The best savings vehicle is a Registered Education Savings Plan (RESP), says Blair Carter, a Financial Planner with RBC Wealth Management in Truro, Nova Scotia. You open a plan with your child as the beneficiary, and then you can contribute to numerous investment options, including stocks, bonds, mutual funds or GICs. (There’s no annual limit for contributions, but there is a lifetime maximum of $50,000.) Your savings grow tax-free until your child attends a post-secondary institution.
One advantage of RESPs is the federal government’s Canada Education Savings Grant. It pays you 20% on your first $2,500 in annual contributions. That’s upwards of $500 a year, to a lifetime maximum of $7,200 over 18 years, plus interest – all free. (The grant could be as high as 30% or 40%, depending on your net income.)
Assuming a return of 7%, Carter says putting $100 a month towards an RESP for 18 years would net roughly $50,000. One strategy – contribute the $100 a month received from the federal child-care benefit for each child under six. But even if you start when your child is 10, RESP contributions of $150 a month would total almost $23,000 in eight years.
There are other options, of course. Get a tax refund from an RRSP? Consider directing that to education savings. Use the equity in your home to get a line of credit. For families with modest incomes (those receiving the National Child Benefit Supplement), the federal government offers the Canada Learning Bond for children born after January 1, 2004. This is a $500 grant deposited directly into an RESP in your child’s name, with extra payments of $100 a year until the child is 15.
Talk to a financial planner for advice, no matter how little time is left before your child starts college or university. “You may not be able catch up on lost time,” says Carter, “but it’s never too late to save.”