Summer vacation is in full swing, and chances are the last thing you want to think about is getting back to school, but the truth is, it is just over a month away. A smart budgeter should be at least thinking about it by now. Rather than focus on the buying of pencils and notebooks, today I’d like to focus more on the long term education planning: paying for post-secondary education. The ever-rising costs of post-secondary education has many parents concerned about whether they will be able to afford to send their children to college or university. The best plan to reduce budget strain and reliance on student loans is to plan ahead and create a specific education savings fund. Registered Education Savings Plans (RESPs) can be an effective way to save for your child’s education because they offer tax benefits and allow you to take advantage of federal government grants. You can open an RESP for a child, yourself or another adult. This person is called your “beneficiary”. The money earned in an RESP isn’t taxed until it is withdrawn, and even then it is taxed at the beneficiary’s tax rate, not your own. [For more information about the tax consequences of RESPs, visit the Canada Revenue Agency website.] Federal grants can help you save even more. The Canadian government will match contributions to a child’s RESP (adults are not eligible) under the following grant programs: The basic Canada Education Savings Grant (CESG) will top up your annual contribution by 20%, up to a maximum of $500 each year for each beneficiary. The lifetime limit for the grant is generally $7,200. Additional CESG grants may be available, depending on your income. The Canada Learning Bond (CLB) provides an additional grant of up to $2,000 per child to help families with a modest income. Children must be born after December 31, 2003 to qualify. For more information about federal education savings grants, visitwww.canlearn.ca. Different types of RESPs are available at banks, credit unions, mutual fund companies, investment dealers or scholarship plan dealers. Before you invest, be sure you understand all your options. Each plan type has its own rules and requirements – be sure to read the fine print. Depending on the type of plan you choose, you may have to pay sales fees when you open the plan, pay fees if you cancel, face penalties if you miss a payment, or cover other costs as long as you hold the plan. Also, be aware that some plans do not pay out earnings until a student starts the second year of a post-secondary program. If your beneficiary does not go on to education after high school, you have a few options. Your plan may allow you to choose another beneficiary. If not, you receive your contributions back, less any fees. In most cases you will receive your earnings. Some plans may keep these earnings and share them with the remaining members. In some cases, you can transfer the earnings to your RRSP. You may choose to withdraw the earnings in cash, but you’ll have to pay tax on them. You have to return any grants to the government, unless you have a family RESP. Tagged as: children, education, parents, RESP Share & Bookmark This Story! Bookmark on Delicious StumbleUpon Google BookmarksTip’d
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