belong to the student, they’re also effectively tax-free since any tax owing is offset by the student’s education credit and personal tax credit.
There are two types of RESPs: self-directed and group plans. Group plans are pooled investments that involve regular monthly payments to a company that manages your funds and guarantees your principal. But self-directed RESPs are generally considered to be a better investment because they offer greater flexibility and lower fees. They’re available at most Canadian financial institutions, and you can choose to invest in mutual funds, stocks, bonds or GICs.
The best thing about an RESP is that it qualifies for the Canada Education Savings Grant that gives you 20% for every dollar you contribute up to $2,500 a year per child. So even if your investments perform badly, you’re guaranteed a 20% return on your first $2,500 per year!
Your mortgage can also help fund your child’s education. You can free up money for your yearly RESP contribution by taking advantage of many mortgage lenders’ “skip a payment” feature. Or when the time comes, you can do an equity take out to cover tuition fees so you end up paying affordable mortgage rates instead of expensive consumer loan rates.
For more tips on how to use your mortgage strategically, or for a list of our recommended RESP providers, call us today!